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, 2003
   --------------------------------------------------------------------------

                                       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              5-7

     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

     Item 4.      Controls and Procedures                                  11


Part II.

     Other Information                                                     12-13




<PAGE>


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

<TABLE>
<CAPTION>

                                                                            September 30,           December 31,
                                                                                 2003                   2002
                                                                          -------------------    -------------------

 <c>
                              ASSETS

  Real estate properties with operating leases, net                            $   7,205,933          $   7,362,460
  Real estate held for sale                                                               --                368,737
  Investment in joint ventures                                                     2,076,955              2,084,178
  Cash and cash equivalents                                                          730,518              1,994,246
  Receivables                                                                          6,400                 10,195
  Accrued rental income                                                              112,745                 95,861
  Other assets                                                                        39,242                 32,861
                                                                          -------------------    -------------------

                                                                               $  10,171,793          $  11,948,538
                                                                          ===================    ===================

                 LIABILITIES AND PARTNERS' CAPITAL

  Accounts payable and accrued expenses                                          $     9,750                 21,199
  Real estate taxes payable                                                           10,289                 11,892
  Distributions payable                                                              351,563              1,357,500
  Due to related parties                                                             191,571                243,170
  Rents paid in advance and deposits                                                  62,485                 35,424
                                                                          -------------------    -------------------
      Total liabilities                                                              625,658              1,669,185

  Minority interest                                                                  122,534                124,632

  Partners' capital                                                                9,423,601             10,154,721
                                                                          -------------------    -------------------

                                                                               $  10,171,793          $  11,948,538
                                                                          ===================    ===================

</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                Nine Months Ended
                                                                   September 30,                  September 30,
                                                                2003            2002           2003            2002
                                                            -------------    -----------  ---------------  --------------

 <c>
Revenues:
    Rental income from operating leases                        $ 257,657      $ 261,288       $  772,959      $  803,131
    Earned income from direct financing leases                        --          2,218               --          16,257
    Contingent rental income                                       5,109         20,834           50,826          53,340
    Interest and other income                                      1,610          4,841            3,484          18,078
    Termination fee income                                            --          7,980               --           7,980
                                                            -------------    -----------  ---------------  --------------
                                                                 264,376        297,161          827,269         898,786
                                                            -------------    -----------  ---------------  --------------

Expenses:
    General operating and administrative                          37,460         46,194          131,820         158,002
    Property related                                               2,522             56            5,203           2,591
    State and other taxes                                          1,899            292            4,232          23,372
    Depreciation                                                  52,176         52,175          156,528         156,525
                                                            -------------    -----------  ---------------  --------------
                                                                  94,057         98,717          297,783         340,490
                                                            -------------    -----------  ---------------  --------------
Income Before Loss on Sale of Assets, Minority Interest
    in Income of Consolidated Joint Venture and Equity
    in Earnings of Unconsolidated Joint Ventures                 170,319        198,444          529,486         558,296

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

Minority Interest in Income of Consolidated
    Joint Venture                                                 (4,325 )       (4,352 )        (12,880 )       (12,943 )

Equity in Earnings of Unconsolidated Joint Ventures               52,645         52,707          158,861         155,266
                                                            -------------    -----------  ---------------  --------------

Income from Continuing Operations                                218,639        246,799          675,467         690,674
                                                            -------------    -----------  ---------------  --------------

Discontinued Operations:
    Loss from discontinued operations                                 --         (5,130 )         (4,123 )      (127,726 )
    Gain (Loss) on disposal of discontinued operations                --        (80,580 )          2,225         (80,580 )
                                                            -------------    -----------  ---------------  --------------
                                                                      --        (85,710 )         (1,898 )      (208,306 )
                                                            -------------    -----------  ---------------  --------------

Net Income                                                     $ 218,639      $ 161,089       $  673,569      $  482,368
                                                            =============    ===========  ===============  ==============

Income (Loss) per Limited Partner Unit:
    Continuing operations                                       $   4.37       $   4.94        $   13.51       $   13.81
    Discontinued operations                                           --          (1.72 )          (0.04 )         (4.16 )
                                                            -------------    -----------  ---------------  --------------

