UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT ~~PURSUANT~~

TOPursuant ~~SECTION~~to Section 13 ORor 15(d) OFof ~~THE~~

~~SECURITIES~~The ~~EXCHANGE~~Securities ~~ACT~~Exchange OFAct of 1934

~~August~~Date 9,of ~~2004~~Report (Date of earliest event reported)

~~(Date~~January of5, ~~earliest~~2005 ~~event reported)~~

CNL ~~INCOME~~Income ~~FUND~~Fund III, ~~LTD~~Ltd.

(Exact name of registrant as specified in its charter)

Florida

Florida

0-16850

59-2809460

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

(State or other jurisdiction of incorporation or organization)

450 South Orange Avenue

Orlando, Florida

32801

(Address of principal executive offices)

(Zip Code)

0-16850		59-2809460
Commission File No.		(IRS Employer Identification No.)

Registrant’s telephone number, including area code

450 South Orange Avenue

Orlando, Florida 32801

(Address of principal executive offices)

(407) 540-2000

(~~Registrant’s~~Former ~~telephone~~name ~~number)~~or former address, if changed since last report.)

~~ITEM~~Check 5.the ~~OTHER~~appropriate ~~EVENTS~~box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

On¨ ~~August~~Written 9,communications ~~2004, CNL Income Fund III, Ltd. (the “Partnership”) entered into a definitive Agreement and Plan of Merger~~ pursuant to ~~which~~Rule ~~the~~425 ~~Partnership~~under ~~will~~the beSecurities ~~merged~~Act ~~with a subsidiary of U.S. Restaurant Properties, Inc.~~ (~~NYSE: USV). The merger is one of multiple concurrent transactions pursuant to which~~ 17 ~~other~~CFR ~~affiliated limited partnerships also will be merged with a subsidiary of U~~230.S. Restaurant Properties, Inc. and in which CNL Restaurant Properties, Inc., an affiliate, also will be merged with U.S. Restaurant Properties, Inc. The merger of the Partnership (and each of the 17 other affiliated mergers425) is subject to certain conditions including approval by a majority of the limited partners, consummation of a minimum number of limited partnership mergers representing at least 75.0% in value (as measured by the value of the merger consideration) of all limited partnerships, consummation of the merger between U. S. Restaurant Properties, Inc. and CNL Restaurant Properties, Inc., approval of the shareholders of U.S. Restaurant Properties, Inc., and availability of financing. The transaction is expected to be consummated in the first quarter of 2005.

~~Under~~¨ ~~the~~Soliciting ~~terms~~material ofpursuant ~~the~~to ~~transaction,~~Rule ~~the limited partners will receive total consideration of approximately $~~14a-12~~.96~~ ~~million,~~under ~~consisting of approximately $10.84 million in cash and approximately $2.12 million in U.S. Restaurant Properties, Inc. Series A Convertible Preferred Stock that is listed on~~ the ~~New York Stock~~ Exchange. ~~The~~Act ~~general partners~~(17 ~~will~~CFR ~~receive total consideration of approximately $289,000 consisting of approximately $242,000 in cash and approximately $47,000 in preferred stock~~240. 14a-12)

~~The~~¨ ~~Partnership~~Pre-commencement ~~has~~communications ~~received~~pursuant ~~an opinion from Wachovia Capital Markets, LLC that as of August 9, 2004 the merger consideration~~ to beRule ~~received~~14d-2(b) byunder the ~~holders~~Exchange ofAct ~~the general~~(17 ~~and~~CFR ~~limited Partnership interests is fair, from a financial point of view, to such holders~~240. 14d-2(b))

~~Based~~¨ inPre-commencement ~~Dallas,~~communications ~~Texas,~~pursuant ~~U.S.~~to ~~Restaurant~~Rule ~~Properties, Inc. is a real estate investment trust~~ 13e-4(~~REIT~~c) ~~that~~under ~~focuses~~the ~~primarily~~Exchange onAct ~~acquiring,~~(17 ~~owning~~CFR ~~and leasing restaurant properties~~240. 13e-4(c))

~~ITEM~~Item 78.01 ~~FINANCIAL~~Other ~~STATEMENTS AND EXHIBITS~~Information.

(On January 5, 2005, Robert Lewis and Sutter Acquisition Fund, LLC, two limited partners in several CNL Income Funds, filed a purported class action lawsuit on behalf of the limited partners of the 18 CNL Income Funds against CNL Restaurant Properties, Inc. (“CNLRP”), NoU.S. ~~financial~~Restaurant ~~statements~~Properties, ~~are~~Inc. ~~required~~(“USRP”), tothe be18 ~~filed~~CNL asIncome ~~part~~Funds, the general partners of ~~this~~the ~~Current~~18 ~~Report~~CNL onIncome ~~Form~~Funds, 8CNL Restaurant Investments, Inc. and CNL Restaurant Capital Corp. in the State District Court of Dallas County, Texas (Cause No. 05-K00083). The complaint alleges that the general partners of the CNL Income Funds breached their fiduciary duties in connection with the proposed mergers between the CNL Income Funds and subsidiaries of the operating partnership of USRP and that CNLRP and USRP aided and abetted such alleged breaches of fiduciary duties. The complaint further alleges that the general partners violated provisions of the CNL Income Fund partnership agreements and demands an accounting as to the CNL Income Funds. The plaintiffs are seeking unspecified compensatory and exemplary damages and equitable relief, including a judgment enjoining the mergers.

~~(b)~~The Nogeneral ~~pro~~partners ~~forma~~believe ~~financial~~that ~~information~~the islawsuit ~~required~~and tothe berequest ~~filed~~for asclass ~~part~~certification ofare without ~~this~~merit ~~Current~~and ~~Report~~intend onto ~~Form~~defend ~~8-K~~vigorously against such claims.

~~(c)~~SIGNATURE ~~Exhibits.~~

99.1		Press release applicable to CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd., and each of the respective General Partners related thereto, along with CNL Restaurant Properties, Inc. and U.S. Restaurant Properties, Inc. dated August 9, 2004.
99.2		Agreement and Plan of Merger among U.S. Restaurant Properties, Inc., Ivanhoe Acquisition III, LLC, and CNL Income Fund III, Ltd. dated as of August 9, 2004.

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

~~SIGNATURES~~CNL INCOME FUND III, LTD. By: CNL REALTY CORPORATION General Partner By: /s/ Robert A. Bourne Robert A. Bourne President and Chief Executive Officer

~~Pursuant~~Dated: toJanuary ~~the requirements of the Securities Exchange Act of 1934~~12, ~~as amended, the registrant has duly caused this report to be signed on its behalf~~2005 ~~by the undersigned hereunto duly authorized.~~

Dated this 9th day of August, 2004.

CNL INCOME FUND III, LTD. By: CNL REALTY CORPORATION General Partner By: /s/ JAMES M. SENEFF, JR. JAMES M. SENEFF, JR. Chief Executive Officer (Principal Executive Officer) By: /s/ ROBERT A. BOURNE ROBERT A. BOURNE President and Treasurer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibits

99.1		Press release applicable to CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd., and each of the respective General Partners related thereto, along with CNL Restaurant Properties, Inc. and U.S. Restaurant Properties, Inc. dated August 9, 2004.
99.2		Agreement and Plan of Merger among U.S. Restaurant Properties, Inc., Ivanhoe Acquisition III, LLC, and CNL Income Fund III, Ltd. dated as of August 9, 2004.

Filing Compare · CNL INCOME FUND III LTD