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, 2001
   --------------------------------------------------------------------------

                                       OR

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

For the transition period from ______________________ to _____________________


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


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


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


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


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


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




<PAGE>


                                    CONTENTS




                                                                        Page
Part I.

     Item 1.      Financial Statements:

                      Condensed Balance Sheets                           1

                      Condensed Statements of Income                     2

                      Condensed Statements of Partners' Capital          3

                      Condensed Statements of Cash Flows                 4

                      Notes to Condensed Financial Statements            5-6

     Item 2.      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                7-11

     Item 3.      Quantitative and Qualitative Disclosures About
                      Market Risk                                        11


Part II.

     Other Information                                                   12-13





<PAGE>

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

                                                               September 30,           December 31,
                                                                    2001                   2000
                                                             -------------------    -------------------

 <c>
                              ASSETS

  Land and buildings on operating leases, net                      $ 10,325,062           $ 11,030,461
  Net investment in direct financing leases                           1,086,061              1,101,738
  Investment in joint ventures                                        2,189,731              2,235,081
  Cash and cash equivalents                                           1,296,965                578,746
  Receivables, less allowance for doubtful accounts
      of $27,173 in 2001                                                 28,279                  5,780
  Due from related parties                                               13,286                 16,710
  Prepaid expenses                                                        1,402                  4,122
  Accrued rental income                                                 162,703                155,142
  Other assets                                                           29,354                 29,354
                                                             -------------------    -------------------

                                                                   $ 15,132,843           $ 15,157,134
                                                             ===================    ===================

                 LIABILITIES AND PARTNERS' CAPITAL

  Accounts payable                                                   $    5,410             $   20,260
  Escrowed real estate taxes payable                                     11,280                  4,718
  Distributions payable                                               1,087,500                437,500
  Due to related parties                                                123,941                 92,553
  Rents paid in advance                                                  19,418                 32,509
                                                             -------------------    -------------------
      Total liabilities                                               1,247,549                587,540

  Minority interest                                                     128,124                130,219

  Partners' capital                                                  13,757,170             14,439,375
                                                             -------------------    -------------------

                                                                   $ 15,132,843           $ 15,157,134
                                                             ===================    ===================



</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,
                                                                     2001             2000           2001             2000
                                                                 --------------   -------------  --------------  ---------------

 <c>
Revenues:
    Rental income from operating leases                              $ 362,228       $ 383,424     $ 1,114,171      $ 1,153,743
    Adjustments to accrued rental income                               (38,721 )            --         (38,721 )             --
    Earned income from direct financing leases                          19,618          31,429          81,746           94,696
    Contingent rental income                                             1,134          20,045          89,031           56,345
    Lease termination income                                            80,000              --          80,000               --
    Interest and other income                                            4,742           8,711          20,861           34,562
                                                                 --------------   -------------  --------------  ---------------
                                                                       429,001         443,609       1,347,088        1,339,346
                                                                 --------------   -------------  --------------  ---------------

Expenses:
    General operating and administrative                                25,602          37,640         151,361          112,616
    Professional services                                                1,582           5,219          18,736           17,301
    State and other taxes                                                  231              --          12,769           12,084
    Depreciation and amortization                                       68,058          72,004         207,128          217,080
    Transaction costs                                                       --              --              --           45,062
                                                                 --------------   -------------  --------------  ---------------
                                                                        95,473         114,863         389,994          404,143
                                                                 --------------   -------------  --------------  ---------------

Income Before Minority Interest in Income of
    Consolidated Joint Venture, Equity in Earnings
    of Unconsolidated Joint Ventures and Gain on Sale of
    Assets                                                             333,528         328,746         957,094          935,203

Minority Interest in Income of Consolidated
    Joint Venture                                                       (4,277 )        (4,352 )       (12,926 )        (12,926 )

Equity in Earnings of Unconsolidated Joint Ventures                     37,865          47,411         107,098          141,750

Gain on Sale of Assets                                                 229,029          32,151         229,029           32,151
                                                                 --------------   -------------  --------------  ---------------

Net Income                                                           $ 596,145       $ 403,956     $ 1,280,295      $ 1,096,178
                                                                 ==============   =============  ==============  ===============