                                                                $   4.37       $   3.22        $   13.47       $    9.65
                                                            =============    ===========  ===============  ==============

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>

                                                           Nine Months Ended          Year Ended
                                                             September 30,           December 31,
                                                                  2003                   2002
                                                          ---------------------    ------------------

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

Limited partners:
    Beginning balance                                                9,783,350            12,586,051
    Net income                                                         673,569               279,799
    Distributions ($28.09 and $61.65 per
       limited partner unit, respectively)                          (1,404,689 )          (3,082,500 )
                                                          ---------------------    ------------------
                                                                     9,052,230             9,783,350
                                                          ---------------------    ------------------

Total partners' capital                                        $     9,423,601         $  10,154,721
                                                          =====================    ==================
</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>


                                                                                    Nine Months Ended
                                                                                      September 30,
                                                                                 2003                2002
                                                                            ----------------     --------------

 <c>
   Net Cash Provided by Operating Activities                                    $   778,540         $  938,433
                                                                            ----------------     --------------

   Cash Flows from Investing Activities:
       Additions to real estate properties with operating leases                         --            (25,200 )
       Proceeds from sale of assets                                                 383,336            492,394
       Collections on mortgage note receivable                                           --            320,000
       Liquidating distribution from joint venture                                       --            106,521
                                                                            ----------------     --------------
             Net cash provided by investing activities                              383,336            893,715
                                                                            ----------------     --------------

   Cash Flows from Financing Activities:
       Distributions to limited partners                                         (2,410,626 )       (1,787,500 )
       Distributions to holder of minority interests                                (14,978 )          (15,045 )
                                                                            ----------------     --------------
             Net cash used in financing activities                               (2,425,604 )       (1,802,545 )
                                                                            ----------------     --------------

   Net Increase (Decrease) in Cash and Cash Equivalents                          (1,263,728 )           29,603

   Cash and Cash Equivalents at Beginning of Period                               1,994,246          1,242,931
                                                                            ----------------     --------------

   Cash and Cash Equivalents at End of Period                                   $   730,518        $ 1,272,534
                                                                            ================     ==============

   Supplemental Schedule of Non-Cash Investing and Financing
       Activities:

       Deferred real estate disposition fee incurred and unpaid at
          end of period                                                          $   12,375         $   45,300
                                                                            ================     ==============

       Mortgage note accepted in exchange for sale of assets                       $     --         $  960,000
                                                                            ================     ==============

       Distributions declared and unpaid at end of period                       $   351,563         $  375,000
                                                                            ================     ==============
</TABLE>
           See accompanying notes to condensed financial statements.

<PAGE>

                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2003 and 2002


   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, 2003 may
         not be  indicative  of the results  that may be  expected  for the year
         ending December 31, 2003. Amounts as of December 31, 2002,  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, 2002.

         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  Partnership's  consolidated  joint  venture.  All  significant
         intercompany accounts and transactions have been eliminated.

         In January 2003,  the Financial  Accounting  Standards  Board  ("FASB")
         issued  FASB  Interpretation  No.  46  ("FIN  46"),  "Consolidation  of
         Variable  Interest  Entities"  to expand upon and  strengthen  existing
         accounting  guidance that  addresses  when a company should include the
         assets,  liabilities  and activities of another entity in its financial
         statements.  To improve financial  reporting by companies involved with
         variable    interest   entities   (more   commonly   referred   to   as
         special-purpose  entities  or  off-balance  sheet  structures),  FIN 46
         requires that a variable  interest  entity be consolidated by a company
         if that company is subject to a majority risk of loss from the variable
         interest  entity's  activities or entitled to receive a majority of the
         entity's residual returns or both. Prior to FIN 46, a company generally
         included another entity in its consolidated  financial  statements only
         if it controlled the entity through voting interests. The consolidation
         requirements of FIN 46 apply  immediately to variable interest entities
         created after  January 31, 2003,  and to older  entities,  in the first
         fiscal year or interim  period  ending after  December  15,  2003.  The
         general partners believe adoption of this standard may result in either
         consolidation   or   additional   disclosure    requirements   of   the
         Partnership's   unconsolidated  joint  ventures,  which  are  currently
         accounted for under the equity method.  However,  such consolidation is
         not  expected  to  significantly  impact the  Partnership's  results of
         operations.

