##### Index to Financial Statements

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)



| | x | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ------------------------------------------------------------------------------------

[Fee Required]



For the fiscal year ended December 31, 2003



or



| |  ̈ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ----------------------------------------------------------------------------------------

[No Fee Required]



For the transition period from
 to



Commission file number 0-18407



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WELLS REAL ESTATE FUND III, L.P.

(Exact name of registrant as specified in
its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58-1800833                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|6200 The Corners Parkway, Norcross, Georgia                    |  | 30092                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             
|                                                               | 
|Registrants telephone number, including area code             |  | (770) 449-7800                         
|                                                              
|Securities registered pursuant to Section 12 (b) of the Act:  
|                                                               | 
|Title of each class                                            |  | Name of exchange on which registered   
|NONE                                                           |  | NONE                                   



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Securities registered pursuant to Section 12 (g) of the Act:



CLASS A UNITS

---

(Title of Class)



CLASS B UNITS

---

(Title of Class)



Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 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 ̈



Aggregate market value of the voting stock held by nonaffiliates:
    Not Applicable



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##### Index to Financial Statements



CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS



Certain statements contained in this Form 10-K
of Wells Real Estate Fund III, L.P. (the Partnership) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such statements include, in particular, statements about our plans, strategies and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from
those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as
may, will, expect, intend, anticipate, estimate, believe, continue, or other similar words. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. Neither the Partnership nor the general partners make any representations or warranties (expressed or implied) about the
accuracy of any such forward-looking statements. Actual results could differ materially from any forward-looking statements contained in this Form 10-K, and we do not intend to publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.



Any such
forward-looking statements are subject to known and unknown risks, uncertainties and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions,
all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations;
provide distributions to limited partners; and maintain the value of our real estate properties, may be significantly hindered. Following are some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual
results to differ materially from those presented in certain forward-looking statements:



General economic risks



| |  | Adverse changes in general economic conditions or local conditions;
| | - | -------------------------------------------------------------------



| |  | Adverse economic conditions affecting the particular industry of one or more of our tenants;
| | - | --------------------------------------------------------------------------------------------



Real estate risks



| |  | Our ability to achieve appropriate occupancy levels resulting in sufficient rental amounts;
| | - | -------------------------------------------------------------------------------------------



| |  | Supply of or demand for similar or competing rentable space, which may adversely impact our ability to retain or obtain new tenants at lease expiration at acceptable rental amounts;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Tenant ability or willingness to satisfy obligations relating to our existing lease agreements;
| | - | -----------------------------------------------------------------------------------------------



| |  | Our potential need to fund tenant improvements, lease-up costs, or other capital expenditures out of operating cash flow;
| | - | -------------------------------------------------------------------------------------------------------------------------



| |  | Increases in property operating expenses, including property taxes, insurance, and other costs at our properties;
| | - | -----------------------------------------------------------------------------------------------------------------



| |  | Our ability to secure adequate insurance at reasonable and appropriate rates to avoid uninsured losses or losses in excess of insured amounts;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  | Discovery of previously undetected environmentally hazardous or other undetected adverse conditions at our properties;
| | - | ----------------------------------------------------------------------------------------------------------------------



Page 1



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##### Index to Financial Statements



| |  | Unexpected costs of capital expenditures related to tenant build-out projects or other unforeseen capital expenditures;
| | - | -----------------------------------------------------------------------------------------------------------------------



| |  | Our ability to sell a property when desirable at an acceptable return, including the ability of the purchaser to satisfy any continuing obligations to us;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



Other operational risks



| |  | Our dependency on Wells Capital, Inc., its key personnel, and its affiliates for various administrative services;
| | - | -----------------------------------------------------------------------------------------------------------------



| |  | Wells Capital, Inc.s ability to attract and retain high-quality personnel who can provide acceptable service levels to us and generate economies of scale for us over time;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Increases in our administrative operating expenses, including increased expenses associated with operating as a public company;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | Changes in governmental, tax, real estate, environmental, and zoning laws and regulations and the related costs of compliance;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| |  | Our ability to prove compliance with any governmental, tax, real estate, environmental, and zoning in the event that any such position is questioned by the respective authority; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Actions of our joint venture partners including potential bankruptcy, business interests differing from ours, or other actions that may adversely impact the operations of joint
ventures.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page 2



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##### Index to Financial Statements



PART I



|ITEM 1. | BUSINESS.
|------- | ---------



General



Wells Real
Estate Fund III, L.P. (the Partnership) is a Georgia public limited partnership with Leo F. Wells, III and Wells Capital, Inc. (Wells Capital), a Georgia corporation, serving as its General Partners (the General
Partners). The Partnership was formed on July 31, 1988 for the purpose of acquiring, developing, constructing, owning, operating, improving, leasing, and managing income-producing commercial properties for investment purposes. The Partnership
has two classes of limited partnership interests, Class A and Class B Units. The limited partners may vote to, among other things, (a) amend the partnership agreement, subject to certain limitations; (b) change the business purpose or investment
objectives of the Partnership; and (c) add or remove a general partner. A majority vote on any of the above-described matters will bind the Partnership without the concurrence of the General Partners. Each limited partner unit has equal voting
rights regardless of class.



On October 24, 1988, the Partnership commenced an
offering of up to $50,000,000 of Class A or Class B limited partnership units ($1.00 per unit) pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The offering was terminated on October 23, 1990 at which time
the Partnership had sold approximately 19,635,965 Class A and 2,544,540 Class B Units representing capital contributions of $22,180,505 from investors who were admitted to the Partnership as limited partners.



Management believes that the Partnership would ideally operate through the course of the
following five key life cycle phases. The time spent in each phase is dependent upon various economic, industry, market, and other internal/external factors. Some overlap naturally exists in the transition from one phase to the next.



| |  | Fund-raising phase
| | - | ------------------



The period during which the Partnership is raising capital through the sale and issuance of limited partner units to the public



| |  | Investing phase
| | - | ---------------



The period during which the Partnership invests the capital raised during the fund-raising phase, less upfront fees, into the acquisition of real
estate assets



| |  | Holding phase
| | - | -------------



The period during which real estate assets are owned and operated by the Partnership during the initial lease terms of the tenants



| |  | Positioning-for-sale phase
| | - | --------------------------



The period during which the leases in place at the time of acquisition expire and, thus, the Partnership expends time, effort, and funds to re-lease
such space to existing and/or new tenants. Following the holding phase, the Partnership continues to own and operate the real estate assets, evaluate various options for disposition, and market the real estate assets for sale



| |  | Disposition and Liquidation phase
| | - | ---------------------------------



The period during which the Partnership sells its real estate investments and distributes net sales proceeds to the partners



Page 3



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##### Index to Financial Statements



Management believes that the Partnership is
currently straddling the positioning-for-sale phase and the initial stages of the disposition and liquidation phase and, accordingly, is focusing significant resources on locating suitable replacement tenants and negotiating with prospective
acquirers of properties owned through affiliated joint ventures.



Cash
management is a chief area of focus for the Partnership. Historically, the Partnership has not taken out borrowings from third-party lenders and, while operating cash flows and net property sales proceeds are withheld to provide for known events
from time to time, the Partnership does not maintain as a general rule cash reserves for unknown events. Instead, management prefers to maximize operating cash flows distributed to investors commensurate with the period earned; however, it is likely
that during the positioning for sale phase, the Partnership will be required to use cash flow from operations and/or net sale proceeds from the sale of the Partnerships properties, which would otherwise be available for distribution to limited
partners, to fund tenant improvements, leasing commissions, and other leasing expenses in connection with the re-leasing of the Partnerships properties. The Partnerships cash needs evolve during the course of its life cycle and,
accordingly, volatility in operating returns is a natural and expected part of the process.



Employees



The Partnership has no
direct employees. The employees of Wells Capital and Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners, perform a full range of real estate services including leasing and property management,
accounting, asset management and investor relations for the Partnership. See Item 11, Compensation of General Partners and Affiliates, for a summary of the fees paid to the General Partners and their affiliates during the year ended
December 31, 2003.



Insurance



Wells Management carries comprehensive liability and extended coverage with respect to the
properties owned directly or indirectly by the Partnership. In the opinion of management, the properties are adequately insured.



Competition



The Partnership will experience competition for tenants from owners and managers of competing projects, which may include the General Partners and their affiliates. As a result, the Partnership may provide free rent,
reduced charges for tenant improvements, and other inducements, all of which may have an adverse impact on results of operations. At the time the Partnership elects to dispose of its properties, the Partnership will also be in competition with
sellers of similar properties to locate suitable purchasers for its properties.



Page 4



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##### Index to Financial Statements



|ITEM 2. | PROPERTIES.
|------- | -----------



The Partnership owned a 100% interest in Greenville Center, an office building located in Greenville, North Carolina, until September 30, 2002. On this date, the Partnership sold Greenville Center to East Carolina
University Real Estate Foundation, Inc., an unrelated third party, for a gross sales price of $2,400,000. As a result of this sale, the Partnership received net sales proceeds of $2,271,187 and recognized an impairment loss of $469,750 and
additional loss on sale of $21,051.



During the periods presented, the
Partnership owned interests in the following five properties through the affiliated joint ventures listed below (the Joint Ventures):



|                                                                      |  |                                                                                                     |  |                                                                                                                       |  |                                |   |  |      |   |  |      |   |  |      |   |  |      |  
|--------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                                                      |  |                                                                                                     |  |                                                                                                                       |  | Occupancy % as of December 31, |  
|Joint Venture                                                         |  | Joint Venture Partners                                                                              |  | Properties                                                                                                            |  | 2003                           |   |  | 2002 |   |  | 2001 |   |  | 2000 |   |  | 1999 |  
|Fund II and Fund III Associates (Fund II-III Associates)            |  |    Fund II and Fund II-OW*    Wells Real Estate Fund III, L.P.                                    |  | 1. Boeing at the Atrium A four-story office building located in Houston, Texas                                        |  | 100                            | % |  | 81   | % |  | 100  | % |  | 100  | % |  | 100  | %
|                                                                      |  |                                                                                                     |  |                                                                                                                       |  |                                |  
|                                                                      |  |                                                                                                     |  | 2. Brookwood Grill A restaurant located in Fulton County, Georgia                                                     |  | 100                            | % |  | 100  | % |  | 100  | % |  | 100  | % |  | 100  | %
|                                                                      | 
|                                                                      |  |                                                                                                     |  |                                                                                                                       |  |                                |  
|Fund II, III, VI and VII Associates (Fund II-III-VI-VII Associates) |  |    Fund II-III Associates    Wells Real Estate Fund VI, L.P.    Wells Real Estate Fund VII, L.P. |  | 3. Holcomb Bridge Property An office/retail center located in Roswell, Georgia                                        |  | 83                             | % |  | 60   | % |  | 89   | % |  | 92   | % |  | 100  | %
|                                                                      | 
|                                                                      |  |                                                                                                     |  |                                                                                                                       |  |                                |  
|Fund III and Fund IV Associates (Fund III-IV Associates)            |  |    Wells Real Estate Fund III, L.P.    Wells Real Estate Fund IV, L.P.                            |  | 4. Stockbridge Village Shopping Center A retail shopping center located in Stockbridge, Georgia                       |  | 97                             | % |  | 100  | % |  | 100  | % |  | 100  | % |  | 95   | %
|                                                                      |  |                                                                                                     |  |                                                                                                                       |  |                                |  
|                                                                      |  |                                                                                                     |  | 5. 4400 Cox Road (formerly known as the Reciprocal Group Building) An office building located in Richmond, Virginia |  | 0                              | % |  | 100  | % |  | 100  | % |  | 0    | % |  | 100  | %
|                                                                      | 



|* | Fund II and Fund II-OW is a joint venture between Wells Real Estate Fund II and Wells Real Estate Fund II-OW. Wells Real Estate Fund II and Wells Real Estate Fund II-OW are
public limited partnerships affiliated with the Partnership through common General Partners.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Each of the aforementioned properties was acquired on an all cash basis. The investment objectives of each of the joint venture partners listed in the above table are substantially identical to those of the
Partnership. The Partnership does not have control over the operations of the Joint Ventures; however, it does exercise significant influence. Accordingly, the Partnership accounts for its investments in the Joint Ventures using the equity method of
accounting.



Page 5



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##### Index to Financial Statements



As of December 31, 2003, the lease
expirations scheduled during each of the following ten years for all properties in which the Partnership held an interest through the Joint Ventures, assuming no exercise of renewal options or termination rights, are summarized below:



Year of Lease Expiration

Number ofLeases Expiring

Square Feet Expiring

AnnualizedGross BaseRent

PartnershipsShare ofAnnualizedGross BaseRent

Percentage ofTotal SquareFeet Expiring


Percentage ofTotalAnnualizedGross BaseRent2004

3

7,734

$
127,836

$
24,824

2.8
%

3.1
%2005

7

13,648


248,119


86,105

5.0


6.02006

4

13,296


277,843


35,345

4.8


6.72007

6

16,521


311,726


178,338

6.0


7.52008(1)

6

134,514


2,160,394


856,309

49.0


51.92009

1

4,816


72,240


6,372

1.8


1.72011(2)

1

63,986


492,692


281,869

23.3


11.82012

1

7,440


276,492


101,141

2.7


6.62013

1

12,786


198,183


17,480

4.6


4.730

274,741


$4,165,525


$1,587,783

100.0
%

100.0
%




|(1) | Boeing lease (approximately 116,463 square feet).
|--- | -------------------------------------------------



|(2) | Kroger lease at the Stockbridge Village Shopping Center (approximately 64,000 square feet).
|--- | -------------------------------------------------------------------------------------------



The Joint Ventures and properties in which the Partnership owns an interest during the periods presented are further described below:



Fund II-III Associates



On April 3, 1989, Fund II-III Associates was formed for the purposes of developing,
constructing, operating, and selling commercial and industrial real properties. As of December 31, 2003, Fund II and Fund II-OW and the Partnership held equity interests of approximately 63% and 37%, respectively, in the following two properties
based on their respective cumulative capital contributions to Fund II-III Associates:



Boeing at the Atrium



In April 1989, Fund II-III
Associates acquired a four-story office building located on a 5.6-acre tract of land adjacent to the Johnson Space Center in metropolitan Houston, in the City of Nassau Bay, Harris County, Texas, known as Boeing at the Atrium.



In March 2002, Boeing/Shuttle Division (Boeing) entered into a lease for the top
three floors of the four-story Boeing at the Atrium (94,203 sq. ft.) commencing on September 1, 2002 for approximately six years with annual base rent payable of $1,483,698. Boeing has since entered into the following three amendments: amendment #1
 to lease an additional 296 square feet with annual rent of $4,662, commencing October 1, 2002; amendment #2  to lease an additional 11,515 square feet with annual rent of $181,365, commencing January 6, 2003; and amendment #3  to
lease an additional 10,449 square feet with annual rent of $164,572, commencing July 1, 2003. As of December 31, 2003, Boeing occupied 100% of this property.



The average effective rental rate per square foot at Boeing at the Atrium was $14.45 for 2003, $6.05 for 2002, $12.35 for 2001, $12.34 for 2000, and $12.35 for 1999.



Page 6



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##### Index to Financial Statements



Brookwood Grill



On January 31, 1990, Fund II and Fund II-OW acquired a 5.8-acre tract of undeveloped real
property at the intersection of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton County, Georgia (the Brookwood Property). On September 20, 1991, Fund II and Fund II-OW contributed its interest in this 5.8-acre parcel of land,
along with its interest as landlord under the lease agreement referred to below, as a capital contribution to Fund II-III Associates. As of September 20, 1991, Fund II and Fund II-OW had expended approximately $2,128,000 for the land acquisition and
development of the Brookwood Property. Once constructed the property became known as the Brookwood Grill.



In September 1991, a lease agreement was entered into with the Brookwood Grill of Roswell, Inc., which included the development of approximately 1.5 acres and construction of a 7,440-square-foot restaurant, which
opened in March 1992. The terms of the lease call for an initial term of nine years and eleven months. Brookwood Grill entered into a ten-year extension after the initial lease term, which expires on February 29, 2012. Pursuant to the terms of the
current lease, the tenant has the option to exercise two additional five-year renewal options upon expiration.



The average effective rental rate per square foot at the Brookwood Grill was $39.61 for 2003, $27.04 for 2002, $31.56 for 2001, and $30.22 for 2000 and 1999.



Fund II-III-VI-VII Associates



On January 10, 1995, Fund II-III-VI-VII Associates was formed for the purpose of developing,
constructing, owning, and operating the Holcomb Bridge Property. As of December 31, 2003, Fund II-III Associates, Wells Real Estate Fund VI, L.P., and Wells Real Estate Fund VII, L.P. owned approximately 24%, 26%, and 50%, respectively, of the
following property based on their respective cumulative capital contributions to Fund II-III-VI-VII Associates:



Holcomb Bridge Property



In January 1995, Fund II-III Associates contributed approximately 4.3 acres of the Brookwood Property, including land improvements, to Fund II-III-VI-VII Associates for
the development and construction of two buildings containing a total of approximately 49,500 square feet. Upon construction, this property became known as the Holcomb Bridge Property.



As of December 31, 2003, four tenants occupied approximately 57% of the Holcomb Bridge Property, with two tenants, Bertuccis
Restaurant and American Trust Bancorp, occupying approximately 12% and 26% under leases for approximately 5,935 square feet and 12,786 square feet, respectively. The Bertuccis Restaurant lease requires annual base rental payments of $127,850
and expires in February 2006. The American Trust Bancorp lease requires annual base rental payments of $140,646 and expires in July 2013. During 2003, occupancy of the Holcomb Bridge Property increased from approximately 60% to approximately 83%.
Management is actively seeking replacement tenants for the vacant space at this property.



The average effective annual rental rate per square foot at the Holcomb Bridge Property was $12.92 for 2003, $12.97 for 2002, $17.07 for 2001, $17.55 for 2000, and $19.36 for 1999.



Fund III-IV Associates



On March 27, 1991, Fund III-IV Associates was formed for the purpose of developing, constructing, operating, and selling commercial and
industrial real properties. As of December 31, 2003, the Partnership and Wells Real



Page 7



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##### Index to Financial Statements



Estate Fund IV, L.P. owned equity interests
of approximately 57% and 43%, respectively, in the following two properties based on their respective cumulative capital contributions to Fund III-IV Associates:



Stockbridge Village Shopping Center



On April 4, 1991, Fund III-IV Associates purchased 13.62 acres of real property located in Clayton County, Georgia, for the purpose of developing, constructing, and
operating a shopping center known as the Stockbridge Village Shopping Center. The multi-tenant shopping center contains approximately 112,900 square feet, of which approximately 64,000 square feet is occupied by the Kroger Company
(Kroger), a retail grocery chain. Kroger is the only tenant in occupancy of more than ten percent of the rentable square feet of this property. The Kroger lease is for an initial term of twenty years, commencing November 14, 1991, with
an option to extend for four consecutive five-year periods at the same rental rate as the original lease. The annual base rent payable under the Kroger lease is $492,692. The remaining approximately 48,900 square feet are comprised of 16 separate
retail spaces and three free-standing retail buildings.



The average effective annual rental rate per square foot at the Stockbridge Village Shopping Center was $11.58 for 2003, $11.32 for 2002, $11.82 for 2001, $11.29 for 2000, and $11.23 for 1999.



4400 Cox Road



On July 1, 1992, Fund III-IV Associates acquired the 4400 Cox Road, a two-story office building containing approximately 43,000 square feet
located in Richmond, Virginia.