Allocation of Net Income:
    General partners                                                    $   --          $   --         $    --          $    --
    Limited partners                                                   596,145         403,956       1,280,295        1,096,178
                                                                 --------------   -------------  --------------  ---------------

                                                                     $ 596,145       $ 403,956     $ 1,280,295      $ 1,096,178
                                                                 ==============   =============  ==============  ===============

Net Income Per Limited Partner Unit                                  $   11.92        $   8.08       $   25.61        $   21.92
                                                                 ==============   =============  ==============  ===============

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,
                                                            2001                     2000
                                                  -------------------------    ------------------

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

Limited partners:
    Beginning balance                                           14,068,004            15,229,572
    Net income                                                   1,280,295             1,313,432
    Distributions ($39.25 and $49.50 per
       limited partner unit, respectively)                      (1,962,500 )          (2,475,000 )
                                                  -------------------------    ------------------
                                                                13,385,799            14,068,004
                                                  -------------------------    ------------------

Total partners' capital                                      $  13,757,170          $ 14,439,375
                                                  =========================    ==================


</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,
                                                                2001                2000
                                                           ----------------     --------------

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

    Net Cash Provided by Operating Activities                   $1,295,190         $1,191,544
                                                           ----------------     --------------

    Cash Flows from Investing Activities:
       Proceeds from sale of assets                                750,550            507,365
                                                           ----------------     --------------
          Net cash provided by investing activities                750,550            507,365
                                                           ----------------     --------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                        (1,312,500 )       (1,500,000 )
       Distributions to holders of minority interests              (15,021 )          (15,140 )
                                                           ----------------     --------------
          Net cash used in financing activities                 (1,327,521 )       (1,515,140 )
                                                           ----------------     --------------

Net Increase in Cash and Cash Equivalents                          718,219            183,769

Cash and Cash Equivalents at Beginning of Period                   578,746          1,011,733
                                                           ----------------     --------------

Cash and Cash Equivalents at End of Period                      $1,296,965         $1,195,502
                                                           ================     ==============

Supplemental Schedule of Non-Cash Financing
    Activities:

       Distributions declared and unpaid at end of
          period                                                $1,087,500         $1,037,500
                                                           ================     ==============

       Deferred real estate disposition fee incurred and
          unpaid at end of period                                $  23,250           $ 15,296
                                                           ================     ==============

</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, 2001 and 2000


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

      The  accompanying  unaudited  condensed  financial  statements  have  been
      prepared  in  accordance  with the  instructions  to Form  10-Q and do not
      include all of the information and note disclosures  required by generally
      accepted  accounting  principles.  The  financial  statements  reflect all
      adjustments, consisting of normal recurring adjustments, which are, in the
      opinion of  management,  necessary to a fair  statement of the results for
      the interim periods presented.  Operating results for the quarter and nine
      months ended  September 30, 2001 may not be indicative of the results that
      may be  expected  for the year ending  December  31,  2001.  Amounts as of
      December 31, 2000, 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,
      2000.

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

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

      Certain  items  in  the  prior  year's  financial   statements  have  been
      reclassified to conform to 2001 presentation.  These reclassifications had
      no effect on total partners' capital or net income.

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

      In September  2001,  the  Partnership  sold its Golden Corral  property in
      Schererville,  Indiana for $775,000  and  received  net sales  proceeds of
      $750,550,  resulting  in  a  gain  of  $229,029  for  financial  reporting
      purposes.  In  connection  with  the  sale,  the  Partnership  incurred  a
      deferred,  subordinated,  real estate disposition fee of $23,250 (see Note
      5), and  received  $60,000  from the  former  tenant of this  property  in
      consideration of the Partnership  releasing the tenant from its obligation
      under the terms of its lease.


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2001 and 2000


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  affiliate
      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, 2001 and 2000, the  Partnership  incurred
      $23,250 and $15,296,  respectively, in deferred,  subordinated real estate
      disposition fees as a result of the  Partnership's  sale of the properties
      in Schererville, Indiana and Plant City, Florida, respectively.