         In May 2003,  the FASB issued FASB Statement No. 150,  "Accounting  for
         Certain Financial  Instruments with Characteristics of both Liabilities
         and Equity"  ("FAS  150").  FAS 150  establishes  standards  for how an
         issuer  classifies  and measures  certain  financial  instruments  with
         characteristics  of both  liabilities and equity.  FAS 150 will require
         issuers to classify  certain  financial  instruments as liabilities (or
         assets  in some  circumstances)  that  previously  were  classified  as
         equity.  One  requirement  of FAS 150 is that  minority  interests  for
         majority  owned finite lived  entities be classified as a liability and
         recorded at fair market value. FAS 150 initially applied immediately to
         all financial  instruments entered into or modified after May 31, 2003,
         and  otherwise  was  effective at the  beginning  of the first  interim
         period beginning after June 15, 2003.  Effective  October 29, 2003, the
         FASB  deferred  implementation  of FAS 150 as it  applies  to  minority
         interests  of  finite  lived   Partnerships.   The  deferral  of  these
         provisions  is expected to remain in effect while these  interests  are
         addressed  in either  Phase II of the  FASB's  Liabilities  and  Equity
         project  or  Phase  II of the  FASB's  Business  Combinations  project;
         therefore,   no  specific  timing  for  the   implementation  of  these
         provisions  has  been  stated.  The  implementation  of  the  currently
         effective   aspects   of  FAS  150  did  not  have  an  impact  on  the
         Partnership's   results  of  operations.   The  implementation  of  the
         provisions of FAS 150 that have been deferred is not expected to have a
         material impact on the Partnership's results of operations.


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2003 and 2002


2.       Reclassification

         Certain  items in the  prior  year's  financial  statements  have  been
         reclassified to conform to 2003 presentation.  These  reclassifications
         had no effect on total partners' capital or net income.

3.       Discontinued Operations

         During 2002, the Partnership  identified for sale three properties that
         were  classified  as  Discontinued   Operations  in  the   accompanying
         financial statements.  The Partnership sold two of the three properties
         during 2002. In February 2003, the Partnership sold the third property,
         and recorded a gain on disposal of assets of approximately  $2,200. The
         Partnership  had  recorded  provisions  for  write-down  of  assets  in
         previous years relating to this property.

         The  operating  results  of  the  discontinued   operations  for  these
         properties are as follows:
<TABLE>
<CAPTION>

                                                            Quarter Ended                   Nine Months Ended
                                                            September 30,                     September 30,
                                                       2003              2002            2003             2002
                                                   -------------    ---------------  --------------  ----------------

 <c>
         Rental revenues                                $    --         $   15,342          $    --       $   72,659
         Expenses                                            --            (20,472 )        (4,123 )         (74,380 )
         Provision for write-down of assets                  --                 --              --          (126,005 )
                                                   -------------    ---------------  --------------  ----------------
         Loss from discontinued operations               $   --         $   (5,130 )    $   (4,123 )     $  (127,726 )
                                                   =============    ===============  ==============  ================
</TABLE>

4.       Related Party Transactions

         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 nine months ended  September  30, 2003,  the
         Partnership  incurred a deferred,  subordinated real estate disposition
         fee of $12,375 as a result of the Partnership's sale of the property in
         Fayetteville, North Carolina.

5.       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
         September 30:

                                                2003                2002
                                            --------------     ---------------

               IHOP Properties, Inc.           $  209,478          $  209,980
               Golden Corral Corp.                    N/A             117,230



<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2003 and 2002


5.       Concentration of Credit Risk - Continued

         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 September 30:

                                                 2003               2002
                                                -----------     -------------

                  IHOP                           $ 209,478         $ 209,980
                  KFC                              206,373           215,013
                  Pizza Hut                        166,271           115,930
                  Taco Bell                        134,173           129,501
                  Golden Corral Family
                      Steakhouse Restaurants           N/A           199,714

         The  information   denoted  by  N/A  indicates  that  for  each  period
         presented,  the tenant or chain 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 September 30, 2002,
the  Partnership  owned 15  Properties  directly and six  Properties  indirectly
through  joint  venture or tenancy in common  arrangements.  As of September 30,
2003, the Partnership owned 14 Properties directly and six Properties indirectly
through joint venture or tenancy in common arrangements.