Management leased 100% of this building to the
Reciprocal Group, an insurance company, on October 4, 2000 for a term of eight years, with rent commencing in February 2001. On January 29, 2003, a receiver was appointed for the Reciprocal Group, the sole tenant occupying 4400 Cox Road. The
receiver was granted authority to take any and all actions deemed advisable to liquidate or rehabilitate the Reciprocal Group. As a result of the receivership proceedings, the Reciprocal Group has ceased issuing new or renewing existing insurance
policies. Accordingly, the Reciprocal Group terminated its lease and vacated the premises effective July 31, 2003, and this property remains vacant.



The average effective annual rental rate per square foot at 4400 Cox Road was $5.20 for 2003, $13.45 for 2002, $12.83 for 2001, $3.07 for 2000, and $12.27 for 1999.



|ITEM 3. | LEGAL PROCEEDINGS.
|------- | ------------------



There were no material pending legal proceedings or proceedings known to be contemplated by governmental authorities involving the Partnership during the fourth quarter of 2003.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------



No matters were submitted to a vote of the limited partners during the fourth quarter of 2003.



Page 8



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##### Index to Financial Statements



PART II



|ITEM 5. | MARKET FOR PARTNERSHIPS UNITS AND RELATED SECURITY HOLDER MATTERS.
|------- | -------------------------------------------------------------------



As of February 15, 2004, the Partnership had 19,635,965 outstanding Class A Units held by a total of 2,215 limited partners and 2,544,540
outstanding Class B Units held by a total of 243 limited partners. The capital contribution per unit is $1.00. There is no established public trading market for the Partnerships limited partnership units, and it is not anticipated that a
public trading market for the units will develop. Under the partnership agreement, the General Partners have the right to prohibit transfers of units.



Because fiduciaries of retirement plans subject to ERISA are required to determine the value of the assets of such retirement plans on an annual basis, the General
Partners are required under the partnership agreement to report estimated unit values to the limited partners each year in the Partnerships annual Form 10-K. The methodology to be utilized for determining such estimated unit values under the
partnership agreement requires the General Partners to estimate the amount a unit holder would receive if the Partnerships properties were sold at their estimated fair market values as of the end of the Partnerships fiscal year and the
proceeds therefrom (without reduction for selling expenses) were distributed to the limited partners in liquidation of the Partnership. Utilizing this methodology, the General Partners have estimated unit valuations, based upon their estimates of
property values as of December 31, 2003, to be approximately $0.76 per Class A Unit and $0.76 per Class B Unit, based upon market conditions existing in early December 2003. In connection with the estimated property valuations, the General Partners
obtained an opinion from David L. Beal Company, an independent MAI appraiser, to the effect that such estimates of value were deemed reasonable and were prepared in accordance with appropriate methods for valuing real estate; however, due to the
inordinate expense involved in obtaining appraisals for all of the Partnerships properties, no actual appraisals were obtained. Accordingly, these estimates should not be viewed as an accurate reflection of the values of the limited
partners units, what a limited partner might be able to sell his units for, or the fair market value of the Partnerships properties, nor do they represent the amount of net proceeds limited partners would receive if the
Partnerships properties were sold and the proceeds distributed in a liquidation of the Partnership. The valuations performed by the General Partners are estimates only, and are based on a number of assumptions which may not be accurate or
complete. In addition, property values are subject to change and could decline in the future. Further, as set forth above, no appraisals have or will be obtained. For these reasons, the estimated unit valuations set forth above should not be used by
or relied upon by investors, other than fiduciaries of retirement plans for limited ERISA reporting purposes, as any indication of the fair market value of their units.



Net proceeds available for distribution upon the sale of the Partnerships properties are initially distributed equally to limited
partners holding Class A Units and Class B Units on a per-unit basis until they receive a return of their initial capital contributions. See Note 1 to the financial statements included in this report for a more detailed description of the
methodology for distributing net sale proceeds from the sale of the Partnerships properties to the limited partners.



Class A Unit holders are entitled to an annual 8% non-cumulative distribution preference over Class B Unit holders as to distributions from Net Cash from Operations, as
defined in the partnership agreement to mean Cash Flow, less adequate cash reserves for other obligations of the Partnership for which there is no provision, but are initially allocated none of the depreciation, amortization, cost recovery, and
interest expense. These items are allocated to Class B Unit holders until their capital account balances have been reduced to zero.



Page 9



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##### Index to Financial Statements



Cash available for distribution to the
limited partners is distributed on a quarterly basis. Cash distributions were paid to limited partners holding Class A Units during 2002 and 2003 as follows:



|                               |  |                       |         |                                   |   |                                  |  |                                  |      |                 |   |      |  |   |     
|------------------------------ |  | --------------------- | ------- | --------------------------------- | - | -------------------------------- |  | -------------------------------- | ---- | --------------- | - | ---- |  | - | ----
|Distribution for Quarter Ended |  | Total CashDistributed |         | Per Class A Unit InvestmentIncome |   | Per Class AUnit Return ofCapital |  | Per Class BUnit Return ofCapital |      | General Partner
|March 31, 2002                 |  | $                     | 0       |                                   | $ | 0.00                             |  | $                                | 0.00 |                 | $ | 0.00 |  | $ | 0.00
|June 30, 2002                  |  | $                     | 0       |                                   | $ | 0.00                             |  | $                                | 0.00 |                 | $ | 0.00 |  | $ | 0.00
|September 30, 2002             |  | $                     | 0       |                                   | $ | 0.00                             |  | $                                | 0.00 |                 | $ | 0.00 |  | $ | 0.00
|December 31, 2002              |  | $                     | 232,801 |                                   | $ | 0.01                             |  | $                                | 0.00 |                 | $ | 0.00 |  | $ | 0.00
|March 31, 2003                 |  | $                     | 203,490 |                                   | $ | 0.01                             |  | $                                | 0.00 |                 | $ | 0.00 |  | $ | 0.00
|June 30, 2003                  |  | $                     | 220,901 |                                   | $ | 0.01                             |  | $                                | 0.00 |                 | $ | 0.00 |  | $ | 0.00
|September 30, 2003             |  | $                     | 220,903 |                                   | $ | 0.00                             |  | $                                | 0.01 |                 | $ | 0.00 |  | $ | 0.00
|December 31, 2003              |  | $                     | 220,815 |                                   | $ | 0.01                             |  | $                                | 0.00 |                 | $ | 0.00 |  | $ | 0.00



Distributions were reserved from the
first quarter of 2002 through the third quarter of 2002 in order to fund leasing commissions and tenant improvements related to the Boeing lease renewals described in Part I, Item 2 above. Fourth quarter 2003 distributions were accrued for
accounting purposes in 2003 and paid to Class A limited partners in February 2004. No cash distributions were paid to holders of Class B Units in 2003 or 2002.



|ITEM 6. | SELECTED FINANCIAL DATA.
|------- | ------------------------



The following sets forth a summary of the selected financial data as of and for the fiscal years ended December 31, 2003, 2002, 2001, 2000, and 1999:



|                                                                  |  |      |            |   |      |   |            |      |  |   |            |   |      |   |            |  |   |           
|----------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - | ---- | - | ---------- |  | - | ----------
|                                                                  |  | 2003 |            |   | 2002 |   |            | 2001 |  |   | 2000       |   | 1999
|Total assets                                                      |  | $    | 12,659,180 |   |      | $ | 13,576,655 |      |  | $ | 14,008,457 |   |      | $ | 14,532,100 |  | $ | 14,962,288
|Total revenues                                                    |  |      | 135,111    |   |      |   | 291,761    |      |  |   | 611,187    |   |      |   | 242,259    |  |   | 581,803   
|Net (loss) income from continuing operations                      |  |      | (10,162    | ) |      |   | 166,299    |      |  |   | 510,230    |   |      |   | 163,704    |  |   | 503,310   
|Net (loss) income from discontinued operations                    |  |      | (3,114     | ) |      |   | (601,854   | )    |  |   | (134,788   | ) |      |   | 170,583    |  |   | 204,102   
|Net income allocated to General Partners                          |  |      | 0          |   |      |   | 0          |      |  |   | 0          |   |      |   | 0          |  |   | 0         
|Net (loss) income allocated to Class A Limited Partners           |  |      | (13,276    | ) |      |   | (435,555   | )    |  |   | 375,442    |   |      |   | 334,827    |  |   | 674,433   
|Net income allocated to Class B Limited Partners                  |  |      | 0          |   |      |   | 0          |      |  |   | 0          |   |      |   | 0          |  |   | 34,979    
|Net income (loss) per Class A Limited Partner Unit                |  | $    | 0.00       |   |      | $ | (0.02      | )    |  | $ | 0.02       |   |      | $ | 0.02       |  | $ | 0.03      
|Net income per Class B Limited Partner Unit                       |  | $    | 0.00       |   |      | $ | 0.00       |      |  | $ | 0.00       |   |      | $ | 0.00       |  | $ | 0.01      
|Cash distributions to investors per Class A Limited Partner Unit: |  |      |            |   |      |   |            |      |  |   |            |   |      |   |            |  |   |           
|Investment income                                                 |  | $    | 0.03       |   |      | $ | 0.01       |      |  | $ | 0.02       |   |      | $ | 0.01       |  | $ | 0.04      
|Return of capital                                                 |  | $    | 0.01       |   |      | $ | 0.00       |      |  | $ | 0.03       |   |      | $ | 0.01       |  | $ | 0.04      
|Return of capital per Class B Limited Partner Units               |  | $    | 0.00       |   |      | $ | 0.00       |      |  | $ | 0.00       |   |      | $ | 0.00       |  | $ | 0.01      
|Cash distribution to General Partners                             |  | $    | 0.00       |   |      | $ | 0.00       |      |  | $ | 0.00       |   |      | $ | 0.00       |  | $ | 0.00      



Page 10



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##### Index to Financial Statements



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------



The following discussion and analysis should be read in conjunction with the Selected Financial Data presented in Item 6 and our
accompanying financial statements and notes thereto.



(a) Overview



Currently, management believes that the Partnership straddles the
positioning for sale phase, and the initial stages of the disposition and liquidation phase. Upon investing all capital proceeds and exiting the investing phase, the Partnership owned interests in six properties directly or through interests in
affiliated joint ventures. As of the date of this filing, three properties are substantially leased to tenants under renewed lease terms, one property is under contract to be sold, one property was sold in 2002, and one property, 4400 Cox Road, is
vacant. Management will continue to pursue various re-leasing scenarios during 2004.



As the Partnership evolves through the life cycle detailed in Item 1, our most significant risks and challenges continue to evolve concurrently. During the positioning for sale phase, we will continue to focus on re-leasing vacant space and
space that may become vacant upon the expiration of our current leases. In doing so, we seek to maximize returns to the limited partners by negotiating long-term leases at market rental rates while attempting to minimize downtime, re-leasing
expenditures, ongoing property level costs and portfolio costs. As we embark further into the disposition and liquidation phase, our attention will shift to locating suitable acquirers, negotiating purchase-sale contracts that will attempt to
maximize the total return to the limited partners, and minimize contingencies and our post-closing involvement with the acquirer.



During 2003, net loss decreased primarily due to the loss on the sale of Greenville Center in 2002, partially offset by the vacancy of 4400 Cox Road beginning in July
2003 and foregone income during the period in which Boeing at the Atrium was builtout during 2002 in connection with the new Boeing lease and amendments thereto. Cash flows remained relatively stable in 2003.



During 2004, the Partnership anticipates transitioning from the positioning for sale phase
into the disposition and liquidation phase. Substantially all of our operating revenues are generated from the operations of the properties in the Partnerships portfolio. On a quarterly basis, we deduct the expenses related to the recurring
operations of the properties and the portfolio from such revenues and assess the amount of the remaining cash flows that will be required to fund known re-leasing costs and other capital improvements. Any residual operating cash flows are considered
available for distribution to the limited partners and are generally paid quarterly. As further outlined in section (b) below, we anticipate deploying a portion of future operating cash flows to fund the costs necessary to re-lease 4400 Cox Road and
to increase occupancy of the Holcomb Bridge Property.



Industry Factors



Our results continue to be impacted by a number of factors
influencing the real estate industry.



General Economic
and Real Estate Market Commentary



The U.S. economy
appears to be recovering; however, thus far it has been a jobless recovery, and because of this, real estate office fundamentals may not improve until employment growth strengthens. The economy has shown signs of growth recently, as companies have
recommenced making investments in new employees. Job growth is the most significant demand driver for office markets. The jobless recovery has resulted in a demand deficit for office space. In general, the real estate office market lags behind the
overall economic recovery and, therefore, recovery is not expected until late 2004 or 2005 at the earliest, and then will vary by market.



Page 11



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##### Index to Financial Statements



Overall, real estate market
fundamentals are weak; however, capital continues to flow into the asset class. This increased capital drives the prices of many properties upward and investor returns downward. There is a significant pricing differential in underwriting parameters
between well-leased assets with credit tenants and those with either existing vacancies or substantial near-term tenant rollover. Properties with long-term leases to strong credit tenants have seen an increase in value.



The office market has significant excess space. Vacancy levels are believed
to be at or near their peak. There is some encouraging news, new construction continues to taper off, coming to a complete halt in many markets. As a result of the slow down in new construction and the modest decline in sublease space, net
absorption has turned positive, although barely, at year-end. Many industry professionals believe office market fundamentals are bottoming-out; however, a recovery cannot be expected until job growth and corresponding demand for office space
increases.



Wells Real Estate Funds with Current Vacancy
or Near-term Rollover Exposure



Real estate funds,
such as the Partnership, that contain properties with current vacancies or near-term tenant rollover may face a challenging leasing environment. The properties within these funds will face lower rents and higher concession packages to the tenants in
order to re-lease vacant space.



From a valuation standpoint,
it is generally preferable to either renew an existing tenant lease or re-lease the property prior to marketing it for sale. Generally, buyers will heavily discount their offering price to compensate for the existing or pending vacancies.



(b) Results of Operations



Gross Revenues



Gross revenues of the Partnership were $135,111, $291,761, and $611,187 for the years ended December 31, 2003, 2002, and 2001, respectively.
The 2003 decrease from 2002, and the 2002 decrease from 2001, resulted primarily from the corresponding changes in equity in income of joint ventures as further described below. The results of operations of the Greenville Center, which was sold
during 2002, are included in net loss from discontinued operations for all periods presented as further discussed below.



Equity In (Loss) Income of Joint Ventures  Continuing Operations



Gross Revenues of Joint Ventures



Gross revenues of the Joint Ventures increased in 2003, as compared to 2002, primarily due to an increase in occupancy at
Boeing at the Atrium beginning the second half of 2002, partially offset by the vacancy at 4400 Cox Road owned by Fund III-IV Associates beginning in August 2003. Gross revenues decreased in 2002, as compared to 2001, primarily due to free rent
absorbed by Fund II-III Associates during 2002 in connection with the new Boeing lease and amendments thereto as further discussed in Part I, Item 2.



Expenses of Joint Ventures



The expenses incurred by the Joint Ventures increased in 2003, as compared to 2002, primarily due to (i) additional operating costs for the Boeing at the
Atrium as a result of the increase in occupancy beginning in the second half of 2002, and (ii) additional fixed operating costs resulting from the vacancy of 4400 Cox Road beginning in August 2003, as the previous tenant was generally required to
directly pay all operating costs under the lease terms. Expenses decreased in 2002, as compared to 2001, primarily due to decreased operation expenses during the period in which Boeing at the Atrium was built-out during the first half of 2002 in
connection with the new Boeing lease and amendments thereto.



Page 12



---

##### Index to Financial Statements



Equity In Income of
Joint Ventures  Discontinued Operations



Equity
in income of the Joint Ventures increased in 2003, as compared to 2002, primarily due to a decrease in depreciation expense as a result of classifying Stockbridge Village Shopping Center, which is owned by Fund III-IV Associates, as held for sale
effective March 18, 2003. Equity in income of Joint Ventures from discontinued operations decreased in 2002, as compared to 2001, primarily due to a decrease in operating expense reimbursement billings to tenants of the Stockbridge Village Shopping
Center. Tenants are billed for operating expense reimbursements based on estimates, which are reconciled in the following calendar year based on the actual costs incurred and terms of the corresponding tenant leases.



As a result of the aforementioned factors, equity in income of Joint
Ventures was $111,833, $273,251, and $602,145 for the years ended December 31, 2003, 2002, and 2001, respectively.



Expenses of the Partnership



Expenses of the Partnership were $145,273, $125,462, and $100,957 for the years ended December 31, 2003, 2002, and 2001, respectively. The 2003 increase from 2002, and
2002 increase from 2001, are primarily the result of an increase in legal and accounting fees and in partnership administration costs incurred in response to new reporting and regulatory requirements. We anticipate additional increases in such costs
related to implementing and adhering to such reporting and regulatory requirements on a going forward basis. The 2002 increase from 2001 was also impacted by additional costs incurred during 2002 as a result of implementing Statement of Financial
Accounting Standard No. 144 (SFAS No. 144) in connection with recording the sale of Greenville Center in 2002.



Net (Loss) Income from Continuing Operations



As a result of the aforementioned factors, net (loss) income from continuing operations was $(10,162), $166,299, and $510,230 for the years ended December 31, 2003, 2002,
and 2001, respectively.



Net Loss from Discontinued Operations



The Partnership adopted SFAS No. 144 effective January 1, 2002, which
requires, among other things, that the operating results of real estate assets sold or held for sale subsequent to January 1, 2002 be included in discontinued operations in the statements of income (loss) for all periods presented, and to classify
the carrying value of such assets as held for sale for all periods presented. The Greenville Center property was sold on September 30, 2002.



Condensed financial information for the Greenville Center included in discontinued operations in the accompanying statements of (loss) income, is summarized below:



|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|--------------------------------- |  | ---- | ------ | - | ---- | - | -------- | ---- |  | - | -------- | ---
|                                  |  | 2003 |        |   | 2002 |   |          | 2001 | 
|Total property revenues           |  | $    | 0      |   |      | $ | 156,687  |      |  | $ | 274,470  | (i)
|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|Operating costs  rental property |  |      | 3,114  |   |      |   | 160,142  |      |  |   | 212,539  | (i)
|Depreciation                      |  |      | 0      |   |      |   | 89,294   |      |  |   | 176,067  |    
|Management and leasing fees       |  |      | 0      |   |      |   | 18,304   |      |  |   | 20,652   |    
|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|Total expenses                    |  |      | 3,114  |   |      |   | 267,740  |      |  |   | 409,258  |    
|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|Operating loss                    |  |      | (3,114 | ) |      |   | (111,053 | )    |  |   | (134,788 | )  
|Impairment loss                   |  |      | 0      |   |      |   | (469,750 | )    |  |   | 0        |    
|Loss on disposition               |  |      | 0      |   |      |   | (21,051  | )    |  |   | 0        |    
|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|Loss from discontinued operations |  | $    | (3,114 | ) |      | $ | (601,854 | )    |  | $ | (134,788 | )  
|                                  |  |      |        |   |      |   |          |      |  |   |          |    



|(i) | Amounts have been restated to reflect tenant reimbursements of $5,558 as revenues for the twelve months ended December 31, 2001, which were previously recorded as a reduction of
expenses. This change in presentation has no impact on the financial position, net income, or cash flows of the Partnership (see Note 1).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page 13



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##### Index to Financial Statements



Net (Loss) Income of the Partnership



As a result of the aforementioned factors, net (loss) income of the
Partnership was $(13,276), $(435,555), and $375,442 for the years ended December 31, 2003, 2002, and 2001, respectively.