<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, 2001,
the  Partnership  owned  26  Properties,   which  included  interests  in  three
Properties owned by joint ventures in which the Partnership is a co-venturer and
four   Properties   owned  with   affiliates   of  the   general   partners   as
tenants-in-common.

Capital Resources

        The  Partnership  generated cash from  operations  (which  includes cash
received from tenants, distributions from joint ventures, and interest and other
income  received,  less  cash  paid  for  expenses)  for the nine  months  ended
September  30, 2001 and 2000 of $1,295,190  and  $1,191,544,  respectively.  The
increase in cash from  operations  for the nine months ended  September 30, 2001
was primarily a result of changes in the Partnership's working capital.

        Other sources and uses of capital included the following during the nine
months ended September 30, 2001.

        In September  2001, the  Partnership  sold its Golden Corral property in
Schererville,  Indiana for $775,000 and received net sales proceeds of $750,550,
resulting in a gain of $229,029 for financial reporting purposes.  In connection
with the sale, the Partnership  incurred a deferred,  subordinated,  real estate
disposition fee of $23,250,  and received $80,000 from the former tenant of this
property  in  consideration  of the  Partnership  releasing  the tenant from its
obligation under the terms of its lease.  The Partnership  intends to distribute
the net sales proceeds as a special  distribution  to the limited  partners,  as
described below. The Partnership  will distribute  amounts  sufficient to enable
the limited  partners to pay federal and state income taxes,  if any (at a level
reasonably assumed by the general partners), resulting from the sale.

        Currently,  rental income from the Partnership's  Properties and any net
sales proceeds are invested in money market accounts or other short-term, highly
liquid  investments such as demand deposit accounts at commercial  banks,  money
market  accounts and  certificates  of deposit with less than a 90-day  maturity
date, pending the Partnership's use of such funds to pay Partnership expenses or
to make  distributions  to the partners.  At September 30, 2001, the Partnership
had $1,296,965 invested in such short-term investments,  as compared to $578,746
at December 31, 2000. The increase in cash and cash equivalents at September 30,
2001, as compared to December 31, 2000,  was  primarily  due to the  Partnership
holding  the net sales  proceeds it  received  from the sale of the  Property in
Schererville,  Indiana, as described above. The funds remaining at September 30,
2001 after payment of  distributions  and other  liabilities of the  Partnership
will be used to meet the Partnership's working capital needs.



<PAGE>


Short Term Liquidity

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

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

        The general  partners have the right,  but not the  obligation,  to make
additional capital  contributions if they deem it appropriate in connection with
the operations of the Partnership.

        The Partnership  generally  distributes  cash from operations  remaining
after the payment of operating  expenses of the Partnership,  to the extent that
the general partners  determine that such funds are available for  distribution.
Based on current and anticipated  future cash from operations,  and for the nine
months ended  September  30, 2001,  the net sales  proceeds from the sale of the
Property in Schererville,  Indiana,  and for the nine months ended September 30,
2000, a portion of the proceeds  received  from the 1999 sale of the Property in
Flagstaff,  Arizona,  and the 2000 sale of the Property in Plant City,  Florida,
the Partnership  declared  distributions  to limited  partners of $1,962,500 and
$2,037,500 for the nine months ended September 30, 2001 and 2000,  respectively,
($1,087,500  and $1,037,500 for the quarters ended  September 30, 2001 and 2000,
respectively).  This represents  distributions of $39.25 and $40.75 per unit for
the nine months ended  September  30, 2001 and 2000,  respectively,  ($21.75 and
$20.75  per  unit  for  the  quarters   ended   September  30,  2001  and  2000,
respectively).  Distributions  for the nine  months  ended  September  30,  2001
included $650,000 in a special distribution,  as a result of the distribution of
net sales proceeds from the 2001 sale of the Property in Schererville,  Indiana.
In addition, distributions for the nine months ended September 30, 2000 included
$600,000 in a special distribution, as a result of the distribution of net sales
proceeds from the 1999 sale of the Property in Flagstaff,  Arizona, and the 2000
sale of the Property is Plant City, Florida.  These amounts were applied towards
the limited partners'  cumulative 10% Preferred  Return.  No distributions  have
been made to the general  partners  to date.  As a result of the sale of several
Properties in 2001 and 2000, the Partnership's  total revenue was reduced and is
expected to remain  reduced in  subsequent  periods,  while the  majority of the
Partnership's  operating  expenses  remained and are  expected to remain  fixed.
Therefore,  distributions of net cash flow were adjusted  commencing  during the
quarter  ended  September 30, 2000.  No  distributions  were made to the general
partners for the quarters and nine months ended  September 30, 2001 and 2000. No
amounts  distributed to the limited partners for the nine months ended September
30, 2001 and 2000 are required to be or have been treated by the  Partnership as
a return of capital for purposes of calculating the limited  partners' return on
their adjusted  capital  contributions.  The Partnership  intends to continue to
make distributions of cash available for distribution to the limited partners on
a quarterly basis.