Capital Resources

         Cash from  operating  activities was $778,540 and $938,433 for the nine
months ended  September  30, 2003 and 2002,  respectively.  The decrease in cash
from operating  activities  during the nine months ended  September 30, 2003, as
compared  to  the  same  period  of  2002,  was  a  result  of  changes  in  the
Partnership's working capital.

         Other sources and uses of cash  included the following  during the nine
months ended September 30, 2003.

         In February 2003, the  Partnership  sold its Property in  Fayetteville,
North   Carolina,   to  a  third  party  and  received  net  sales  proceeds  of
approximately   $383,300,   resulting  in  a  gain  on  disposal  of  assets  of
approximately  $2,200  during the nine months  ended  September  30,  2003.  The
Partnership  had recorded  provisions for write-down of assets in previous years
relating to this asset. In connection with the sale, the Partnership  incurred a
deferred,  subordinated real estate  disposition fee of $12,375.  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  distributed the sales proceeds
as a special distribution to the limited partners, as described below.

         At September 30, 2003,  the  Partnership  had $730,518 in cash and cash
equivalents,  as compared to  $1,994,246  at December 31, 2002. At September 30,
2003,  these funds were held in a demand deposit  account at a commercial  bank.
The  decrease  in cash and  cash  equivalents  was  primarily  a  result  of the
Partnership  distributing  to the  limited  partners,  in the form of a  special
distribution as described  below,  sales proceeds that were held at December 31,
2002.  The  funds  remaining  at  September  30,  2003,  after  the  payment  of
distributions  and  other  liabilities,  will be used to meet the  Partnership's
working capital needs.

Short-Term Liquidity

         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  generate  net cash flow in
excess of operating expenses.

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

         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 nine
months ended  September  30, 2003,  the net sales  proceeds from the sale of the
Property  in  Fayetteville,  North  Carolina,  and for  the  nine  months  ended
September 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
$1,404,689 and $1,725,000 for the nine months ended September 30, 2003 and 2002,
respectively,  ($351,563 and $375,000 for the quarters ended  September 30, 2003
and 2002, respectively).  This represents distributions of $28.09 and $34.50 per
unit for the nine months ended September 30, 2003 and 2002, respectively, ($7.03
and  $7.50 per unit for each  applicable  quarter).  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.  Distributions  for the nine months
ended September 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 2002  liquidating  distribution  received from
Titusville Joint Venture.  These special distributions were 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 sales of the Properties, 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.  Due to the sales of  Properties  and
current and anticipated  future cash from operations,  distributions of net cash
flow were adjusted commencing during the quarters ended March 31, 2002 and 2003.
No  distributions  were made to the general  partners  for the quarters and nine
months ended September 30, 2003 and 2002. No amounts  distributed to the limited
partners for the nine months ended  September  30, 2003 and 2002 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,  including  distributions  payable, were $625,658 at
September 30, 2003, as compared to $1,669,185 at December 31, 2002. The decrease
in liabilities at September 30, 2003 was due to the Partnership paying a special
distribution to the limited  partners that had been accrued at December 31, 2002
and due to a decrease in amounts due to related  parties at September  30, 2003,
as  compared  to December  31,  2002.  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  $772,959  during the nine  months  ended
September  30,  2003,  as compared  to $819,388  during the same period of 2002,
$257,657 and $263,506 of which were earned during the third quarters of 2003 and
2002,  respectively.  Rental  revenues  were lower  during the  quarter and nine
months ended September 30, 2003 due to the  Partnership  selling its Property in
Montgomery,  Alabama  in May  2002.  The  tenant  of this  Property  experienced
financial  difficulties  during 2002. Rental revenues were also lower during the
quarter  and  nine  months  ended  September  30,  2003  due to the  Partnership
terminating  the leases  relating to the  Properties  in Hastings,  Nebraska and
Wichita,  Kansas  during 2002.  Each lease was  scheduled to expire in 2002.  In
connection  with  the  terminated  lease in  Wichita,  Kansas,  the  Partnership
received  approximately  $8,000 in lease termination income in consideration for
the Partnership  releasing the tenant from its obligation  under the lease.  The
Partnership re-leased both of these Properties during 2002, each to a new tenant
with slightly lower rents.