(c) Liquidity and Capital Resources



Cash Flows From Operating Activities



Net cash flows from operating activities were $(145,584), $(92,881), and $(44,035) for 2003, 2002, and 2001, respectively. The 2003 increase in cash flows used from 2002,
and the 2002 increase in cash flows used from 2001, is primarily due to the increases in partnership expenses described above. The 2003 increase from 2002 is also impacted by a change in the timing of paying accounts payable.



Cash Flows From Investing Activities



Net cash flows from investing activities were $969,050, $2,571,078, and $678,733 for 2003,
2002, and 2001, respectively. The 2003 decrease from 2002 resulted primarily from (i) the receipt of net proceeds from the sale of Greenville Center in 2002, and (ii) a decline in contributions made to Joint Ventures in 2003 in order to fund the
Partnerships share of tenant build out costs related to the Boeing lease amendments discussed in Part I, Item 2. The 2002 increase from 2001 resulted primarily from receiving net proceeds from the sale of Greenville Center in 2002, partially
offset by (i) additional contributions made to the Joint Ventures in order to fund lease-up costs for Boeing in 2002, as compared to contributions to fund the built-out of 4400 Cox Road in 2001, and (ii) a decrease in distributions received from
Boeing at the Atrium and the Holcomb Bridge Property due to declines in average occupancy of these properties during 2002.



Cash Flows From Financing Activities



Net cash flows from financing activities were $(883,525), $0, and $(909,408) for 2003, 2002, and 2001, respectively. The 2003 increase in cash flows used from 2002, and
the 2002 decrease from 2001, are primarily due to reserving cash flows otherwise distributable to limited partners in order to fund leasing commissions and tenant improvements related to the new Boeing lease in 2002.



Distributions



The Partnership made distributions to the limited partners holding Class A Units of $0.04, $0.01, and $0.05 per unit for the years ended
December 31, 2003, 2002, and 2001, respectively. Such distributions have been made from net cash from operations and distributions received from investments in joint ventures. No distributions have been made to the limited partners holding Class B
Units or to the General Partners.



Sales Proceeds



The sale of Greenville Center generated net sales proceeds of approximately $2,271,000 to
the Partnership. Upon evaluating the capital needs of the existing properties in which the Partnership holds an interest, the General Partners determined that reserves of approximately $959,000 will be required to fund costs anticipated to be
required to re-lease the recently vacated 4400 Cox Road and fund costs associated with increasing the occupancy of the Holcomb Bridge Property. Thus, in accordance with the terms of the partnership agreement, the General Partners distributed the
residual net sales proceeds in January 2004 of approximately $1,312,000 to the limited partners of record as of December 31, 2003, which under the partnership agreement does not include limited partners acquiring their units after September 30,
2003.



Page 14



---

##### Index to Financial Statements



Capital Resources



The Partnership is an investment vehicle formed for the purpose of acquiring, owning, and
operating income-producing real properties and has invested all of its funds available for investment. Accordingly, it is unlikely that the Partnership will acquire interests in any additional properties. In the near term, the General Partners
anticipate utilizing capital resources to fund the costs to re-lease 4400 Cox Road.



(d) Contractual Obligations and Commitments



On March 18,
2003, four Wells affiliated Joint Ventures (collectively, the Seller, defined below) entered into an agreement (the Agreement) to sell five real properties (the Sale Properties, defined below) located in
Stockbridge, Georgia to an unrelated third party (the Purchaser) for a gross sale price of $23,750,000. Contemporaneously with the Purchasers execution and delivery of the Agreement to the Seller, the Purchaser paid an earnest
money deposit of $250,000 to the designated escrow agent. The extended due diligence period expired March 8, 2004. The sale is expected to close during the month of April 2004.



|                                                               |  |                                                                            |  |                                                                                                                                                                                       
|-------------------------------------------------------------- |  | -------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Collectively, the Seller) The Joint Ventures                |  | Joint Venture Partners                                                     |  | Sale Properties                                                                                                                                                                       
|Fund III and Fund IV Associates (Fund III-IV Associates)     |  |    Wells Real Estate Fund III, L.P.    Wells Real Estate Fund IV, L.P.   |  | 1. Stockbridge Village Shopping Center A retail shopping center located in Stockbridge, Georgia                                                                                       
|                                                              
|                                                               |  |                                                                           
|Fund V-VI Associates                                           |  |    Wells Real Estate Fund V, L.P.    Wells Real Estate Fund VI, L.P.     |  | 2. Stockbridge Village II Two retail buildings located in Stockbridge, Georgia                                                                                                        
|                                                              
|                                                               |  |                                                                           
|Fund VI and Fund VII Associates (Fund VI-VII Associates)     |  |    Wells Real Estate Fund VI, L.P.    Wells Real Estate Fund VII, L.P.   |  | 3. Stockbridge Village I Expansion A retail shopping center expansion located in Stockbridge, Georgia  4. Stockbridge Village III Two retail buildings located in Stockbridge, Georgia
|                                                              
|                                                               |  |                                                                           
|Fund VII and Fund VIII Associates (Fund VII-VIII Associates) |  |    Wells Real Estate Fund VII, L.P.    Wells Real Estate Fund VIII, L.P. |  | 5. Hannover Center A retail center located in Stockbridge, Georgia                                                                                                                    
|                                                              



(e) Related-Party Transactions



Management and Leasing Fees



In consideration for the management and leasing of the Partnerships properties, the
Partnership pays Wells Management, an affiliate of the General Partners, management and leasing fees equal to (a) 3% of the gross revenues for management and 3% of the gross revenues for leasing (aggregate maximum of 6%) plus a separate fee for the
one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or more years), 1% of the gross revenues except for initial leasing fees equal to 3% of the gross revenues over the first



Page 15



---

##### Index to Financial Statements



five years of the lease term. The
Partnerships share of management and leasing fees and lease acquisition costs incurred through the Joint Ventures was $133,861, $110,520, and $184,541 for the years ended December 31, 2003, 2002, and 2001, respectively, which were paid to
Wells Management.



Administration Reimbursements



Wells Capital and its affiliates perform certain administrative services for the
Partnership, such as accounting and other partnership administration, and incur the related expenses. Such expenses are allocated among the various Wells Real Estate Funds based on time spent on each fund by individual administrative personnel.
During 2003, 2002 and 2001, the Partnership reimbursed $50,616, $42,383, and $38,847, respectively, to Wells Capital and its affiliates for these services.



Conflicts of Interest



The General Partners are also general partners of other Wells Real Estate Funds. As such, there may exist conflicts of interest where the General Partners in their
capacity as general partners of other Wells Real Estate Funds may be in competition with the Partnership for tenants in similar geographic markets.



(f) Inflation



The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases, which would
protect the Partnership from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per-square-foot basis, or in some cases, annual
reimbursement of operating expenses above a certain per-square-foot allowance. However, due to the long-term nature of the leases, the leases may not reset frequently enough to cover inflation.



(g) Application of Critical Accounting Policies



The Partnerships accounting policies have been established to conform with GAAP. The
preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If managements judgment or interpretation of the facts and
circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may
utilize different estimates that may impact comparability of the Partnerships results of operations to those of companies in similar businesses.



Below is a discussion of the accounting policies that management considers to be critical in that they may require complex judgment in their application or require
estimates about matters that are inherently uncertain. Additional discussion of accounting policies that management considers to be significant, including further discussion of the critical accounting policies described below, is presented in Note 1
to the Partnerships financial statements included in this report.



Page 16



---

##### Index to Financial Statements



Investment in Real Estate Assets



The Partnerships management is required to make subjective
assessments as to the useful lives of its depreciable assets. The Partnership considers the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful
lives of the Partnerships assets by class are as follows:



|                      |  |                                      
|--------------------- |  | -------------------------------------
|Building              |  | 25 years                             
|Building improvements |  | Remaining useful life of the building
|Land improvements     |  | 20 years                             
|Tenant improvements   |  | Lease term                           



In the event that management uses
inappropriate useful lives or methods for depreciation, the Partnerships net income would be misstated.



Valuation of Real Estate Assets



Management continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which the Partnership has an ownership interest, either directly or through investments in joint
ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate assets by
determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted
future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss.



The Partnership recognized an impairment loss of $373,750 on its investment in Greenville Center during the second quarter of 2002 and an additional impairment loss of
$96,000 in the third quarter of 2002, both of which are included in the total loss on disposition in the accompanying statements of (loss) income. Management has determined that there has been no other impairment in the carrying value of real estate
assets held by the Partnership to date.



Projections of expected future cash
flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to re-lease the property, and the number of
years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the propertys future cash flows and fair value, and could result in the overstatement
of the carrying value of real estate assets held by the Joint Ventures and net income of the Partnership.



(h)    Subsequent Events



As further described in section (c) above, on January 23, 2004, the General Partners distributed net proceeds from the sale of Greenville Center of $1,312,000 to the limited partners of record as of December 31, 2003, which under the
partnership agreement does not include limited partners acquiring their units after September 30, 2003.



On March 19, 2004, Leo F. Wells, III and Wells Capital, the General Partners, as well as Wells Investment Securities, Inc., the dealer manager, Wells Management Company, Inc., the property manager, and Wells Real
Estate Fund I (Wells Defendants) received notice of a putative class action complaint, which was filed in the



Page 17



---

##### Index to Financial Statements



Superior Court of Gwinnett County, Georgia
on March 12, 2004 (Civil Action File No. 04-A-2791 2). The complaint was filed by James Hendry, Karen Beneda, Robert Beneda, and William Mullin, as plaintiffs, purportedly on behalf of all limited partners holding Class B units of Wells Real Estate
Fund I (Wells Fund I) as of January 15, 2003. The complaint alleges, among other things, that (1) Mr. Wells, Wells Capital, Wells Investment Securities, Inc. and Wells Fund I negligently and/or fraudulently made false statements and/or
made material omissions in connection with the initial sale of the Class B units to investors of Wells Fund I by making false statements or omissions in the Wells Fund I sales literature relating to the distribution of net sale proceeds to holders
of Class B units; (2) Mr. Wells, Wells Capital and Wells Fund I negligently and/or fraudulently misrepresented and/or concealed disclosure of, among other things, alleged discrepancies between such statements and the allocations in the partnership
agreement for a period of time in order to raise money for future syndications and to delay such investors from taking any legal, equitable or other action to protect their investments in Wells Fund I; and (3) Mr. Wells, Wells Capital and Wells Fund
I breached their fiduciary duties to the limited partners. The plaintiffs seek, among other remedies, the following: rescission of all class members purchases of Class B units and an order for a full refund of all money paid for such units
together with interest; judgment against the Wells Defendants, jointly and severally, in an amount to be proven at trial; punitive damages; judicial dissolution of Wells Fund I and the appointment of a receiver to wind up and terminate the
partnership; and an award to plaintiffs of their attorneys fees, costs and expenses. It is too early to predict what impact, if any, this matter may have on the General Partners of the Partnership.



|ITEM 7A.    QUANTITATIVE | AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------------------------ | ----------------------------------------------



Since the Partnership does not borrow any money or make any foreign investments, it is not subject to risks relating to interest rate or foreign currency exchange rate
fluctuations.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|------- | --------------------------------------------



The financial statements of the Registrant and supplementary data are detailed under Item 15(a) and filed as part of the report on the pages indicated.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|------- | -------------------------------------------------------------------------------------



There were no disagreements with the Partnerships independent public accountants during the years ended December 31, 2003 and 2002.



On May 16, 2002, the General Partners dismissed Arthur Andersen LLP (Andersen)
as the Partnerships independent public accountants effective immediately.



Andersens report on the financial statements of the Partnership for the year ended December 31, 2001 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.



During the year ended December 31, 2001 and through the
date of Andersens dismissal, there were no disagreements with Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Andersens satisfaction,
would have caused Andersen to make reference to the subject matter in connection with its report on the financial statements of the Partnership for such year and there were no reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K.



Page 18



---

##### Index to Financial Statements



On July 3, 2002, the Partnership engaged
Ernst & Young, LLP (Ernst & Young) to audit the financial statements of the Partnership, effective immediately. During the fiscal year ended December 31, 2001, and through the date of appointment of Ernst & Young as the
Partnerships independent public accountants, the Partnership did not consult Ernst & Young with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the financial statements of the Partnership, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.



|ITEM 9A. | CONTROLS AND PROCEDURES.
|-------- | ------------------------



The Partnership carried out an evaluation, under the supervision and with the participation of management of Wells Capital, the corporate General Partner of the
Partnership, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Partnerships disclosure controls and procedures as to the end of the period covered by this report
pursuant to the Securities Exchange Act of 1934. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Partnerships disclosure controls and procedures were effective.



There were no significant changes in the Partnerships internal control over financial
reporting during the Partnerships fourth fiscal quarter that have materially affected, or are likely to materially affect, the Partnerships internal control over financial reporting.



Page 19



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##### Index to Financial Statements



PART III



|ITEM 10.    GENERAL | PARTNERS OF THE PARTNERSHIP.
|------------------- | ----------------------------



Wells Capital



Wells Capital was formed in April 1984. The executive offices of Wells Capital are located at 6200 The Corners Parkway, Norcross, Georgia 30092. Leo F. Wells, III is the sole Director and the President of Wells
Capital. Wells Capital was organized under the Georgia Business Corporation Code, and is primarily in the business of serving as general partner or as an affiliate to the general partner in affiliated public limited partnerships (Wells Real
Estate Funds) and as the advisor to the Wells Real Estate Investment Trust, Inc. and Wells Real Estate Investment Trust II, Inc. (Wells REITs), each a Maryland corporation which qualifies as a real estate investment trust. In these
capacities, Wells Capital performs certain services for the Wells Real Estate Funds and the Wells REITs, including presenting, structuring, and acquiring real estate investment opportunities, entering into leases and service contracts on acquired
properties, arranging for and completing the disposition of properties, and providing other services such as accounting and administrative functions.



Leo F. Wells, III



Mr. Wells, who serves as one of our General Partners, is the President, Treasurer, and sole director of Wells Capital, which is our corporate General Partner. He is also
the sole stockholder, President, and sole director of Wells Real Estate Funds, Inc., the parent corporation of Wells Capital, Wells Management, Wells Investment Securities, Inc. (Wells Investment Securities), and Wells & Associates,
Inc., a real estate brokerage and investment company formed in 1976 and incorporated in 1978, for which Mr. Wells serves as principal broker. He is also the President, Treasurer, and sole director of:



| |  | Wells Management, our property manager;
| | - | ---------------------------------------



| |  | Wells & Associates, Inc.; and
| | - | -----------------------------



| |  | Wells Development Corporation, a company he organized in 1997 to develop real properties.
| | - | -----------------------------------------------------------------------------------------



Mr. Wells is the President and a director of Wells Real Estate Investment Trust, Inc. and Wells Real Estate Investment Trust II, Inc., which
are both real estate investment trusts formed under Maryland law.



Mr. Wells
was a real estate salesman and property manager from 1970 to 1973 for Roy D. Warren & Company, an Atlanta-based real estate company, and he was associated from 1973 to 1976 with Sax Gaskin Real Estate Company. From 1980 to February 1985 he
served as Vice President of Hill-Johnson, Inc., a Georgia corporation engaged in the construction business. Mr. Wells holds a Bachelor of Business Administration degree in economics from the University of Georgia. Mr. Wells is a member of the
Financial Planning Association (FPA).



On August 26, 2003, Mr. Wells and Wells
Investment Securities entered into a Letter of Acceptance, Waiver and Consent (AWC) with the NASD relating to alleged rule violations. The AWC set forth the NASDs findings that Wells Investment Securities and Mr. Wells had violated conduct
rules relating to the provision of non-cash compensation of more than $100 to associated persons of NASD member firms in connection with their attendance at the annual educational and due diligence conferences sponsored by Wells Investment
Securities in 2001 and 2002. Without admitting or denying the allegations and findings against them, Wells Investment Securities and Mr. Wells consented in the AWC to various findings by the NASD which are summarized in the following paragraph:



In 2001 and 2002, Wells Investment Securities sponsored
conferences attended by registered representatives who sold its real estate investment products. Wells Investment Securities also paid for certain expenses of guests of the registered representatives who attended the conferences. In 2001, Wells
Investment Securities



Page 20



---

##### Index to Financial Statements



paid the costs of travel to
the conference and meals for many of the guests, and paid the costs of playing golf for some of the registered representatives and their guests. Wells Investment Securities later invoiced registered representatives for the cost of golf and for
travel expenses of guests, but was not fully reimbursed for such. In 2002, Wells Investment Securities paid for meals for the guests. Wells Investment Securities also conditioned most of the 2001 conference invitations on attainment by the
registered representatives of a predetermined sales goal for Wells Investment Securities products. This conduct violated the prohibitions against payment and receipt of non-cash compensation in connection with the sales of these products contained
in NASDs Conduct Rules 2710, 2810, and 3060. In addition, Wells Investment Securities and Mr. Wells failed to adhere to all of the terms of their written undertaking made in March 2001 not to engage in the conduct described above, and thereby
engaged in conduct that was inconsistent with high standards of commercial honor and just and equitable principles of trade in violation of NASD Conduct Rule 2110.



Wells Investment Securities consented to a censure and Mr. Wells consented to suspension from acting in a principal capacity with an NASD
member firm for one year. Wells Investment Securities and Mr. Wells also agreed to the imposition of a joint and several fine in the amount of $150,000. Although he is temporarily prohibited from acting in a principal capacity with Wells Investment
Securities, Mr. Wells continues to engage in selling efforts and other non-principal activities on behalf of Wells Investment Securities.



Financial Oversight Committee



The Partnership does not have a board of directors or an audit committee. Accordingly, as the corporate General Partner of the Partnership, Wells Capital has established
a Financial Oversight Committee consisting of Leo F. Wells, III, as the Principal Executive Officer; Douglas P. Williams, as the Principal Financial Officer; and Randall D. Fretz, as the Chief of Staff, of the corporate General Partner. The
Financial Oversight Committee serves the equivalent function of an audit committee for, among others, the following purposes: appointment, compensation, review and oversight of the work of our independent public accountants, and establishing and
enforcing the code of ethics. However, as the Partnership and corporate General Partner do not have an audit committee and the Financial Oversight Committee is not independent of the Partnership or the General Partners, the Partnership does not have
an audit committee financial expert.



Code of Ethics



The Financial Oversight Committee has adopted a code of ethics applicable
to our corporate General Partners Principal Executive Officer and Principal Financial Officer, as well as the principal accounting officer, controller, or other employees of our corporate General Partner performing similar functions on behalf
of the Partnership, if any. You may obtain a copy of this code of ethics, without charge, upon request by calling our Investor Services Department at (800) 557-4830 or (770) 243-8282



Page 21



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##### Index to Financial Statements



ITEM 11.
    COMPENSATION OF GENERAL PARTNERS AND AFFILIATES.