        Total liabilities of the Partnership,  including  distributions payable,
increased  to  $1,247,549  at September  30, 2001 from  $587,540 at December 31,
2000,  primarily as a result of the Partnership  accruing a special distribution
of $650,000 to the limited  partners at September 30, 2001, as described  above.
The general partners believe that the Partnership has sufficient cash on hand to
meet current working capital needs.

Long-Term Liquidity

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

Results of Operations

        During the nine months ended September 30, 2000, the Partnership and its
consolidated joint venture, Tuscawilla Joint Venture, owned and leased 22 wholly
owned Properties  (including one Property which was sold in 2000) and during the
nine months ended September 30, 2001, the Partnership and its consolidated joint
venture  owned and leased 21 wholly  owned  Properties  (including  one Property
which was sold in 2001), to operators of fast-food and  family-style  restaurant
chains. In connection therewith, during the nine months ended September 30, 2001
and 2000, the Partnership  earned  $1,157,196 and $1,248,439,  respectively,  in
rental  income from  operating  leases  (net of  adjustments  to accrued  rental
income) and earned income from direct  financing  leases from these  Properties,
$343,125 and $414,853 of which was earned  during the quarters  ended  September
30,  2001  and  2000,  respectively.  Rental  and  earned  income  decreased  by
approximately  $11,500  and $29,900  during the  quarter  and nine months  ended
September  30,  2001,  respectively,  as compared to the quarter and nine months
ended  September  30,  2000,  as a result  of the 2001 sale of the  Property  in
Schererville,  Indiana, as described above in "Capital Resources",  and the 2000
sale of the Property in Plant City, Florida.

        In addition, the decrease in rental and earned income during the quarter
and nine months ended  September  30, 2001,  as compared to the quarter and nine
months ended September 30, 2000, was partially attributable to the fact that the
tenant  of  the   Property  in   Montgomery,   Alabama   experienced   financial
difficulties.  As a result,  during the quarter and nine months ended  September
30, 2001,  the  Partnership  established  an allowance for doubtful  accounts of
approximately  $21,900 for past due rental amounts relating to this Property and
one additional Property in accordance with the Partnership's policy. The general
partners will continue to pursue  collection of past due rental amounts relating
to these Properties. In addition, the Partnership reversed approximately $38,700
in  previously  accrued  rental income  relating to the Property in  Montgomery,
Alabama.  The  accrued  rental  income was the  accumulated  amount of  non-cash
accounting   adjustments  previously  recorded  in  order  to  recognize  future
scheduled  rent  increases as income evenly over the term of the lease.  No such
amounts were  reversed  during the quarter and nine months ended  September  30,
2000.

        In June 2001, the lease for the Property in Washington,  Illinois, which
was scheduled to expire in November 2002, was terminated by the  Partnership and
the tenant.  In connection  therewith,  the Partnership  received  approximately
$20,000  in  lease  termination  income  in  consideration  for the  Partnership
releasing  the tenant  from its  obligations  under the lease.  The  Partnership
re-leased this Property to a new tenant with terms substantially the same as the
Partnership's other leases.