         The Partnership also earned $50,826 in contingent  rental income during
the nine months ended September 30, 2003, as compared to $53,340 during the same
period of 2002,  $5,109  and  $20,834  of which  were  earned  during  the third
quarters  of 2003 and 2002,  respectively.  The  decrease in  contingent  rental
income  during the quarter  ended  September  30, 2003,  as compared to the same
period of 2002,  was primarily due to a decrease in the reported  gross sales of
the  restaurants  with leases that  require  the  payment of  contingent  rental
income.

         During the nine months ended September 30, 2003, IHOP Properties,  Inc.
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, this tenant will continue to contribute more than 10% of
the Partnership's  total rental revenues.  In addition,  four restaurant chains,
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 four  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 this lessee or any of
these restaurant chains will materially  affect the Partnership's  income if the
Partnership is not able to re-lease these Properties in a timely manner.

         The Partnership also earned $158,861  attributable to net income earned
by  unconsolidated  joint  ventures  during the nine months ended  September 30,
2003,  as  compared  to  $155,266  during the same  period of 2002,  $52,645 and
$52,707  of which  were  earned  during  the  third  quarters  of 2003 and 2002,
respectively. Net income earned by unconsolidated joint ventures during the nine
months ended September 30, 2003,  remained constant,  as compared to same period
in 2002,  because  there were no changes in the leased  Properties  owned by the
joint ventures and the tenancies in common.

         The  Partnership  earned $3,484 in interest and other income during the
nine months ended  September  30, 2003,  as compared to $18,078  during the same
period of 2002, $1,610 and $4,841 of which were earned during the third quarters
of 2003 and 2002, respectively. During the nine months ended September 30, 2002,
interest and other income was higher because the Partnership  earned interest on
a mortgage note receivable held in connection with the 2002 sale of the Property
in Montgomery,  Alabama. The mortgage note receivable was paid in full in August
2002. In addition,  the Partnership  distributed sales proceeds during 2002 that
had been held in interest bearing bank accounts.

         Operating  expenses,  including  depreciation  expense,  were  $297,783
during the nine months ended  September 30, 2003, as compared to $340,490 during
the same period of 2002,  $94,057 and $98,717 of which were incurred  during the
third  quarters of 2003 and 2002,  respectively.  Operating  expenses were lower
during the nine months ended September 30, 2003, due to a decrease in the amount
of state tax  expense  relating  to  several  states  in which  the  Partnership
conducts  business  and a  decrease  in the costs  incurred  for  administrative
expenses for servicing the Partnership and its Properties.

         As a result of the sale of the  Property in  Montgomery,  Alabama,  the
Partnership  recognized a loss on sale of assets of approximately  $9,900 during
the nine months ended  September 30, 2002. This Property was identified for sale
as of December 31, 2001.  Because this Property was identified for sale prior to
the January 2002 implementation of Statement of Financial  Accounting  Standards
No. 144  "Accounting  for the Impairment or Disposal of Long-Lived  Assets," the
results of  operations  relating to this  Property  were included as Income from
Continuing Operations in the accompanying financial statements.