The following table summarizes the compensation and fees paid to the General Partners and their affiliates during the year ended December 31, 2003:



|                                      |  |                                                                                 |  |                  |         |    
|------------------------------------- |  | ------------------------------------------------------------------------------- |  | ---------------- | ------- | ---
|Name of Individual or Number in Group |  | Capacities in which served Form of Compensation                                 |  | CashCompensation |        
|Wells Management                      |  | Property Management and Leasing Fees                                            |  | $                | 108,683 | (1)
|                                      |  |                                                                                
|Wells Capital                         |  | Administrative services such as accounting and other partnership administration |  | $                | 20,918  |    



|(1) | These property management and leasing fees are not paid directly by the Partnership, but are paid by the Joint Venture entities which own properties for which the property
management and leasing services relate and include management and leasing fees. The Partnership does not own any properties directly. Accordingly, these fees are payable to Wells Management by the Joint Ventures described in Item 1 and
represent the Partnerships ownership interest in amounts attributable to the properties owned directly by these joint ventures for services rendered during 2003. Some of these fees were accrued for accounting purposes in 2003, however, were
not paid until January 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.



No limited partner is known by the Partnership to own beneficially more than 5% of the outstanding units of the Partnership.



Set forth below is the security ownership of management as of February 15, 2004:



|               |  |                          |  |                                          |  |                 
|-------------- |  | ------------------------ |  | ---------------------------------------- |  | ----------------
|Title of Class |  | Name of Beneficial Owner |  | Amount and Nature ofBeneficial Ownership |  | Percent of Class
|Class A Units  |  | Leo F. Wells, III        |  | 24,392.79 Units (IRA)                    |  | Less than 1%    
|Class B Units  |  | Leo F. Wells, III        |  | 1,750.00 Units (IRA)                     |  | Less than 1%    



No arrangements exist which would,
upon execution thereof, result in a change in control of the Partnership.



ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.



The compensation and fees paid or to be paid by the Partnership to the General Partners and their affiliates in connection with the operation of the Partnership are as follows:



Interest in Partnership Cash Flow and Net Sale Proceeds



The General Partners receive a subordinated participation in net cash flow from operations
equal to 10% of net cash flow after the Limited Partners have received preferential distributions equal to 8% of their adjusted capital contribution. For the year ended December 31, 2003, the General Partners did not receive any cash distributions.
The General Partners also receive a subordinated participation in net sale proceeds and net financing proceeds equal to 15% of residual proceeds available for distribution after the limited partners have received a return of their adjusted capital
contribution plus a 12% cumulative return on their adjusted capital contribution. The General Partners have not received any distributions of net cash flow from operations or net sale proceeds for the year ended December 31, 2003.



Page 22



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##### Index to Financial Statements



Property Management and Leasing Fees



Wells Management, an affiliate of the General Partners, receives
compensation for the management and leasing of the Partnership properties equal to 6% (3% management and 3% leasing) of rental income. For the year ended December 31, 2003, Wells Managements compensation totaled $108,683 in management and
leasing fees. In no event will such fees exceed the sum of (i) 6% of the gross receipts of each property, plus (ii) a separate one-time fee for initial rent-up or leasing-up of development properties in an amount not to exceed the fee customarily
charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties. With respect to properties leased on a net basis for a period of ten years or longer, property management fees will
not exceed 1% of gross revenues from such leases, plus a one-time initial leasing fee of 3% of the gross revenues which are payable over the first five years of the term of such net leases.



Real Estate Commissions



In connection with the sale of Partnership properties, the General Partners or their
affiliates may receive commissions not exceeding the lesser of (a) 50% of the commissions customarily charged by other brokers in arms-length transactions involving comparable properties in the same geographic area or (b) 3% of the gross sales
price of the property, and provided that payments of such commissions will be made only after limited partners have received prior distributions totaling 100% of their capital contributions plus a 6% cumulative return on their adjusted capital
contributions. The General Partners or their affiliates received no real estate commissions in 2003.



ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES.



Preapproval Policies and Procedures



The Financial Oversight Committee preapproves all auditing and permissible non-auditing services provided by our independent public accountants. The approval may be given
as part of the Financial Oversight Committees approval of the scope of the engagement of our independent public accountants or on an individual basis. The preapproval of certain audit-related services and certain non-auditing services not
exceeding enumerated dollar limits may be delegated to one or more of the Financial Oversight Committees members, but the member to whom such authority is delegated shall report any preapproval decisions to the full Financial Oversight
Committee. Our independent public accountants may not be retained to perform the non-auditing services specified in Section 10A(g) of the Securities Exchange Act of 1934.



Fees Paid to the Independent Public Accountants



As indicated in Item 9 above, we engaged Ernst & Young to be our independent public accountants on July 3, 2002. The aggregate fees
billed to the Partnership for professional accounting services, including the audit of the Partnerships annual financial statements by Ernst & Young for the fiscal years ended December 31, 2003 and 2002, are set forth in the table below.



|                   |  |      |        |      |   |       
|------------------ |  | ---- | ------ | ---- | - | ------
|                   |  | 2003 |        | 2002
|Audit Fees         |  | $    | 19,623 |      | $ | 35,491
|Audit-Related Fees |  |      | 2,265  |      |   | 0     
|Tax Fees           |  |      | 471    |      |   | 218   
|                   |  |      |        |      |   |       
|Total              |  | $    | 22,359 |      | $ | 35,709
|                   |  |      |        |      |   |       



Page 23



---

##### Index to Financial Statements



For purposes of the preceding table, the
professional fees are classified as follows:



| |  | Audit Fees  These are fees for professional services performed for the audit of our annual financial statements and review of financial statements included in our Form 10-Q
filings, services that are normally provided by independent public accountants in connection with statutory and regulatory filings or engagements, and services that generally independent public accountants reasonably can provide, such as statutory
audits, attest services, consents, and assistance with and review of documents filed with the SEC.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Audit-Related Fees  These are fees for assurance and related services that traditionally are performed by independent public accountants, such as due diligence related to
acquisitions and dispositions, internal control reviews, attestation services that are not required by statute or regulation, and consultation concerning financial accounting and reporting standards.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Tax Fees  These are fees for all professional services performed by professional staff in our independent public accountants tax division, except those services related
to the audit of our financial statements. These include fees for tax compliance, tax planning and tax advice. Tax compliance involves preparation of any federal, state, or local tax returns. Tax planning and tax advice encompass a diverse range of
services, including assistance with tax audits and appeals, tax advice related to acquisitions and dispositions of assets, and requests for rulings or technical advice from taxing authorities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | All Other Fees  These are fees for other permissible work performed that do not meet the above-described categories, including assistance with internal audit plans and risk
assessments.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Since May 6, 2003, the effective date of the SEC
Rules requiring audit committees to approve all services provided by independent public accountants, 100% of the services performed by Ernst & Young described above under the captions Audit Fees, Audit-Related Fees,
Tax Fees, and All Other Fees were approved in advance by a member of the Financial Oversight Committee.



PART IV



ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.



|    |  |                                                                                                              |  |                                                                                                                                                                                                                                                              
|--- |  | ------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 1.                                                                                                           |  | The consolidated financial statements are contained on pages F-2 through F-42 of this Annual Report on Form 10-K, and the list of the consolidated financial statements contained herein is set
forth on page F-1, which is hereby incorporated by reference.
|    |  |                                                                                                             
|    |  | 2.                                                                                                           |  | Financial statement Schedule IIIInformation with respect to this item begins on page F-18 of this Annual Report on Form 10-K.                                                                                                                               
|    |  |                                                                                                             
|    |  | 3.                                                                                                           |  | The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.                                                                                                                                                
|    | 
|(b) |  | No reports on Form 8-K were filed with the Commission during the fourth quarter of 2003.                    
|    | 
|(c) |  | The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attachedhereto.
|    | 
|(d) |  | See (a)2. above.                                                                                            



Page 24



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##### Index to Financial Statements



SIGNATURES



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



|               |  |                                                   
|-------------- |  | --------------------------------------------------
|               |  | WELLS REAL ESTATE FUND III, L.P.                  
|               |  | (Registrant)                                      
|               | 
|               |  | By: WELLS CAPITAL, INC.                           
|               |  | (Corporate General Partners)                      
|               | 
|March 25, 2004 |  | /s/    LEO F. WELLS, III                          
|               |  | Leo F. Wells, III President                       
|               | 
|March 25, 2004 |  | /s/    DOUGLAS P. WILLIAMS                        
|               |  | Douglas P. Williams                               
|               |  | Principal Financial Officer of Wells
Capital, Inc.



Page 25



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##### Index to Financial Statements

EXHIBIT INDEX

TO

2003 FORM 10-K

OF

WELLS REAL ESTATE FUND III, L.P.



The following documents are filed as exhibits to this report. Those exhibits previously filed
and incorporated herein by reference are identified below by an asterisk. For each such asterisked exhibit, there is shown below the description of the previous filing. Exhibits which are not required for this report are omitted.



|              |     |  |                                                                                                                                                                                                                           
|------------- | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |     |  | Description of Document                                                                                                                                                                                                   
|              |    
|*4            | (a) |  | Agreement of Limited Partnership of Wells Real Estate Fund III, L.P. (Registration Statement of Wells Real Estate Fund III, L.P., Exhibit B to the Prospectus, File No.
33-24063)                                         
|              |    
|*4            | (b) |  | Amendment to Agreement of Limited Partnership of Wells Real Estate Fund III, L.P. (Exhibit 4(a) to Post-Effective Amendment No. 1 to Registration Statement of Wells Real Estate Fund III,
L.P., File No. 33-24063)       
|              |    
|*4            | (c) |  | Second Amendment to Agreement of Limited Partnership of Wells Real Estate Fund III, L.P. (Exhibit 4(a) to Post-Effective Amendment No. 5 to Registration Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
|              |    
|*4            | (d) |  | Third Amendment to Agreement of Limited Partnership of Wells Real Estate Fund III, L.P. (Exhibit to Post-Effective Amendment No. 7 to Registration
Statement of Wells Real Estate Fund III, L.P., File No. 33-24063)      
|              |    
|*10           | (a) |  | Management Agreement between Registrant and Wells Management Company, Inc. (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year ended December 31, 1990, File No.
0-18407)                       
|              |    
|*10           | (b) |  | Leasing and Tenant Coordination Agreement between Registrant and Wells Management Company, Inc. (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year ended December
31, 1990, File No. 0-18407)  
|              |    
|*10           | (c) |  | Purchase Agreement for the Acquisition of the Atrium at Nassau Bay dated March 1, 1989 (Exhibit 10(i) to Form 10-K of Wells Real Estate Fund II for the fiscal year ended December 31, 1990, File No. 0-16518)            
|              |    
|*10           | (d) |  | Joint Venture Agreement of Fund II and Fund III Associates dated March 1, 1989 (Exhibit to Post-Effective Amendment No. 2 to Registration
Statement of Wells Real Estate Fund III, L.P., File No. 33-24063)               
|              |    
|*10           | (e) |  | First Amendment to Joint Venture Agreement of Fund II and Fund III Associates dated April 1, 1989 (Exhibit 10(k) to Form 10-K of Wells Real Estate
Fund II for the fiscal year ended December 31, 1990, File No. 0-16518) 



---

##### Index to Financial Statements

|    |     |  |                                                                                                                                                                                                                                                                                             
|--- | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |    
|*10 | (f) |  | Leases with Lockheed Engineering and Sciences Company, Inc. (Exhibit 10(l) to Form 10-K of Wells Real Estate Fund II for the fiscal year ended December 31, 1990, File No.
0-16518)                                                                                                         
|    |    
|*10 | (g) |  | Custodial Agency Agreement between Registrant and Citizens and Southern Trust Company (Georgia), National Association dated January 1, 1990
(Exhibit to Post-Effective Amendment No. 5 to Registration Statement of Wells Real Estate Fund III, L.P., File No. 33-24063)                    
|    |    
|*10 | (h) |  | Purchase Agreement for the Acquisition of the Greenville Property dated April 10, 1990 (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year ended December 31, 1990,
File No. 0-18407)                                                                             
|    |    
|*10 | (i) |  | Development Agreement with ADEVCO Corporation dated June 15, 1990 (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year ended December 31, 1990, File No.
0-18407)                                                                                                  
|    |    
|*10 | (j) |  | Construction Contract with McDevitt & Street Company dated May 31, 1990 (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year ended December 31, 1990, File No.
0-18407)                                                                                            
|    |    
|*10 | (k) |  | Lease with International Business Machines Corporation dated May 15, 1990 (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year ended December 31, 1990, File No. 0-18407)                                                                                          
|    |    
|*10 | (l) |  | Amended and Restated Joint Venture Agreement of Fund II and Fund III Associates (Exhibit 10(o) to Form 10-K of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991, File No. 0-16518)                                                                                     
|    |    
|*10 | (m) |  | Land and Building Lease Agreement between Fund II and Fund II-OW and Brookwood Grill of Roswell, Inc. (Exhibit 10(p) to Form 10-K of Wells Real Estate Fund II for the fiscal year ended
December 31, 1991, File No. 0-16518)                                                               
|    |    
|*10 | (n) |  | Assignment and Assumption of Lease dated September 20, 1991 between Fund II and Fund II-OW and Fund II and Fund III Associates (Exhibit 10(q) to Form 10-K of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991, File No. 0-16518)                                      
|    |    
|*10 | (o) |  | Fund III and Fund IV Associates Joint Venture Agreement dated March 27, 1991 (Exhibit 10(g) to Post-Effective Amendment No. 1 to Registration Statement of Wells Real Estate Fund IV, L.P. and
Wells Real Estate Fund V, L.P., File No. 33-37830)                                           
|    |    
|*10 | (p) |  | Agreement of Purchase and Sale dated October 31, 1990 between 675 Industrial Park, Ltd. and The Vlass-Fotos Group, Inc. (Exhibit 10(h) to
Post-Effective Amendment No. 1 to Registration Statement of Wells Real Estate Fund IV, L.P. and Wells Real Estate Fund V, L.P., File No.
33-37830)
|    |    
|*10 | (q) |  | Lease dated January 31, 1991 between The Vlass-Fotos Group, Inc. and The Kroger Co. (Exhibit 10(i) to Post-Effective Amendment No. 1 to Registration Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P., File No. 33-37830)                                    
|    |    
|*10 | (r) |  | Lease Agreement dated January 31, 1991 between The Vlass-Fotos Group, Inc. and The Kroger Co. (Exhibit 10(j) to Post-Effective Amendment No. 1 to Registration Statement of Wells Real Estate
Fund IV, L.P. and Wells Real Estate Fund V, L.P., File No. 33-37830)                          



---

##### Index to Financial Statements

|     |      |  |                                                                                                                                                                                                                                                                                                                  
|---- | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |     
|*10  | (s)  |  | First Amendment to Lease dated April 3, 1991 between The Vlass-Fotos Group, Inc. and The Kroger Co. (Exhibit 10(k) to Post-Effective Amendment No. 1 to Registration Statement of Wells Real
Estate Fund IV, L.P. and Wells Real Estate Fund V, L.P., File No. 33-37830)                                         
|     |     
|*10  | (t)  |  | First Amendment to Lease Agreement dated April 3, 1991 between The Vlass-Fotos Group, Inc. and The Kroger Co. (Exhibit 10(l) to Post-Effective Amendment No. 1 to Registration Statement of
Wells Real Estate Fund IV, L.P. and Wells Real Estate Fund V, L.P., File No. 33-37830)                               
|     |     
|*10  | (u)  |  | Development Agreement dated April 4, 1991 between Fund III and Fund IV Associates and The Vlass-Fotos Group, Inc. (Exhibit 10(m) to Post-Effective
Amendment No. 1 to Registration Statement of Wells Real Estate Fund IV, L.P. and Wells Real Estate Fund V, L.P., File No. 33-37830)                           
|     |     
|*10  | (v)  |  | First Amendment to Joint Venture Agreement of Fund III and IV Associates dated July 1, 1992 (Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year ended December 31,
1992, File No. 0-18407)                                                                                             
|     |     
|*10  | (w)  |  | Agreement for the Purchase and Sale of Property between Rowe Properties-Markel, L.P. and Fund III and Fund IV Associates and Addendum to Agreement for the Purchase and Sale of Property
(Exhibit to Form 10-K of Wells Real Estate Fund III, L.P. for the fiscal year ended December 31, 1992, File No. 0-18407)
|     |     
|*10  | (x)  |  | Office Lease with G.E. Lighting, Rider No. 1 to Lease, Addendum of Lease, Second Addendum of Lease, Third Amendment of Lease and Fourth Amendment to Office Lease (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the fiscal year ended December 31, 1992, File No. 0-18407)                       
|     |     
|*10  | (y)  |  | Amended and Restated Custodial Agency Agreement between Wells Real Estate Fund III, L.P. and NationsBank of Georgia, N.A. dated April 1, 1994 (Exhibit to Form 10-K of Wells Real Estate Fund
III, L.P. for the fiscal year ended December 31, 1994, File No. 0-18407)                                           
|     |     
|*10  | (z)  |  | Joint Venture Agreement of Fund II, III, VI and VII Associates (Exhibit 10(w) to Form 10-K of Wells Real Estate Fund VI, L.P. for the fiscal year ended December 31,1995, File No.
0-23656)                                                                                                                      
|     |     
|*10  | (aa) |  | Amendments to the Brookwood Grill Lease (Exhibit 10(aa)) to Form 10-K of Wells Real Estate Fund II for the fiscal year ended December 31, 2001, File No. 0-16518)                                                                                                                                                
|     |     
|*10  | (bb) |  | Purchase and Sale Agreement for the Greenville Center (Exhibit 10.1 to the Form 10-Q of Wells Real Estate Fund III, L.P. for the quarter ended September 30, 2002, File No.
0-18407)                                                                                                                             
|     |     
|*10  | (cc) |  | Lease Agreement with The Boeing Company (Exhibit 10(bb) to Form 10-K of Wells Real Estate Fund II for the fiscal year ended December 31, 2002, File No. 0-16518)                                                                                                                                                 
|     |     
|*10  | (dd) |  | First Amendment to Lease Agreement with The Boeing Company (Exhibit 10(cc) to Form 10-K of Wells Real Estate Fund II for the fiscal year ended December 31, 2002, File No.
0-16518)                                                                                                                              
|     |     
|*10  | (ee) |  | Second Amendment to Lease Agreement with The Boeing Company (Exhibit 10(dd) to Form 10-K of Wells Real Estate Fund II for the fiscal year ended December 31, 2002, File No.
0-16518)                                                                                                                             
|     |     
|*10  | (ff) |  | Third Amendment to Lease Agreement with The Boeing Company (Exhibit 10(ee) to Form 10-K of Wells Real Estate Fund II for the fiscal year ended December 31, 2002, File No.
0-16518)                                                                                                                              
|     |     
|31.1 |      |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                           
|     |     
|31.2 |      |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                           
|     |     
|32.1 |      |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   



---

##### Index to Financial Statements



TABLE OF CONTENTS



|                                                                                      |  |     
|------------------------------------------------------------------------------------- |  | ----
|FINANCIAL STATEMENTS                                                                  |  | Page
|WELLS REAL ESTATE FUND III                                                            |  |     
|Report of Independent Auditors  Ernst & Young LLP                                    |  | F-2 
|Balance Sheets as of December 31, 2003 and 2002                                       |  | F-3 
|Statements of (Loss) Income for the Years Ended December 31, 2003, 2002, and 2001     |  | F-4 
|Statements of Partners Capital for the Years Ended December 31, 2003, 2002, and 2001 |  | F-5 
|Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001        |  | F-6 
|Notes to Financial Statements                                                         |  | F-7 
|Schedule III  Real Estate and Accumulated Depreciation                               |  | F-18
|                                                                                      | 
|FUND II AND FUND III ASSOCIATES                                                       |  |     
|Report of Independent Auditors                                                        |  | F-20
|Balance Sheets as of December 31, 2003 and 2002                                       |  | F-21
|Statements of Income (Loss) for the Years Ended December 31, 2003, 2002, and 2001     |  | F-22
|Statements of Partners Capital for the Years Ended December 31, 2003, 2002, and 2001 |  | F-23
|Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001        |  | F-24
|Notes to Financial Statements                                                         |  | F-25
|Schedule III  Real Estate and Accumulated Depreciation                               |  | F-30
|                                                                                      | 
|FUND III AND FUND IV ASSOCIATES                                                       |  |     
|Report of Independent Auditors                                                        |  | F-32
|Balance Sheets as of December 31, 2003 and 2002                                       |  | F-33
|Statements of Income for the Years Ended December 31, 2003, 2002, and 2001            |  | F-34
|Statements of Partners Capital for the Years Ended December 31, 2003, 2002, and 2001 |  | F-35
|Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001        |  | F-36
|Notes to Financial Statements                                                         |  | F-37
|Schedule III  Real Estate and Accumulated Depreciation                               |  | F-41



Page F-1



---

##### Index to Financial Statements



REPORT OF INDEPENDENT AUDITORS



The Partners

Wells Real Estate Fund III, L.P.