        During  the  nine  months  ended   September  30,  2001  and  2000,  the
Partnership also earned $89,031 and $56,345,  respectively, in contingent rental
income,  $1,134  and  $20,045  of which was earned  during  the  quarters  ended
September 30, 2001 and 2000,  respectively.  The increase in  contingent  rental
income during the nine months ended  September 30, 2001, as compared to the nine
months ended September 30, 2000, was primarily due to an increase in gross sales
of certain restaurant  Properties whose leases require the payment of contingent
rental income. The decrease in contingent rental income during the quarter ended
September  30, 2001, as compared to the quarter  ended  September 30, 2000,  was
primarily due to the 2000 sale of the Property in Plant City, Florida.

        For the nine months ended  September 30, 2001 and 2000, the  Partnership
owned and leased three Properties  indirectly through joint venture arrangements
and  four  Properties  as  tenants-in-common  with  affiliates  of  the  general
partners.  In connection  therewith,  during the nine months ended September 30,
2001  and  2000,  the  Partnership  earned  income  of  $107,098  and  $141,750,
respectively,  attributable  to net income  recorded  by these  joint  ventures,
$37,865 and $47,411 of which was earned during the quarters ended  September 30,
2001 and 2000, respectively. The decrease in net income earned by joint ventures
during the quarter and nine months ended  September 30, 2001, as compared to the
quarter and nine months ended  September 30, 2000, was primarily due to the fact
that during the quarter and nine months ended  September  30,  2001,  Titusville
Joint  Venture  (in which the  Partnership  owns a 73.4%  interest)  recorded  a
provision for loss on assets of approximately $12,700 and $50,900, respectively,
for financial reporting purposes. The Property owned by the joint venture became
vacant during 1997. Titusville Joint Venture had previously recorded a provision
for loss on assets  relating to this  Property.  The  increase in the  allowance
represented  the difference  between the Property's  carrying value at September
30, 2001 and the current estimated net realizable value of the Property. No such
allowance  was recorded  during the quarter and nine months ended  September 30,
2000.  Titusville Joint Venture is currently seeking either a replacement tenant
or purchaser  for this  Property.  If  Titusville  Joint Venture fails to find a
replacement  tenant or purchaser,  there could be a continued  adverse affect on
equity in earnings of  unconsolidated  joint ventures.  The Partnership  expects
equity in earnings of joint  ventures  to remain at reduced  amounts  until such
time as the joint venture executes a new lease or until the Property is sold and
the proceeds from such sale are reinvested in an additional Property.

        Operating  expenses,  including  depreciation and amortization  expense,
were  $389,994 and $404,143  for the nine months  ended  September  30, 2001 and
2000,  respectively,  of which  $95,473 and $114,863  were  incurred  during the
quarters  ended  September  30,  2001 and 2000,  respectively.  The  decrease in
operating  expenses during the nine months ended September 30, 2001, as compared
to the nine months ended  September  30, 2000 was primarily due to the fact that
during the nine months  ended  September  30,  2000,  the  Partnership  incurred
$45,062,  in  transaction  costs  related  to  the  general  partners  retaining
financial and legal  advisors to assist them in evaluating and  negotiating  the
proposed merger with CNL American  Properties  Fund, Inc.  ("APF").  On March 1,
2000, the general  partners and APF mutually agreed to terminate the merger.  No
such expenses were incurred  during the quarter and nine months ended  September
30, 2001. In addition, the decrease in operating expenses during the nine months
ended  September  30, 2001,  as compared to the nine months ended  September 30,
2000,   was  partially   offset  by  an  increase  in  the  costs  incurred  for
administrative  expenses for servicing the Partnership  and its  Properties,  as
permitted by the Partnership agreement.

        During the  quarter  and nine  months  ended  September  30,  2001,  the
Partnership  sold one Property  resulting  in a gain of $229,029  for  financial
reporting  purposes,  as described  above in "Capital  Resources."  In addition,
during the quarter and nine months ended  September  30, 2000,  the  Partnership
sold  one  Property  resulting  in a gain of  $32,151  for  financial  reporting
purposes.


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not applicable.


<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 7, 2001, and incorporated herein by reference.)


               (b)   Reports on Form 8-K

                     No reports of Form 8-K were filed during the quarter  ended
                     September 30, 2001.




<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 5th day of November, 2001.


                                          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)