         During the year ended December 31, 2002, the Partnership identified for
sale three  Properties that were  classified as  Discontinued  Operations in the
accompanying financial statements.  The Partnership recognized a net rental loss
(rental  revenues less Property related expenses and provision for write-down of
assets)  of $5,130  and  $127,726  during  the  quarter  and nine  months  ended
September 30, 2002,  respectively,  relating to these three Properties.  The net
rental loss during the nine months ended  September  30, 2002,  was  primarily a
result of the  Partnership  recording  provisions for write-down of assets.  The
Partnership  recorded  provisions  for  write-down  of assets  of  approximately
$46,400 and $79,700 relating to the Properties in  Fayetteville,  North Carolina
and Altus, Oklahoma, respectively. The tenant of the Fayetteville Property filed
for  bankruptcy in January 2002 and rejected the lease related to this Property.
The  Partnership  sold the  Properties in Altus,  Oklahoma and Canton  Township,
Michigan  in  September  2002 and  recognized  a loss on  disposal  of assets of
approximately $80,600 relating to the Property in Canton Township,  Michigan. In
February  2003,  the  Partnership  sold  the  Property  in  Fayetteville,  North
Carolina, and recorded a gain on disposal of assets of approximately $2,200. The
Partnership  had recorded  provisions for write-down of assets in previous years
relating  to this  Property.  The  Partnership  recognized  a net rental loss of
$4,123  during  the nine  months  ended  September  30,  2003  relating  to this
Property.

         In January 2003,  the Financial  Accounting  Standards  Board  ("FASB")
issued  FASB  Interpretation  No.  46 ("FIN  46"),  "Consolidation  of  Variable
Interest Entities" to expand upon and strengthen  existing  accounting  guidance
that  addresses  when a company  should  include  the  assets,  liabilities  and
activities of another entity in its financial  statements.  To improve financial
reporting by companies  involved with variable  interest entities (more commonly
referred to as special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable  interest  entity be  consolidated by a company if that
company  is  subject  to a  majority  risk of loss  from the  variable  interest
entity's  activities or entitled to receive a majority of the entity's  residual
returns or both. Prior to FIN 46, a company generally included another entity in
its consolidated  financial  statements only if it controlled the entity through
voting interests. The consolidation  requirements of FIN 46 apply immediately to
variable  interest  entities  created  after  January  31,  2003,  and to  older
entities,  in the first fiscal year or interim  period ending after December 15,
2003.  The general  partners  believe  adoption of this  standard  may result in
either consolidation or additional disclosure  requirements of the Partnership's
unconsolidated  joint  ventures,  which are  currently  accounted  for under the
equity method.  However,  such  consolidation  is not expected to  significantly
impact the Partnership's results of operations.

         In May 2003,  the FASB issued FASB Statement No. 150,  "Accounting  for
Certain  Financial  Instruments  with  Characteristics  of both  Liabilities and
Equity" ("FAS 150"). FAS 150 establishes  standards for how an issuer classifies
and  measures  certain  financial   instruments  with  characteristics  of  both
liabilities  and  equity.  FAS 150 will  require  issuers  to  classify  certain
financial  instruments as  liabilities  (or assets in some  circumstances)  that
previously  were  classified  as  equity.  One  requirement  of FAS  150 is that
minority  interests for majority  owned finite lived entities be classified as a
liability  and  recorded  at  fair  market  value.  FAS  150  initially  applied
immediately to all financial  instruments entered into or modified after May 31,
2003,  and otherwise was effective at the beginning of the first interim  period
beginning  after June 15, 2003.  Effective  October 29, 2003,  the FASB deferred
implementation  of FAS 150 as it applies to minority  interests  of finite lived
Partnerships.  The deferral of these  provisions is expected to remain in effect
while these interests are addressed in either Phase II of the FASB's Liabilities
and  Equity  project or Phase II of the FASB's  Business  Combinations  project;
therefore,  no specific timing for the  implementation  of these  provisions has
been stated.  The  implementation of the currently  effective aspects of FAS 150
did  not  have  an  impact  on the  Partnership's  results  of  operations.  The
implementation  of the  provisions  of FAS 150 that  have been  deferred  is not
expected to have a material impact on the Partnership's results of operations.


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 the
Partnership's  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 the
Partnership's  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.



<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.
                             (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.)


<PAGE>



                    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.)

              (b) Reports on Form 8-K

                  No  reports of Form 8-K were filed  during the  quarter  ended
                  September 30, 2003.




<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, 2003.


                                        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


        (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. (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