We have audited the accompanying balance sheets of Wells Real Estate Fund III, L.P. (a Georgia public limited partnership) as of December 31, 2003 and 2002, and the
related statements of (loss) income, partners capital, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the index at Item 15(a) as of December
31, 2003 and 2002. These financial statements and schedule are the responsibility of the Partnerships management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.



In our opinion, the
financial statements referred to above present fairly, in all material respects, the financial position of Wells Real Estate Fund III, L.P. at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.



/s/    Ernst & Young LLP



Atlanta, Georgia

February 18, 2004



Page F-2



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



BALANCE SHEETS



DECEMBER 31,
2003 AND 2002



ASSETS



|                                                  |  |      |            |      |   |           
|------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                                  |  | 2003 |            | 2002
|INVESTMENT IN JOINT VENTURES                      |  | $    | 9,906,037  |      | $ | 10,722,303
|                                                  |  |     
|CASH AND CASH EQUIVALENTS                         |  |      | 2,552,904  |      |   | 2,612,963 
|                                                  |  |     
|DUE FROM JOINT VENTURES                           |  |      | 200,239    |      |   | 241,190   
|                                                  |  |     
|PREPAID EXPENSES AND OTHER ASSETS, net            |  |      | 0          |      |   | 199       
|                                                  |  |      |            |      |   |           
|Total assets                                      |  | $    | 12,659,180 |      | $ | 13,576,655
|                                                  |  |      |            |      |   |           
|                                                 
|LIABILITIES AND PARTNERS CAPITAL                
|                                                  |  |     
|LIABILITIES:                                      |  |      |            |      |   |           
|Partnership distributions payable                 |  | $    | 220,904    |      | $ | 238,320   
|Accounts payable and accrued expenses             |  |      | 6,571      |      |   | 27,245    
|                                                  |  |      |            |      |   |           
|Total liabilities                                 |  |      | 227,475    |      |   | 265,565   
|                                                  |  |      |            |      |   |           
|                                                  |  |     
|COMMITMENTS AND CONTINGENCIES                     |  |      |            |      |   |           
|                                                  |  |     
|PARTNERS CAPITAL:                                |  |      |            |      |   |           
|Limited partners:                                 |  |      |            |      |   |           
|Class A  19,635,965 units issued and outstanding |  |      | 12,431,705 |      |   | 13,311,090
|Class B  2,544,540 units issued and outstanding  |  |      | 0          |      |   | 0         
|General partners                                  |  |      | 0          |      |   | 0         
|                                                  |  |      |            |      |   |           
|Total partners capital                           |  |      | 12,431,705 |      |   | 13,311,090
|                                                  |  |      |            |      |   |           
|Total liabilities and partners capital           |  | $    | 12,659,180 |      | $ | 13,576,655
|                                                  |  |      |            |      |   |           



See accompanying notes.



Page F-3



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



STATEMENTS OF (LOSS) INCOME



FOR THE YEARS ENDED

DECEMBER 31, 2003, 2002 AND 2001



|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                        |  | 2003 |         |   | 2002 |   |          | 2001 | 
|REVENUES:                                               |  |      |         |   |      |   |          |      |  |   |          |  
|Equity in income of Joint Ventures                      |  | $    | 111,833 |   |      | $ | 273,251  |      |  | $ | 602,145  |  
|Interest income                                         |  |      | 23,278  |   |      |   | 16,601   |      |  |   | 9,042    |  
|Other income                                            |  |      | 0       |   |      |   | 1,909    |      |  |   | 0        |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|                                                        |  |      | 135,111 |   |      |   | 291,761  |      |  |   | 611,187  |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|EXPENSES:                                               |  |      |         |   |      |   |          |      |  |   |          |  
|Partnership administration                              |  |      | 85,446  |   |      |   | 74,489   |      |  |   | 64,276   |  
|Legal and accounting                                    |  |      | 50,975  |   |      |   | 42,648   |      |  |   | 21,153   |  
|Other general and administrative                        |  |      | 8,852   |   |      |   | 8,325    |      |  |   | 15,528   |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|                                                        |  |      | 145,273 |   |      |   | 125,462  |      |  |   | 100,957  |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|NET (LOSS) INCOME FROM CONTINUING OPERATIONS            |  |      | (10,162 | ) |      |   | 166,299  |      |  |   | 510,230  |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|DISCONTINUED OPERATIONS:                                |  |      |         |   |      |   |          |      |  |   |          |  
|Operating loss                                          |  |      | (3,114  | ) |      |   | (111,053 | )    |  |   | (134,788 | )
|Impairment loss                                         |  |      | 0       |   |      |   | (469,750 | )    |  |   | 0        |  
|Loss on disposition                                     |  |      | 0       |   |      |   | (21,051  | )    |  |   | 0        |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|LOSS FROM DISCONTINUED OPERATIONS                       |  |      | (3,114  | ) |      |   | (601,854 | )    |  |   | (134,788 | )
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|NET (LOSS) INCOME                                       |  | $    | (13,276 | ) |      | $ | (435,555 | )    |  | $ | 375,442  |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|NET (LOSS) INCOME ALLOCATED TO CLASS A LIMITED PARTNERS |  | $    | (13,276 | ) |      | $ | (435,555 | )    |  | $ | 375,442  |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS          |  | $    | 0       |   |      | $ | 0        |      |  | $ | 0        |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|NET (LOSS) INCOME PER CLASS A LIMITED PARTNER UNIT      |  | $    | 0.00    |   |      | $ | (0.02    | )    |  | $ | 0.02     |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|NET LOSS PER CLASS B LIMITED PARTNER UNIT               |  | $    | 0.00    |   |      | $ | 0.00     |      |  | $ | 0.00     |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  
|DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT           |  | $    | 0.04    |   |      | $ | 0.01     |      |  | $ | 0.05     |  
|                                                        |  |      |         |   |      |   |          |      |  |   |          |  



See accompanying notes.



Page F-4



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



STATEMENTS OF PARTNERS CAPITAL



FOR THE YEARS ENDED

DECEMBER 31, 2003, 2002, AND 2001



|                           |  |                  |  |                 |            |                        |       |           |         |   |   |  |   |   |  |   |            |  
|-------------------------- |  | ---------------- |  | --------------- | ---------- | ---------------------- | ----- | --------- | ------- | - | - |  | - | - |  | - | ---------- | -
|                           |  | Limited Partners |  | GeneralPartners |            | TotalPartners Capital |      
|                           |  | Class A          |  |                 | Class B    |                        |      
|                           |  | Units            |  | Capital         |            |                        | Units |           | Capital |   |  
|BALANCE, December 31, 2000 |  | 19,635,965       |  | $               | 14,512,162 |                        |       | 2,544,540 |         | $ | 0 |  | $ | 0 |  | $ | 14,512,162 |  
|                           |  |                  |  |                 |            |                       
|Net income                 |  | 0                |  |                 | 375,442    |                        |       | 0         |         |   | 0 |  |   | 0 |  |   | 375,442    |  
|Partnership distributions  |  | 0                |  |                 | (908,158   | )                      |       | 0         |         |   | 0 |  |   | 0 |  |   | (908,158   | )
|                           |  |                  |  |                 |            |                        |       |           |         |   |   |  |   |   |  |   |            |  
|BALANCE, December 31, 2001 |  | 19,635,965       |  |                 | 13,979,446 |                        |       | 2,544,540 |         |   | 0 |  |   | 0 |  |   | 13,979,446 |  
|                           |  |                  |  |                 |            |                       
|Net loss                   |  | 0                |  |                 | (435,555   | )                      |       | 0         |         |   | 0 |  |   | 0 |  |   | (435,555   | )
|Partnership distributions  |  | 0                |  |                 | (232,801   | )                      |       | 0         |         |   | 0 |  |   | 0 |  |   | (232,801   | )
|                           |  |                  |  |                 |            |                        |       |           |         |   |   |  |   |   |  |   |            |  
|BALANCE, December 31, 2002 |  | 19,635,965       |  |                 | 13,311,090 |                        |       | 2,544,540 |         |   | 0 |  |   | 0 |  |   | 13,311,090 |  
|                           |  |                  |  |                 |            |                       
|Net loss                   |  | 0                |  |                 | (13,276    | )                      |       | 0         |         |   | 0 |  |   | 0 |  |   | (13,276    | )
|Partnership distributions  |  | 0                |  |                 | (866,109   | )                      |       | 0         |         |   | 0 |  |   | 0 |  |   | (866,109   | )
|                           |  |                  |  |                 |            |                        |       |           |         |   |   |  |   |   |  |   |            |  
|BALANCE, December 31, 2003 |  | 19,635,965       |  | $               | 12,431,705 |                        |       | 2,544,540 |         | $ | 0 |  | $ | 0 |  | $ | 12,431,705 |  
|                           |  |                  |  |                 |            |                        |       |           |         |   |   |  |   |   |  |   |            |  



See accompanying notes.



Page F-5



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



STATEMENTS OF CASH FLOWS



FOR
THE YEARS ENDED

DECEMBER 31, 2003, 2002, AND 2001



|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                         |  | 2003 |           |   | 2002 |   |           | 2001 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Net (loss) income from continuing operations                                                             |  | $    | (10,162   | ) |      | $ | 166,299   |      |  | $ | 510,230   |  
|Adjustments to reconcile net income from continuing operations to net cash used in operating activities: |  |      |           |   |      |   |           |      |  |   |           |  
|Equity in income of Joint Ventures                                                                       |  |      | (111,833  | ) |      |   | (273,251  | )    |  |   | (602,145  | )
|Changes in assets and liabilities:                                                                       |  |      |           |   |      |   |           |      |  |   |           |  
|Due from affiliates                                                                                      |  |      | 0         |   |      |   | 0         |      |  |   | 3,216     |  
|Accounts receivable                                                                                      |  |      | 0         |   |      |   | 0         |      |  |   | 5,313     |  
|Prepaid expenses and other assets, net                                                                   |  |      | 199       |   |      |   | 20,316    |      |  |   | (3,567    | )
|Accounts payable and accrued expenses                                                                    |  |      | (20,674   | ) |      |   | 3,753     |      |  |   | 10,323    |  
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|Net cash used in continuing operations                                                                   |  |      | (142,470  | ) |      |   | (82,883   | )    |  |   | (76,630   | )
|Net cash (used in) provided by discontinued operations                                                   |  |      | (3,114    | ) |      |   | (9,998    | )    |  |   | 32,595    |  
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|Net cash used in operating activities                                                                    |  |      | (145,584  | ) |      |   | (92,881   | )    |  |   | (44,035   | )
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Investment in real estate                                                                                |  |      | 0         |   |      |   | 0         |      |  |   | (24,619   | )
|Net proceeds from sale of real estate                                                                    |  |      | 0         |   |      |   | 2,271,187 |      |  |   |           |  
|Investment in Joint Ventures                                                                             |  |      | (39,787   | ) |      |   | (757,900  | )    |  |   | (502,342  | )
|Distributions received from Joint Ventures                                                               |  |      | 1,008,837 |   |      |   | 1,057,791 |      |  |   | 1,205,694 |  
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|Net cash provided by investing activities                                                                |  |      | 969,050   |   |      |   | 2,571,078 |      |  |   | 678,733   |  
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Partnership distributions paid from accumulated earnings                                                 |  |      | (34,012   | ) |      |   | 0         |      |  |   | (332,890  | )
|Partnership distributions paid in excess of accumulated earnings                                         |  |      | (849,513  | ) |      |   | 0         |      |  |   | (576,518  | )
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|Net cash used in financing activities                                                                    |  |      | (883,525  | ) |      |   | 0         |      |  |   | (909,408  | )
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                     |  |      | (60,059   | ) |      |   | 2,478,197 |      |  |   | (274,710  | )
|                                                                                                         |  |      |          
|CASH AND CASH EQUIVALENTS, beginning of year                                                             |  |      | 2,612,963 |   |      |   | 134,766   |      |  |   | 409,476   |  
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|CASH AND CASH EQUIVALENTS, end of year                                                                   |  | $    | 2,552,904 |   |      | $ | 2,612,963 |      |  | $ | 134,766   |  
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:                                                          |  |      |           |   |      |   |           |      |  |   |           |  
|Due from Joint Ventures                                                                                  |  | $    | 200,239   |   |      | $ | 241,190   |      |  | $ | 334,616   |  
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  
|Partnership distributions payable                                                                        |  | $    | 220,904   |   |      | $ | 238,320   |      |  | $ | 5,519     |  
|                                                                                                         |  |      |           |   |      |   |           |      |  |   |           |  



See accompanying notes.



Page F-6



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



NOTES TO FINANCIAL STATEMENTS



DECEMBER 31, 2003, 2002, AND 2001



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Organization and Business



Wells Real Estate Fund III, L.P. (or, the Partnership) is a Georgia public limited partnership with Leo F. Wells, III and Wells
Capital, Inc. (Wells Capital), a Georgia corporation, serving as its general partners (the General Partners). The Partnership was formed on July 31, 1988 for the purpose of acquiring, developing, constructing, owning,
operating, improving, leasing and managing income-producing commercial properties for investment purposes. The Partnership has two classes of limited partnership interests, Class A and Class B Units. The limited partners may vote to, among other
things, (a) amend the partnership agreement, subject to certain limitations; (b) change the business purpose or investment objectives of the Partnership; and (c) add or remove a general partner. A majority vote on any of the above-described matters
will bind the Partnership without the concurrence of the General Partners. Each limited partner unit has equal voting rights regardless of class.



On October 24, 1988, the Partnership commenced an offering of up to $50,000,000 of Class A or Class B limited partnership units ($1.00 per unit) pursuant
to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The offering was terminated on October 23, 1990 at which time the Partnership had sold approximately 19,635,965 Class A and 2,544,540 Class B Units representing capital
contributions of $22,180,505 from investors who were admitted to the Partnership as limited partners.



The Partnership owned a 100% interest in Greenville Center, an office building located in Greenville, North Carolina, until September 30, 2002. On this
date, the Partnership sold Greenville Center to East Carolina University Real Estate Foundation, Inc., an unrelated third-party, for a gross sales price of $2,400,000. As a result of this sale, the Partnership received net sales proceeds of
$2,271,187 and recognized an impairment loss of $469,750 and additional loss on sale of $21,051.



Page F-7



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



During the periods presented, the Partnership owned interests in the
following five properties through the affiliated joint ventures listed below (the Joint Ventures):



|                                                                      |  |                                                                                                          |  |                                                                                                                                                                                                                       
|--------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                         |  | Joint Venture Partners                                                                                   |  | Properties                                                                                                                                                                                                            
|Fund II and Fund III Associates (Fund II-III Associates)            |  |  Fund II and Fund II-OW*  Wells Real Estate
Fund III, L.P.                                             |  | 1. Boeing at the Atrium A
four-story office building located in Houston, Texas  2. Brookwood
Grill A restaurant located in Fulton County, Georgia                                                                     
|                                                                     
|                                                                      |  |                                                                                                         
|Fund II, III, VI and VII Associates (Fund II-III-VI-VII Associates) |  |  Fund II and Fund III Associates**  Wells
Real Estate Fund VI, L.P.  Wells Real Estate Fund VII, L.P. |  | 3. Holcomb Bridge Property An
office/retail center located in Roswell, Georgia                                                                                                                                        
|                                                                     
|                                                                      |  |                                                                                                         
|Fund III and Fund IV Associates (Fund III-IV Associates)            |  |  Wells Real Estate Fund III, L.P.  Wells
Real Estate Fund IV, L.P.                                     |  | 4. Stockbridge Village Shopping Center A retail shopping center located in Stockbridge, Georgia  5. 4400 Cox Road (formerly known as the Reciprocal Group Building) An office building located in Richmond, Virginia
|                                                                     



|* | Fund II and Fund II-OW (Fund II-IIOW) is a joint venture between Wells Real Estate Fund II and Wells Real Estate Fund II-OW.
|- | ------------------------------------------------------------------------------------------------------------------------------



|** | Fund II and Fund III Associates is a joint venture between Fund II-IIOW and the Partnership.
|-- | --------------------------------------------------------------------------------------------



Use of Estimates



The preparation of the Partnerships financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.



Investment in Joint Ventures



The Partnership does not have control over the operations of the Joint Ventures; however, it does exercise significant
influence. Accordingly, the Partnerships investments in the Joint Ventures are recorded using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for contributions, distributions, and
net income (loss) attributable to the Partnership. Pursuant to the terms of the joint venture agreements, all income and distributions are allocated to joint venture partners in accordance with their respective ownership interests. Distributions of
net cash from operations are distributed to the joint venture partners on a quarterly basis.



Cash and Cash Equivalents



The Partnership considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments. Short-term investments are stated at cost,
which approximates fair value, and consist of investments in money market accounts.



Page F-8



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



Income Taxes



The Partnership is not subject to federal or state income taxes; therefore,
none have been provided for in the accompanying financial statements. The partners are required to include their respective shares of profits and losses in their individual income tax returns.



Distribution of Net Cash From Operations



Cash available for distribution is distributed on a cumulative,
noncompounded basis to limited partners quarterly. In accordance with the partnership agreement, distributions are paid first to limited partners holding Class A Units until they have received an 8% per annum return on their adjusted capital
contributions, as defined. Cash available for distribution is then distributed to limited partners holding Class B Units until they have received an 8% per annum return on their adjusted capital contributions, as defined. If any cash available for
distribution remains, the General Partners receive an amount equal to 10% of total net cash from operations distributed with respect to such fiscal year. Thereafter, amounts are distributed 10% to the General Partners and 90% to the limited
partners.



Distribution of Sales Proceeds



Upon sales of properties, the net sales proceeds are distributed in the
following order:



| |  | To all limited partners on a per-unit basis until each limited partner has received 100% of his capital contribution, as defined
| | - | --------------------------------------------------------------------------------------------------------------------------------



| |  | To limited partners holding Class B Units until each limited partners has received an amount equal to the net cash available for distribution received by the limited partners
holding Class A Units on a per-unit basis
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | To all limited partners until each limited partner has received the excess of a cumulative, noncompounded 12% per annum return on his adjusted capital contribution, as defined, over
the sum of prior distributions received
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | To all general partners until they have received 100% of their capital contributions, as defined
| | - | ------------------------------------------------------------------------------------------------



| |  | Thereafter, 85% to the limited partners, and 15% to the General Partners
| | - | ------------------------------------------------------------------------



Allocation of Net Income, Net Loss, and Gain on Sale



Net income is defined as net income recognized by the Partnership, excluding deductions for depreciation and amortization. Net income, as defined, of the
Partnership will be allocated each year in the same proportions that net cash from operations is distributed to the partners. To the extent the Partnerships net income in any year exceeds net cash from operations, it will be allocated 99% to
the limited partners and 1% to the General Partners.



Net
loss, depreciation, and amortization deductions for each fiscal year will be allocated as follows: (a) 99% to the limited partners holding Class B Units and 1% to the General Partners until their capital accounts are reduced to zero; (b) then to any
partner having a positive balance in his capital account in an amount not to exceed such positive balance; and (c) thereafter to the General Partners.



Gain on the sale or exchange of the Partnerships properties will be allocated generally in the same manner that the net proceeds from such sale are
distributed to partners after the following allocations are made, if applicable: (a) allocations made pursuant to a qualified income offset provision in the partnership agreement; (b) allocations to partners having negative accounts until all
negative capital accounts have been



Page F-9



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



restored to zero; and (c) allocations to Class B limited partners in amounts
equal to deductions for depreciation and amortization previously allocated to them with respect to the specific partnership property sold, but not in excess of the amount of gain on sale recognized by the Partnership with respect to the sale of such
property.



Recent Accounting Pronouncements



In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which clarifies the application of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, relating to
consolidation of certain entities. FIN 46 requires the identification of the Partnerships participation in variable interest entities (VIEs), which are defined as entities with a level of invested equity that is not sufficient to
fund future activities to permit them to operate on a stand-alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as VIEs, FIN 46 sets forth a model to evaluate potential
consolidation based on an assessment of which party to the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. FIN 46 is effective for all new VIEs created or acquired
after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the Partnership has adopted the provisions of FIN 46 commencing on June 15, 2003. FIN 46 also sets forth certain disclosures regarding interests in VIEs that are deemed
significant, even if consolidation is not required. As the Joint Ventures do not fall under the definition of VIEs provided above, the adoption of FIN 46 has not resulted in the consolidation of any previously unconsolidated entities.



Restatement Adjustments



Prior to fiscal 2002, the Joint Ventures had historically reported property
operating costs net of reimbursements from tenants as an expense in their statements of income. These costs include property taxes, property insurance, utilities, repairs and maintenance, management fees and other expenses related to the ownership
and operation of the properties that are required to be reimbursed by the properties tenants in accordance with the terms of their leases. In response to FASB Emerging Issues Task Force consensus reached in November 2001, the Joint Ventures
now present these reimbursements as revenue and the gross property operating costs as expenses. Since this presentation does not impact the amount of reimbursements received or property operating costs incurred and requires equal adjustments to
revenues and expenses, the adoption of this guidance has no impact on the financial position, net income, or cash flows of the Partnership or the Joint Ventures.



The condensed financial information for the Joint Ventures presented in Note 4 has been restated to reflect the effects of
this revised presentation.



|2. | RELATED-PARTY TRANSACTIONS
|-- | --------------------------



Due from Joint Ventures at December 31, 2003 and 2002 represents the Partnerships share of cash to be distributed from its joint venture investments
with respect to the fourth quarters of 2003 and 2002, respectively, as follows:



|                       |  |      |         |      |   |        
|---------------------- |  | ---- | ------- | ---- | - | -------
|                       |  | 2003 |         | 2002
|Fund III-IV Associates |  | $    | 132,296 |      | $ | 201,112
|Fund II-III Associates |  |      | 67,943  |      |   | 40,078 
|                       |  |      |         |      |   |        
|                       |  | $    | 200,239 |      | $ | 241,190
|                       |  |      |         |      |   |        



Page F-10



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



The Partnership entered into a property management and leasing agreement with
Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners. In consideration for the management and leasing of the Partnerships properties, the Partnership and its joint ventures pay Wells Management
management and leasing fees equal to (a) 3% of the gross revenues for management and 3% of the gross revenues for leasing (aggregate maximum of 6%) plus a separate fee for the one-time initial lease-up of newly constructed properties in an amount
not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties or (b) in the case of commercial properties which are leased on a long-term net basis
(ten or more years), 1% of the gross revenues except for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term. The Partnerships share of management and leasing fees and lease acquisition costs
incurred through the Joint Ventures was $133,861, $110,520, and $184,541 for the years ended December 31, 2003, 2002, and 2001, respectively, which were paid to Wells Management.



Wells Capital performs certain administrative services for the Partnership, such as accounting and other partnership
administration, and incurs the related expenses. Such expenses are allocated among the various Wells Real Estate Funds based on estimates of the amount of time dedicated to each fund by individual administrative personnel. In the opinion of
management, this allocation is a reasonable estimation of such expenses. During 2003, 2002, and 2001, the Partnership reimbursed $50,616, $42,383, and $38,847, respectively, to Wells Capital and its affiliates for these services.



The General Partners are also general partners of other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the General Partners in the capacity as general partners of other Wells Real Estate Funds may be in competition with the Partnership for tenants in similar geographic markets.



|3. | DISCONTINUED OPERATIONS
|-- | -----------------------



Effective January 1, 2002, the Partnership adopted the Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long Lived Assets (SFAS 144), which supersedes Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of(SFAS 121) and Accounting Principles Board No. 30 Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual or Infrequently Occurring Events or
Transactions, with regard to impairment assessment and discontinued operations, respectively. Under this accounting standard, management reviews each of the properties in which the Partnership holds an interest for impairment as events or
changes in circumstances arise, which indicate that the carrying amounts of such assets may not be recoverable and the future undiscounted cash flows expected to be generated by such assets are less than the respective carrying amounts. If such
assets are considered to be impaired, the Partnership records impairment losses and reduces the carrying amounts of the impaired assets to amounts that reflect the fair value of the assets at the time impairment is evident. SFAS 144 also requires,
among other things, that the operating results of real estate assets sold or held for sale subsequent to January 1, 2002 be included in discontinued operations in the statements of income (loss) for all periods presented. The Greenville Center
property was sold by the Partnership on September 30, 2002.



Page F-11



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



The results of discontinued operations of Greenville Center included in the
accompanying statements of income (loss) are summarized below:



|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|--------------------------------- |  | ---- | ------ | - | ---- | - | -------- | ---- |  | - | -------- | ---
|                                  |  | 2003 |        |   | 2002 |   |          | 2001 | 
|Total property revenues           |  | $    | 0      |   |      | $ | 156,687  |      |  | $ | 274,470  | (i)
|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|Operating costs-rental property   |  |      | 3,114  |   |      |   | 160,142  |      |  |   | 212,539  | (i)
|Depreciation                      |  |      | 0      |   |      |   | 89,294   |      |  |   | 176,067  |    
|Management and leasing fees       |  |      | 0      |   |      |   | 18,304   |      |  |   | 20,652   |    
|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|Total expenses                    |  |      | 3,114  |   |      |   | 267,740  |      |  |   | 409,258  |    
|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|Operating loss                    |  |      | (3,114 | ) |      |   | (111,053 | )    |  |   | (134,788 | )  
|Impairment loss                   |  |      | 0      |   |      |   | (469,750 | )    |  |   | 0        |    
|Loss on disposition               |  |      | 0      |   |      |   | (21,051  | )    |  |   | 0        |    
|                                  |  |      |        |   |      |   |          |      |  |   |          |    
|Loss from discontinued operations |  | $    | (3,114 | ) |      | $ | (601,854 | )    |  | $ | (134,788 | )  
|                                  |  |      |        |   |      |   |          |      |  |   |          |    



|(i) | Amounts have been restated to reflect tenant reimbursements of $5,558 as revenues for the twelve months ended December 31, 2001, which were previously recorded as a reduction of
expenses. This change in presentation has no impact on the financial position, net income, or cash flows of the Joint Ventures or the Partnership (see Note 1).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | INVESTMENT IN JOINT VENTURES
|-- | ----------------------------



The Partnerships investment and percentage ownership in the Joint Ventures at December 31, 2003 and 2002, respectively, are summarized as follows:



|                       |  |        |           |         |      |   |        |   |            |  |    |  
|---------------------- |  | ------ | --------- | ------- | ---- | - | ------ | - | ---------- |  | -- | -
|                       |  | 2003   |           |         | 2002 |  
|                       |  | Amount |           | Percent |      |   | Amount |   | Percent    | 
|Fund III-IV Associates |  | $      | 5,997,234 |         | 57   | % |        | $ | 6,725,376  |  | 57 | %
|Fund II-III Associates |  |        | 3,908,803 |         | 37   | % |        |   | 3,996,927  |  | 37 | %
|                       |  |        |           |         |      |   |        |   |            |  |    |  
|                       |  | $      | 9,906,037 |         |      |   |        | $ | 10,722,303 |  |    |  
|                       |  |        |           |         |      |   |        |   |            |  |    |  



The following is a
roll-forward of the Partnerships investment in the Joint Ventures for the years ended December 31, 2003 and 2002.



|                                                |  |      |            |   |      |   |            |  
|----------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                |  | 2003 |            |   | 2002 |  
|Investment in Joint Ventures, beginning of year |  | $    | 10,722,303 |   |      | $ | 10,655,517 |  
|Equity in income of Joint Ventures              |  |      | 111,833    |   |      |   | 273,251    |  
|Contributions to Joint Ventures                 |  |      | 39,787     |   |      |   | 757,900    |  
|Distributions from Joint Ventures               |  |      | (967,886   | ) |      |   | (964,365   | )
|                                                |  |      |            |   |      |   |            |  
|Investment in Joint Ventures, end of year       |  | $    | 9,906,037  |   |      | $ | 10,722,303 |  
|                                                |  |      |            |   |      |   |            |  



Fund II-III
Associates



On April 3, 1989, Fund II-III Associates was
formed for the purposes of developing, constructing, operating and selling commercial and industrial real properties. In April 1989, Fund II-III Associates acquired Boeing at the Atrium property, a four-story office building located in Houston
Texas. In 1991, Fund II-IIOW contributed its interest in a 5.8-acre parcel of land known as the Brookwood Property located in Roswell,



Page F-12



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



Georgia, to Fund II-III Associates. A restaurant was developed on 1.5 acres
of the Brookwood Property and is currently operating as the Brookwood Grill restaurant. During 1995, the remaining 4.3 acres of the Brookwood Property was transferred at cost to the Fund II-III-VI-VII Associates. Fund II-III Associates
investment in this transferred parcel of the Brookwood Property was $1,134,506 at December 31, 2003, which represents a 24% interest therein.



Fund II-III-VI-VII Associates



During 1995, the remaining 4.3 acres of the Brookwood Property was transferred at cost to Fund II-III-VI-VII. Development on this property of two
buildings containing a total of approximately 49,500 square feet was substantially completed in 1996. Once constructed, this property became known as the Holcomb Bridge Property.



Fund III-IV Associates



On March 27, 1991, Fund III-IV Associates was formed for the purpose of investing in commercial real properties. On April 4, 1991, Fund III-IV Associates
purchased 13.62 acres of real property located in Clayton County, Georgia for the purpose of developing, constructing, and operating the Stockbridge Village Shopping Center. On July 1, 1992, Fund III-IV Associates acquired 4400 Cox Road located in
Richmond, Virginia.



Condensed financial information for the
Joint Ventures as of December 31, 2003 and 2002, and for the years ended December 31, 2003, 2002, and 2001 follows:



|                       |  |                   |            |                   |   |                   |  |                   |         |                   |   |                   |  |   |            |  |   |           
|---------------------- |  | ----------------- | ---------- | ----------------- | - | ----------------- |  | ----------------- | ------- | ----------------- | - | ----------------- |  | - | ---------- |  | - | ----------
|                       |  | Total Assets      |            | Total Liabilities |   | Total Equity     
|                       |  | December 31, 2003 |            | December 31, 2002 |   | December 31, 2003 |  | December 31, 2002 |         | December 31, 2003 |   | December 31, 2002
|Fund III-IV Associates |  | $                 | 10,835,226 |                   | $ | 12,159,413        |  | $                 | 352,664 |                   | $ | 404,135           |  | $ | 10,482,562 |  | $ | 11,755,278
|Fund II-III Associates |  |                   | 11,151,956 |                   |   | 11,699,828        |  |                   | 466,419 |                   |   | 772,915           |  |   | 10,685,537 |  |   | 10,926,913
|                       |  |                   |            |                   |   |                   |  |                   |         |                   |   |                   |  |   |            |  |   |           
|                       |  | $                 | 21,987,182 |                   | $ | 23,859,241        |  | $                 | 819,083 |                   | $ | 1,177,050         |  | $ | 21,168,099 |  | $ | 22,682,191
|                       |  |                   |            |                   |   |                   |  |                   |         |                   |   |                   |  |   |            |  |   |           



|                       |  |                                  |           |      |                                          |   |                                     |      |                                  |   |           |      |  |      |            |   |      |   |          |   |      |   |         |  |      |           |      |   |         |      |   |         |  |   |         |  |   |          |   |  |   |          
|---------------------- |  | -------------------------------- | --------- | ---- | ---------------------------------------- | - | ----------------------------------- | ---- | -------------------------------- | - | --------- | ---- |  | ---- | ---------- | - | ---- | - | -------- | - | ---- | - | ------- |  | ---- | --------- | ---- | - | ------- | ---- | - | ------- |  | - | ------- |  | - | -------- | - |  | - | ---------
|                       |  | Total Revenues                   |           |      | (Loss) Income From Continuing Operations |   | Income From Discontinued Operations |      | Net Income                      
|                       |  | For The Years Ended December 31, |           |      | For The Years Ended December 31,         |   | For The Years Ended December 31,    |      | For The Years Ended December 31,
|                       |  | 2003                             |           |      | 2002                                     |   |                                     | 2001 |                                  |   | 2003      |      |  | 2002 |            |   | 2001 |   | 2003     |   | 2002 |   | 2001    |  | 2003 |           | 2002 |   |         | 2001
|Fund III-IV Associates |  | $                                | 255,692   |      |                                          | $ | 625,955                             |      |                                  | $ | 597,830   | (i)  |  | $    | (1,094,505 | ) |      | $ | 179,984  |   |      | $ | 225,300 |  | $    | 1,135,650 |      | $ | 700,913 |      | $ | 799,349 |  | $ | 41,145  |  | $ | 880,897  |   |  | $ | 1,024,649
|Fund II-III Associates |  |                                  | 2,043,572 | (ii) |                                          |   | 1,038,698                           | (ii) |                                  |   | 2,075,513 | (ii) |  |      | 236,186    |   |      |   | (591,740 | ) |      |   | 46,041  |  |      | 0         |      |   | 0       |      |   | 0       |  |   | 236,186 |  |   | (591,740 | ) |  |   | 46,041   
|                       |  |                                  |           |      |                                          |   |                                     |      |                                  |   |           |      |  |      |            |   |      |   |          |   |      |   |         |  |      |           |      |   |         |      |   |         |  |   |         |  |   |          |   |  |   |          
|                       |  | $                                | 2,299,264 |      |                                          | $ | 1,664,653                           |      |                                  | $ | 2,673,343 |      |  | $    | (858,319   | ) |      | $ | (411,756 | ) |      | $ | 271,341 |  | $    | 1,135,650 |      | $ | 700,913 |      | $ | 799,349 |  | $ | 277,331 |  | $ | 289,157  |   |  | $ | 1,070,690
|                       |  |                                  |           |      |                                          |   |                                     |      |                                  |   |           |      |  |      |            |   |      |   |          |   |      |   |         |  |      |           |      |   |         |      |   |         |  |   |         |  |   |          |   |  |   |          



|(i) | Amounts have been restated to reflect tenant reimbursements of $47,690 for Fund III-IV Associates and $296,923 for Fund II-III Associates as revenues for the twelve months ended
December 31, 2001, which were previously recorded as a reduction of expenses. This change in presentation has no impact on the financial position, net income, or cash flows of the Joint Ventures or the Partnership (see Note 1).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii) | The Partnerships share of income earned from its investment in Fund II-III-VI-VII Associates is recorded by Fund II-III Associates as equity in income of joint ventures,
which is classified as revenue.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page F-13



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



The following information summarizes the operations of the joint ventures in
which the Partnership holds an interest through its ownership in Fund II-III Associates as of December 31, 2003 and 2002, and for the years ended December 31, 2003, 2002, and 2001:



|                              |  |                   |           |                   |   |                   |  |                   |         |                   |   |                   |  |   |           |  |   |          
|----------------------------- |  | ----------------- | --------- | ----------------- | - | ----------------- |  | ----------------- | ------- | ----------------- | - | ----------------- |  | - | --------- |  | - | ---------
|                              |  | Total Assets      |           | Total Liabilities |   | Total Equity     
|                              |  | December 31, 2003 |           | December 31, 2002 |   | December 31, 2003 |  | December 31, 2002 |         | December 31, 2003 |   | December 31, 2002
|Fund II-III-VI-VII Associates |  | $                 | 5,065,573 |                   | $ | 4,976,432         |  | $                 | 117,402 |                   | $ | 135,338           |  | $ | 4,948,171 |  | $ | 4,841,094
|                              |  |                   |           |                   |   |                   |  |                   |         |                   |   |                   |  |   |           |  |   |          



|                              |  |                                  |         |      |                                  |         |  |   |         |     |      |   |         |  |   |         |  |   |        
|----------------------------- |  | -------------------------------- | ------- | ---- | -------------------------------- | ------- |  | - | ------- | --- | ---- | - | ------- |  | - | ------- |  | - | -------
|                              |  | Total Revenues                   |         |      | Net Income (ii)                 
|                              |  | For The Years Ended December 31, |         |      | For The Years Ended December 31,
|                              |  | 2003                             |         | 2002 |                                  | 2001    |  |   | 2003    |     | 2002 |   | 2001   
|Fund II-III-VI-VII Associates |  | $                                | 720,436 |      | $                                | 714,631 |  | $ | 962,601 | (i) |      | $ | 210,044 |  | $ | 169,386 |  | $ | 263,092
|                              |  |                                  |         |      |                                  |         |  |   |         |     |      |   |         |  |   |         |  |   |        



|(i) | Amounts have been restated to reflect tenant reimbursements of $114,438 for Fund II-III-VI-VII Associates as revenues for the twelve months ended December 31, 2001, which was
previously recorded as a reduction of expenses. This change in presentation has no impact on the financial position, net income, or cash flows of the Joint Ventures or the Partnership (see Note 1).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii) | The Partnerships share of income earned from its investment in Fund II-III-VI-VII Associates is recorded by Fund II-III Associates as equity in income of joint ventures,
which is classified as revenue.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | INCOME TAX BASIS NET INCOME AND PARTNERS CAPITAL
|-- | -------------------------------------------------



A reconciliation of the Partnerships financial statement net (loss) income to net income presented in accordance with the Federal Income Tax basis
of accounting is as follows for the Years Ended December 31, 2003, 2002 and 2001:



|                                                                                                       |  |      |         |   |      |   |          |      |  |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                                                       |  | 2003 |         |   | 2002 |   |          | 2001 | 
|Financial statement net income (loss)                                                                  |  | $    | (13,276 | ) |      | $ | (435,555 | )    |  | $ | 375,442 |  
|Increase (decrease) in net income resulting from:                                                      |  |      |         |   |      |   |          |      |  |   |         |  
|Meals & Entertainment                                                                                  |  |      | 0       |   |      |   | 516      |      |  |   | 0       |  
|Bad Debts                                                                                              |  |      | 2,703   |   |      |   | 0        |      |  |   | 0       |  
|Amortization expense for financial reporting purposes in excess of amounts for income tax purposes     |  |      | (2,406  | ) |      |   | 12,272   |      |  |   | 0       |  
|Loss on sale of property for income tax purposes in excess of amounts for financial reporting purposes |  |      | 0       |   |      |   | (420,335 | )    |  |   | 0       |  
|Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes     |  |      | 24,400  |   |      |   | 348,404  |      |  |   | 389,512 |  
|Rental income recognized for income tax purposes in excess of amounts for financial reporting purposes |  |      | 173,388 |   |      |   | (68,471  | )    |  |   | (19,017 | )
|Expenses deductible when paid for income tax purposes, accrued for financial reporting purposes        |  |      | 0       |   |      |   | (16,573  | )    |  |   | 15,742  |  
|Fixed asset retirement in excess of amounts for income tax purposes                                    |  |      | 0       |   |      |   | 0        |      |  |   | 0       |  
|Other                                                                                                  |  |      | 0       |   |      |   | 0        |      |  |   | 2,423   |  
|                                                                                                       |  |      |         |   |      |   |          |      |  |   |         |  
|Income tax basis net income                                                                            |  | $    | 184,809 |   |      | $ | (579,742 | )    |  | $ | 764,102 |  
|                                                                                                       |  |      |         |   |      |   |          |      |  |   |         |  



Page F-14



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



A reconciliation of the partners capital balances, as presented in the
accompanying financial statements, to partners capital balances, as presented in accordance with the Federal Income Tax basis of accounting, is as follows for the Years Ended December 31, 2003, 2002, and 2001:



|                                                                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                         |  | 2003 |            |   | 2002 |   |            | 2001 | 
|Financial statement partners capital                                                                                                    |  | $    | 12,431,705 |   |      | $ | 13,311,090 |      |  | $ | 13,979,446 |  
|Increase (decrease) in partners capital resulting from:                                                                                 |  |      |            |   |      |   |            |      |  |   |            |  
|Meals & Entertainment                                                                                                                    |  |      | 516        |   |      |   | 516        |      |  |   | 0          |  
|Bad Debts                                                                                                                                |  |      | 2,703      |   |      |   | 0          |      |  |   | 0          |  
|Amortization expense for financial reporting purposes in excess of amounts for income tax purposes                                       |  |      | 9,866      |   |      |   | 12,272     |      |  |   | 0          |  
|Loss on sale of property for income tax purposes in excess of amounts for financial reporting purposes                                   |  |      | (420,335   | ) |      |   | (420,335   | )    |  |   | 0          |  
|Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes                                       |  |      | 2,476,203  |   |      |   | 2,451,803  |      |  |   | 2,103,399  |  
|Capitalization of syndication costs for income tax purposes, which are accounted for as cost of capital for financial reporting
purposes |  |      | 2,624,555  |   |      |   | 2,624,555  |      |  |   | 2,624,555  |  
|Accumulated rental income accrued for financial reporting purposes in excess of amounts for income tax purposes                          |  |      | (109,914   | ) |      |   | (283,302   | )    |  |   | (214,832   | )
|Accumulated expenses deductible when paid for income tax purposes, accrued for financial reporting purposes                              |  |      | 106,301    |   |      |   | 106,301    |      |  |   | 122,874    |  
|Partnerships distribution payable                                                                                                       |  |      | 220,904    |   |      |   | 238,320    |      |  |   | 5,519      |  
|Other                                                                                                                                    |  |      | 2,934      |   |      |   | 2,934      |      |  |   | 2,934      |  
|                                                                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Income tax basis partners capital                                                                                                       |  | $    | 17,345,438 |   |      | $ | 18,044,154 |      |  | $ | 18,623,895 |  
|                                                                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  



Page F-15



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



|6. | QUARTERLY RESULTS (UNAUDITED)
|-- | -----------------------------



Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2003 and 2002:



|                                                        |  |                     |         |   |         |   |          |              |  |   |             |   |  |   |        
|------------------------------------------------------- |  | ------------------- | ------- | - | ------- | - | -------- | ------------ |  | - | ----------- | - |  | - | -------
|                                                        |  | 2003 Quarters Ended
|                                                        |  | March 31            |         |   | June 30 |   |          | September 30 |  |   | December 31
|Revenues                                                |  | $                   | 209,873 |   |         | $ | 195,021  |              |  | $ | (423,732    | ) |  | $ | 153,949
|Net income (loss) from continuing operations            |  |                     | 154,024 |   |         |   | 162,029  |              |  |   | (449,744    | ) |  |   | 123,529
|Net (loss) income from discontinued operations          |  |                     | (2,366  | ) |         |   | (2,280   | )            |  |   | 0           |   |  |   | 1,532  
|Net income (loss) allocated to Class A limited partners |  |                     | 151,658 |   |         |   | 159,749  |              |  |   | (449,744    | ) |  |   | 125,061
|Net income (loss) per Class A limited partner unit (a)  |  | $                   | 0.01    |   |         | $ | 0.01     |              |  | $ | (0.02       | ) |  | $ | 0.01   
|Distribution per Class A limited partner unit (a)       |  | $                   | 0.01    |   |         | $ | 0.01     |              |  | $ | 0.01        |   |  | $ | 0.01   
|                                                        | 
|                                                        |  | 2002 Quarters Ended
|                                                        |  | March 31            |         |   | June 30 |   |          | September 30 |  |   | December 31
|Revenues (b)                                            |  | $                   | 59,160  |   |         | $ | (12,343  | )            |  | $ | 115,007     |   |  | $ | 129,937
|Net income (loss) from continuing operations (b)        |  |                     | 36,483  |   |         |   | (37,132  | )            |  |   | 91,536      |   |  |   | 75,412 
|Net (loss) income from discontinued operations          |  |                     | (42,234 | ) |         |   | (432,235 | )            |  |   | (130,727    | ) |  |   | 3,342  
|Net (loss) income allocated to Class A limited partners |  |                     | (5,410  | ) |         |   | (491,572 | )            |  |   | (110,923    | ) |  |   | 172,350
|Net income (loss) per Class A limited partner unit      |  | $                   | 0.00    |   |         | $ | (0.03    | )            |  | $ | (0.01       | ) |  | $ | 0.02   
|Distribution per Class A limited partner unit           |  | $                   | 0.00    |   |         | $ | 0.00     |              |  | $ | 0.00        |   |  | $ | 0.01   



|(a) | The totals of the four quarterly amounts do not equal the totals for the year. This difference results from rounding differences between quarters.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | These amounts have been restated to reflect the impact of adjustments to straight-line rental revenues identified during the fourth quarter of 2002 of $(341), $22,205, and
$71,732 for the first quarter, second quarter, and third quarter of 2002, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)



Page F-16



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



|7. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------



On March 18, 2003, four Wells affiliated Joint Ventures (collectively, the Seller, defined below) entered into an agreement (the
Agreement) to sell five real properties (the Sale Properties, defined below) located in Stockbridge, Georgia to an unrelated third party (the Purchaser) for a gross sale price of $23,750,000. Contemporaneously
with the Purchasers execution and delivery of the Agreement to the Seller, the Purchaser paid an earnest money deposit of $250,000 to the designated escrow agent. The extended due diligence period expired March 8, 2004. The sale is expected to
close during the month of April 2004.



|                                                |  |                                                                        |  |                                                                                                                                                                                       
|----------------------------------------------- |  | ---------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Collectively, the Seller) The Joint Ventures |  | Joint Venture Partners                                                 |  | Sale Properties                                                                                                                                                                       
|Fund III-IV Associates                          |  |  Wells Real Estate Fund III, L.P.  Wells
Real Estate Fund IV, L.P.   |  | 1. Stockbridge Village Shopping Center A retail shopping center located in Stockbridge, Georgia                                                                                       
|                                               
|                                                |  |                                                                       
|Fund V-VI Associates                            |  |  Wells Real Estate Fund V, L.P.  Wells Real
Estate Fund VI, L.P.     |  | 2. Stockbridge Village II Two
retail buildings located in Stockbridge, Georgia                                                                                                        
|                                               
|                                                |  |                                                                       
|Fund VI-VII Associates                          |  |  Wells Real Estate Fund VI, L.P.  Wells Real
Estate Fund VII, L.P.   |  | 3. Stockbridge Village I Expansion A retail shopping center expansion located in Stockbridge, Georgia  4. Stockbridge Village III Two retail buildings located in Stockbridge, Georgia
|                                               
|                                                |  |                                                                       
|Fund VII-VIII Associates                        |  |  Wells Real Estate Fund VII, L.P.  Wells
Real Estate Fund VIII, L.P. |  | 5. Hannover Center A retail
center located in Stockbridge, Georgia                                                                                                                    
|                                               



|8. | SUBSEQUENT EVENT
|-- | ----------------



The sale of Greenville Center generated net sales proceeds of approximately $2,271,000 to the Partnership. Upon evaluating the capital needs of the
existing properties in which the Partnership holds an interest, the General Partners determined that reserves of approximately $959,000 will be required to fund the costs anticipated to re-lease the recently vacated 4400 Cox Road and increase the
occupancy of the Holcomb Bridge Property. In accordance with the terms of the partnership agreement, the General Partners distributed the residual net sales proceeds on January 23, 2004 of approximately $1,312,000 to the limited partners of record
as of December 31, 2003, which under the partnership agreement does not include limited partners acquiring their units after September 30, 2003.



Page F-17



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III LIMITED PARTNERSHIP

(A Georgia Public
Limited
Partnership)



SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2003



|                                                                     |  |           |   |      |              |                            |              |           |                                             |   |                                                    |  |                          |            |                      |   |               |  |                                          |            |  |   |        |  |   |            |  |   |            |  |      |  |          |  |               
|-------------------------------------------------------------------- |  | --------- | - | ---- | ------------ | -------------------------- | ------------ | --------- | ------------------------------------------- | - | -------------------------------------------------- |  | ------------------------ | ---------- | -------------------- | - | ------------- |  | ---------------------------------------- | ---------- |  | - | ------ |  | - | ---------- |  | - | ---------- |  | ---- |  | -------- |  | --------------
|                                                                     |  | Ownership |   |      | Encumbrances |                            | Initial Cost |           | Costs Capitalized Subsequent to Acquisition |   | Gross Amount at Which Carried at December 31, 2003 |  | Accumulated Depreciation |            | Date of Construction |   | Date Acquired |  | Life on whichDepreciation isComputed (g)
|Description                                                          |  |           |   | Land |              | Buildings and Improvements |              |           | Land                                        |   | Buildings and Improvements                         |  | Constructionin Progress  |            | Total                |   |               |  |                                         
|BOEING AT THE ATRIUM (a)                                             |  | 39        | % |      | None         |                            | $            | 1,367,000 |                                             | $ | 10,983,000                                         |  | $                        | 4,035,930  |                      | $ | 1,504,743     |  | $                                        | 14,811,553 |  | $ | 69,634 |  | $ | 16,385,930 |  | $ | 9,230,618  |  | 1988 |  | 04/03/89 |  | 12 to 25 years
|GREENVILLE CENTER (b)                                                |  | 0         |   |      | None         |                            |              | 529,977   |                                             |   | 0                                                  |  |                          | 3,767,924  |                      |   | 0             |  |                                          | 0          |  |   | 0      |  |   | 0          |  |   | 0          |  | 1990 |  | 06/30/90 |  | 20 to 25 years
|BROOKWOOD GRILL(c)                                                   |  | 38        |   |      | None         |                            |              | 523,319   |                                             |   | 0                                                  |  |                          | 1,494,717  |                      |   | 745,223       |  |                                          | 1,272,813  |  |   | 0      |  |   | 2,018,036  |  |   | 604,055    |  | 1991 |  | 01/31/90 |  | 20 to 25 years
|STOCKBRIDGE VILLAGE SHOPPING CENTER (d)                              |  | 57        |   |      | None         |                            |              | 2,551,645 |                                             |   | 0                                                  |  |                          | 8,080,202  |                      |   | 2,815,561     |  |                                          | 7,816,286  |  |   | 0      |  |   | 10,631,847 |  |   | 3,379,866  |  | 1991 |  | 04/04/91 |  | 20 to 25 years
|4400 COX ROAD (formerly known as the RECIPROCAL GROUP BUILDING)(e) |  | 57        |   |      | None         |                            |              | 529,546   |                                             |   | 4,158,223                                          |  |                          | 1,395,194  |                      |   | 573,582       |  |                                          | 5,509,381  |  |   | 0      |  |   | 6,082,963  |  |   | 2,934,924  |  | 1991 |  | 07/01/92 |  | 20 to 25 years
|HOLCOMB BRIDGE PROPERTY (f)                                          |  | 9         |   |      | None         |                            |              | 1,325,242 |                                             |   | 0                                                  |  |                          | 5,846,019  |                      |   | 1,325,242     |  |                                          | 5,846,019  |  |   | 0      |  |   | 7,171,261  |  |   | 2,466,847  |  | 1996 |  | 01/31/90 |  | 20 to 25 years
|                                                                     |  |           |   |      |              |                            |              |           |                                             |   |                                                    |  |                          |            |                      |   |               |  |                                          |            |  |   |        |  |   |            |  |   |            |  |      |  |          |  |               
|Total                                                                |  |           |   |      |              |                            | $            | 6,826,729 |                                             | $ | 15,141,223                                         |  | $                        | 24,619,986 |                      | $ | 6,964,351     |  | $                                        | 35,256,052 |  | $ | 69,634 |  | $ | 42,290,037 |  | $ | 18,616,310 |  |      |  |          |  |               
|                                                                     |  |           |   |      |              |                            |              |           |                                             |   |                                                    |  |                          |            |                      |   |               |  |                                          |            |  |   |        |  |   |            |  |   |            |  |      |  |          |  |               



|(a) | Boeing at the Atrium is a four-story office building located in Houston, Texas. It is owned by Fund II and Fund III Associates.
|--- | -------------------------------------------------------------------------------------------------------------------------------



|(b) | The Greenville Center is a two-story office building located in Greenville, North Carolina. This property was owned entirely by the Partnership and was sold September 30, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | The Brookwood Grill is a 7,440-square-foot restaurant located in Fulton County, Georgia. It is owned by Fund II and Fund III Associates.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



|(d) | Stockbridge Village Shopping Center is a 13.62-acre retail shopping center located in Stockbridge, Georgia. It is owned by Fund III and Fund IV Associates. This property was
classified as Held for Sale on March 18, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | 4400 Cox Road is a 43,000-square-foot office building located in Richmond, Virginia. It is owned by Fund III and Fund IV Associates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|(f) | The Holcomb Bridge Property is an office-retail shopping center located in Roswell, Georgia. It is owned by Fund II, III, VI, and VII Associates.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



|(g) | Depreciation lives used for buildings were 40 years through September 1995, changed to 25 years thereafter. Depreciation lives used for land improvements are 12 to 20 years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page F-18



---

##### Index to Financial Statements

WELLS REAL ESTATE FUND III, L.P.

(A Georgia Public Limited
Partnership)



SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31, 2003



|                             |  |      |            |   |                          |   |            |  
|---------------------------- |  | ---- | ---------- | - | ------------------------ | - | ---------- | -
|                             |  | Cost |            |   | Accumulated Depreciation |  
|BALANCE AT DECEMBER 31, 2000 |  |      | 44,080,468 |   |                          |   | 14,454,107 |  
|                             |  |     
|2001 additions               |  |      | 818,204    |   |                          |   | 1,976,113  |  
|2001 deletions               |  |      | 0          |   |                          |   | (48,541    | )
|                             |  |      |            |   |                          |   |            |  
|BALANCE AT DECEMBER 31, 2001 |  |      | 44,898,672 |   |                          |   | 16,381,679 |  
|                             |  |     
|2002 additions               |  |      | 1,157,545  |   |                          |   | 1,732,835  |  
|2002 deletions               |  |      | (4,300,689 | ) |                          |   | (1,526,941 | )
|                             |  |      |            |   |                          |   |            |  
|BALANCE AT DECEMBER 31, 2002 |  | $    | 41,755,528 |   |                          | $ | 16,587,573 |  
|                             |  |     
|2003 additions               |  |      | 534,509    |   |                          |   | 2,028,737  |  
|                             |  |      |            |   |                          |   |            |  
|BALANCE AT DECEMBER 31, 2003 |  | $    | 42,290,037 |   |                          | $ | 18,616,310 |  
|                             |  |      |            |   |                          |   |            |  



Page F-19



---

##### Index to Financial Statements

REPORT OF INDEPENDENT AUDITORS



The Partners

Fund II and Fund III Associates:



We have audited the accompanying balance sheets of Fund II and Fund III Associates, a Georgia joint venture, as of December 31, 2003 and 2002, and the related statements
of income (loss), partners capital, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and
schedule are the responsibility of the Joint Ventures management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fund II and Fund III Associates at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.



/s/    Ernst & Young LLP



Atlanta, Georgia

February 18, 2004



Page F-20



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



BALANCE SHEETS



DECEMBER 31,
2003 AND 2002



ASSETS



|                                                                                                                                  |  |      |            |      |   |           
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                                                                                                                  |  | 2003 |            | 2002
|Real estate assets, at cost:                                                                                                      |  |      |            |      |   |           
|Land                                                                                                                              |  | $    | 2,249,966  |      | $ | 2,249,966 
|Building and improvements, less accumulated depreciation of $9,834,673 and $9,082,028 at December 31, 2003 and 2002,
respectively |  |      | 6,319,327  |      |   | 6,742,440 
|                                                                                                                                  |  |      |            |      |   |           
|Total real estate assets                                                                                                          |  |      | 8,569,293  |      |   | 8,992,406 
|Investment in Fund II, III, VI and VII Associates                                                                                 |  |      | 1,159,595  |      |   | 1,134,506 
|Accounts receivable                                                                                                               |  |      | 501,336    |      |   | 508,540   
|Cash and cash equivalents                                                                                                         |  |      | 472,188    |      |   | 593,655   
|Prepaid expenses and other assets, net                                                                                            |  |      | 436,851    |      |   | 449,114   
|Due from Fund II, III, VI and VII Associates                                                                                      |  |      | 12,693     |      |   | 21,607    
|                                                                                                                                  |  |      |            |      |   |           
|Total assets                                                                                                                      |  | $    | 11,151,956 |      | $ | 11,699,828
|                                                                                                                                  |  |      |            |      |   |           
|                                                                                                                                 
|LIABILITIES AND PARTNERS CAPITAL                                                                                                
|Liabilities:                                                                                                                      |  |      |            |      |   |           
|Accounts payable and refundable security deposits                                                                                 |  | $    | 278,872    |      | $ | 542,788   
|Partnership distributions payable                                                                                                 |  |      | 185,741    |      |   | 106,452   
|Deferred rent                                                                                                                     |  |      | 1,806      |      |   | 123,675   
|                                                                                                                                  |  |      |            |      |   |           
|Total liabilities                                                                                                                 |  |      | 466,419    |      |   | 772,915   
|                                                                                                                                  |  |      |            |      |   |           
|Partners capital:                                                                                                                |  |      |            |      |   |           
|Fund II and Fund II-OW                                                                                                            |  |      | 6,776,735  |      |   | 6,929,986 
|Wells Real Estate Fund III, L.P.                                                                                                  |  |      | 3,908,802  |      |   | 3,996,927 
|                                                                                                                                  |  |      |            |      |   |           
|Total partners capital                                                                                                           |  |      | 10,685,537 |      |   | 10,926,913
|                                                                                                                                  |  |      |            |      |   |           
|Total liabilities and partners capital                                                                                           |  | $    | 11,151,956 |      | $ | 11,699,828
|                                                                                                                                  |  |      |            |      |   |           



See accompanying notes.



Page F-21



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



STATEMENTS OF INCOME (LOSS)



FOR THE YEARS ENDED

DECEMBER 31, 2003, 2002, AND 2001



|                                                                |  |      |           |      |   |           |      |  |   |          
|--------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | ---- |  | - | ---------
|                                                                |  | 2003 |           | 2002 |   |           | 2001
|Revenues:                                                       |  |      |           |      |   |           |      |  |   |          
|Rental income                                                   |  | $    | 1,951,616 |      | $ | 912,106   |      |  | $ | 1,704,954
|Equity in income of Fund II, III, VI and VII Associates         |  |      | 49,213    |      |   | 40,771    |      |  |   | 63,326   
|Reimbursement income                                            |  |      | 41,988    |      |   | 84,091    |      |  |   | 296,923  
|Other income                                                    |  |      | 755       |      |   | 1,730     |      |  |   | 10,310   
|                                                                |  |      |           |      |   |           |      |  |   |          
|                                                                |  |      | 2,043,572 |      |   | 1,038,698 |      |  |   | 2,075,513
|                                                                |  |      |           |      |   |           |      |  |   |          
|Expenses:                                                       |  |      |           |      |   |           |      |  |   |          
|Operating costs                                                 |  |      | 749,198   |      |   | 646,988   |      |  |   | 885,680  
|Depreciation                                                    |  |      | 752,645   |      |   | 702,105   |      |  |   | 828,677  
|Management and leasing fees                                     |  |      | 212,285   |      |   | 167,621   |      |  |   | 219,651  
|Legal and accounting                                            |  |      | 36,304    |      |   | 37,794    |      |  |   | 12,512   
|Joint Venture administration                                    |  |      | 51,954    |      |   | 106,966   |      |  |   | 51,916   
|Bad debt expense                                                |  |      | 5,000     |      |   | (31,036   | )    |  |   | 31,036   
|                                                                |  |      |           |      |   |           |      |  |   |          
|                                                                |  |      | 1,807,386 |      |   | 1,630,438 |      |  |   | 2,029,472
|                                                                |  |      |           |      |   |           |      |  |   |          
|Net income (loss)                                               |  | $    | 236,186   |      | $ | (591,740  | )    |  | $ | 46,041   
|                                                                |  |      |           |      |   |           |      |  |   |          
|Net income (loss) allocated to Fund II and Fund II-OW           |  | $    | 147,893   |      | $ | (361,015  | )    |  | $ | 30,115   
|                                                                |  |      |           |      |   |           |      |  |   |          
|Net income (loss) allocated to Wells Real Estate Fund III, L.P. |  | $    | 88,293    |      | $ | (230,725  | )    |  | $ | 15,926   
|                                                                |  |      |           |      |   |           |      |  |   |          



See accompanying notes.



Page F-22



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



STATEMENTS OF PARTNERS CAPITAL



FOR THE YEARS ENDED

DECEMBER 31, 2003, 2002, AND 2001



|                           |  |                        |           |   |                                 |   |           |                         |  |   |            |  
|-------------------------- |  | ---------------------- | --------- | - | ------------------------------- | - | --------- | ----------------------- |  | - | ---------- | -
|                           |  | Fund II and Fund II-OW |           |   | Wells RealEstate Fund III, L.P. |   |           | Total Partners Capital | 
|Balance, December 31, 2000 |  |                        | 6,867,280 |   |                                 |   | 3,952,432 |                         |  |   | 10,819,712 |  
|                           |  |                        |          
|Net income                 |  |                        | 30,115    |   |                                 |   | 15,926    |                         |  |   | 46,041     |  
|Partnership distributions  |  |                        | (630,805  | ) |                                 |   | (392,274  | )                       |  |   | (1,023,079 | )
|                           |  |                        |           |   |                                 |   |           |                         |  |   |            |  
|Balance, December 31, 2001 |  |                        | 6,266,590 |   |                                 |   | 3,576,084 |                         |  |   | 9,842,674  |  
|                           |  |                        |          
|Net loss                   |  |                        | (361,015  | ) |                                 |   | (230,725  | )                       |  |   | (591,740   | )
|Partnership contributions  |  |                        | 1,200,499 |   |                                 |   | 757,898   |                         |  |   | 1,958,397  |  
|Partnership distributions  |  |                        | (176,088  | ) |                                 |   | (106,330  | )                       |  |   | (282,418   | )
|                           |  |                        |           |   |                                 |   |           |                         |  |   |            |  
|Balance, December 31, 2002 |  |                        | 6,929,986 |   |                                 |   | 3,996,927 |                         |  |   | 10,926,913 |  
|                           |  |                        |          
|Net income                 |  |                        | 147,893   |   |                                 |   | 88,293    |                         |  |   | 236,186    |  
|Partnership contributions  |  |                        | 70,000    |   |                                 |   | 39,787    |                         |  |   | 109,787    |  
|Partnership distributions  |  |                        | (371,144  | ) |                                 |   | (216,205  | )                       |  |   | (587,349   | )
|                           |  |                        |           |   |                                 |   |           |                         |  |   |            |  
|Balance, December 31, 2003 |  | $                      | 6,776,735 |   |                                 | $ | 3,908,802 |                         |  | $ | 10,685,537 |  
|                           |  |                        |           |   |                                 |   |           |                         |  |   |            |  



See accompanying notes.



Page F-23



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



STATEMENTS OF CASH FLOWS



FOR
THE YEARS ENDED

DECEMBER 31, 2003, 2002, AND 2001



|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                         |  | 2003 |          |   | 2002 |   |            | 2001 | 
|Cash flows from operating activities:                                                    |  |      |          |   |      |   |            |      |  |   |            |  
|Net income (loss)                                                                        |  | $    | 236,186  |   |      | $ | (591,740   | )    |  | $ | 46,041     |  
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |      |          |   |      |   |            |      |  |   |            |  
|Depreciation                                                                             |  |      | 752,645  |   |      |   | 702,105    |      |  |   | 828,677    |  
|Amortization of deferred lease acquisition costs                                         |  |      | 98,537   |   |      |   | 102,517    |      |  |   | 95,313     |  
|Equity in income of Fund II, III, VI and VII Associates                                  |  |      | (49,213  | ) |      |   | (40,771    | )    |  |   | (63,326    | )
|Changes in assets and liabilities:                                                       |  |      |          |   |      |   |            |      |  |   |            |  
|Accounts receivable                                                                      |  |      | 7,204    |   |      |   | (494,267   | )    |  |   | 47,643     |  
|Prepaid expenses and other assets, net                                                   |  |      | 0        |   |      |   | 46,713     |      |  |   | (47,712    | )
|Accounts payable and refundable security deposits                                        |  |      | (263,916 | ) |      |   | 563,545    |      |  |   | (5,983     | )
|Deferred rent                                                                            |  |      | (121,869 | ) |      |   |            |      |  |   |            |  
|Due to affiliates                                                                        |  |      | 0        |   |      |   | 0          |      |  |   | (917       | )
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|Total adjustments                                                                        |  |      | 423,388  |   |      |   | 879,842    |      |  |   | 853,695    |  
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|Net cash provided by operating activities                                                |  |      | 659,574  |   |      |   | 288,102    |      |  |   | 899,736    |  
|Cash flows from investing activities:                                                    |  |      |          |   |      |   |            |      |  |   |            |  
|Distributions received from Fund II, III, VI and VII Associates                          |  |      | 42,411   |   |      |   | 127,276    |      |  |   | 195,783    |  
|Payment of deferred lease acquisition costs                                              |  |      | (86,274  | ) |      |   | (516,202   | )    |  |   | 0          |  
|Investment in Fund II, III, VI and VII Associates                                        |  |      | (9,373   | ) |      |   | 0          |      |  |   | 0          |  
|Investment in real estate assets                                                         |  |      | (329,532 | ) |      |   | (1,089,770 | )    |  |   | (73,696    | )
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|Net cash (used in) provided by investing activities                                      |  |      | (382,768 | ) |      |   | (1,478,696 | )    |  |   | 122,087    |  
|Cash flows from financing activities:                                                    |  |      |          |   |      |   |            |      |  |   |            |  
|Contributions from joint venture partners                                                |  |      | 109,787  |   |      |   | 1,958,397  |      |  |   | 0          |  
|Distributions to joint venture partners                                                  |  |      | (508,060 | ) |      |   | (408,374   | )    |  |   | (1,085,426 | )
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|Net cash (used in) provided by financing activities                                      |  |      | (398,273 | ) |      |   | 1,550,023  |      |  |   | (1,085,426 | )
|                                                                                         |  |      |         
|Net (decrease) increase in cash and cash equivalents                                     |  |      | (121,467 | ) |      |   | 359,429    |      |  |   | (63,603    | )
|Cash and cash equivalents, beginning of year                                             |  |      | 593,655  |   |      |   | 234,226    |      |  |   | 297,829    |  
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents, end of year                                                   |  | $    | 472,188  |   |      | $ | 593,655    |      |  | $ | 234,226    |  
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:                                          |  |      |          |   |      |   |            |      |  |   |            |  
|Due from Fund II, III, VI and VII Associates                                             |  | $    | 12,693   |   |      | $ | 21,607     |      |  | $ | 32,501     |  
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|Partnership distributions payable                                                        |  | $    | 185,741  |   |      | $ | 106,452    |      |  | $ | 232,408    |  
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  
|Write-off of fully amortized deferred leasing costs                                      |  | $    | 0        |   |      | $ | 54,351     |      |  | $ | 0          |  
|                                                                                         |  |      |          |   |      |   |            |      |  |   |            |  



See accompanying notes.



Page F-24



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



NOTES TO FINANCIAL STATEMENTS



DECEMBER 31, 2003, 2002, AND 2001



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Organization and Business



On April 3, 1989, Fund II and Fund II-OW entered into a joint venture agreement with Wells Real Estate Fund III, L.P. (Wells Fund III) known
as Fund II and Fund III Associates (the Joint Venture) for the purpose of investing in commercial and industrial real properties. Fund II and Fund II-OW is a joint venture between Wells Real Estate Fund II (Wells Fund II) and
Wells Real Estate Fund II-OW (Wells Fund II-OW).



In April 1989, the Joint Venture acquired Boeing at the Atrium property, a four-story office building located in Houston Texas. In 1991, Fund II and Fund II-OW contributed its interest in a 5.8-acre of land known as the Holcomb Bridge
Property located in Roswell, Georgia, to the Joint Venture. A restaurant was developed on 1.5 acres of the Holcomb Bridge Property and is currently operating as the Brookwood Grill restaurant. During 1995, the remaining 4.3 acres of the Holcomb
Bridge Property were transferred at cost to the Fund II, III, VI and VII Associates, a joint venture partnership between the Joint Venture, Wells Real Estate Fund VI, L.P. (Wells Fund VI), and Wells Real Estate Fund VII, L.P.
(Wells Fund VII). The general partners of Wells Fund II, Wells Fund II-OW, and Wells Fund III are Leo F. Wells, III and Wells Capital, Inc. The general partners of Wells Fund VI and Wells Fund VII are Leo F. Wells, III and Wells
Partners, L.P., a private Georgia limited partnership.



Investment in Fund II, III, VI and VII Associates



The Joint Venture does not have control over the operations of Fund II, III, VI and VII Associates; however, it does exercise significant influence. Accordingly, the Joint Ventures investments in Fund II, III, VI and VII Associates
are recorded using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for contributions, distributions and net income (loss) attributable to the Joint Venture. Pursuant to the terms of the
joint venture agreements, all income and distributions are allocated to joint venture partners in accordance with their respective ownership interests. Distributions of net cash from operations are distributed to the joint venture partners on a
quarterly basis.



Use of Estimates



The preparation of the Joint Ventures financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from
those estimates.



Revenue Recognition



The Joint Ventures leases typically include renewal options,
escalation provisions and provisions requiring tenants to reimburse the Joint Venture for a pro rata share of operating costs incurred. All of the Joint Ventures leases are classified as operating leases, and the related rental income,
including scheduled rental rate increases (other than scheduled increases based on the Consumer Price Index) is recognized on a straight-line basis over the terms of the respective leases. Rental revenues collected in advance are recorded as
deferred rent.



Page F-25



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



Allocation of Income
and Distributions



Pursuant to the terms of the joint
venture agreement, all income and distributions are allocated to Fund II and Fund II-OW and Wells Fund III in accordance with their respective ownership interests of 63% and 37%, respectively. Net cash from operations is distributed to the joint
venture partners on a quarterly basis.



Real Estate Assets



Real estate assets are stated at cost less accumulated
depreciation. Major improvements and betterments are capitalized when they extend the useful lives of the related assets. All repairs and maintenance expenditures are expensed as incurred. Depreciation for buildings and improvements is calculated
using the straight-line method over 25 years. Tenant improvements are amortized over the life of the related lease or real estate asset.



Effective January 1, 2002, the Joint Venture adopted the Statement of Financial Accounting Standards No. 144 Accounting for the Impairment
or Disposal of Long Lived Assets(SFAS 144), which supersedes Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(SFAS 121) and Accounting Principles Board No. 30 Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual or Infrequently Occurring Events or
Transactions, with regard to impairment assessment and discontinued operations, respectively. Under this accounting standard, management continually monitors events and changes in circumstances that could indicate that carrying amounts of
real estate assets may not be recoverable. When indicators of potential impairment are present, management assesses the recoverability of the assets by determining whether the carrying value of the real estate assets will be recovered through the
undiscounted future cash flows expected from the use and eventual disposition of the asset. In the event the expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and
recognizes an impairment loss. Management has determined that there has been no impairment in the carrying value of real estate assets held by the Joint Venture to date.



Accounts Receivable



Accounts receivable are comprised of tenant receivables and straight-line rent receivables. Management assesses the collectibility of accounts receivable
on an ongoing basis and provides for allowances as such balances, or portions thereof, become uncollectible. No such allowances have been recorded as of December 31, 2003 or 2002.



Cash and Cash Equivalents



The Joint Venture considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash
equivalents include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value, and consist of investments in money market accounts.



Page F-26



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



Prepaid Expenses and
Other Assets, net



Prepaid expenses and other assets, net,
as of December 31, 2003 and 2002 is comprised of the following balances:



|                             |  |      |         |      |   |        
|---------------------------- |  | ---- | ------- | ---- | - | -------
|                             |  | 2003 |         | 2002
|Deferred leasing costs, net  |  | $    | 435,851 |      | $ | 448,114
|Refundable security deposits |  |      | 1,000   |      |   | 1,000  
|                             |  |      |         |      |   |        
|Total                        |  | $    | 436,851 |      | $ | 449,114
|                             |  |      |         |      |   |        



Deferred leasing
costs, net, reflect costs incurred to procure operating leases, which are capitalized and amortized on a straight-line basis over the terms of the related leases. Deferred leasing costs, net, include accumulated amortization of $615,347 and $516,810
as of December 31, 2003 and 2002, respectively. Refundable security deposits represent cash deposits received from tenants, the offset to which is included in accounts payable, accrued expenses and refundable security deposits in the accompanying
balance sheets. Pursuant to the respective leases, the Joint Venture may apply such balances towards unpaid receivable balances or property damages, where applicable, or will refund remaining balances to the tenants upon the expiration of their
lease term.



Income Taxes



The Joint Venture is not subject to federal or state income taxes;
therefore, none have been provided for in the accompanying financial statements. The partners of Wells Fund II, Wells Fund II-OW, and Wells Fund III are required to include their respective share of profits and losses from the Joint Venture in their
individual income tax returns.



|2. | RELATED-PARTY TRANSACTIONS
|-- | --------------------------



Due from Fund II, III, VI and VII Associates represents the Joint Ventures share of cash to be distributed from Fund II, III, VI and VII Associates
for the fourth quarters of 2003 and 2002, respectively.



Wells
Fund II, Wells Fund II-OW and Wells Fund III entered into a property management and leasing agreement with Wells Management Company, Inc. (Wells Management), an affiliate of the general partners of Wells Fund II, Wells Fund II-OW, and
Wells Fund III. In consideration for management and leasing of the Joint Ventures properties, the Joint Venture will generally pay Wells Management fees equal to (a) 3% of the gross revenues for management and 3% of the gross revenues for
leasing (aggregate maximum of 6%) plus a separate fee for the one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same
geographic area for similar properties or (b) in the case of commercial properties which are leased on a long-term net basis (ten or more years), 1% of the gross revenues, except for initial leasing fees equal to 3% of the gross revenues over the
first five years of the lease term. The Joint Venture incurred management and leasing fees of $113,747, $65,103, and $118,188 for the years ended December 31, 2003, 2002, and 2001, respectively, which are payable to Wells Management.



Wells Capital, Inc., an affiliate of the General Partners, and its
affiliates perform certain administrative services for the Partnership, such as accounting, property management, and other partnership administration, and incur the related expenses. Such expenses are allocated among these entities based on time
spent on each entity by individual personnel. During 2003, 2002, and 2001, the Joint Venture reimbursed $47,402, $88,067, and $44,995, respectively, to Wells Capital, Inc. and its affiliates for these services.



Page F-27



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



The general partners of
Wells Fund II, Wells Fund II-OW and Wells Fund III are also general partners of other Wells Real Estate Funds. As such, there may exist conflicts of interest where the general partners in their capacity as general partners of other Wells Real Estate
Funds may be in competition with the Joint Venture for tenants in similar geographic markets.



|3. | RENTAL INCOME
|-- | -------------



The future minimum rental income due to the Joint Venture under noncancelable operating leases at December 31, 2003 follows:



|                         |  |   |          
|------------------------ |  | - | ---------
|Year ending December 31: |  |   |          
|2004                     |  | $ | 2,070,952
|2005                     |  |   | 2,076,628
|2006                     |  |   | 2,082,436
|2007                     |  |   | 2,088,400
|2008                     |  |   | 714,289  
|Thereafter               |  |   | 847,558  
|                         |  |   |          
|                         |  | $ | 9,880,263
|                         |  |   |          



Two tenants
contributed 89% and 11% of rental income for the year ended December 31, 2003. Two tenants will Contribute 79% and 21% of future minimum rental income.



|4. | INVESTMENT IN FUND II, III, VI AND VII ASSOCIATES
|-- | -------------------------------------------------



The Joint Ventures investment in Fund II, III, VI and VII Associates for the years ended December 31, 2003 and 2002 are summarized as follow:



|                                                                     |  |      |           |   |      |   |           |  
|-------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                     |  | 2003 |           |   | 2002 |  
|Investment in Fund II, III, VI and VII Associates, beginning of year |  | $    | 1,134,506 |   |      | $ | 1,210,117 |  
|Equity in income of Fund II, III, VI and VII Associates              |  |      | 49,213    |   |      |   | 40,771    |  
|Contributions to Fund II, III, VI and VII Associates                 |  |      | 9,373     |   |      |   | 0         |  
|Distributions from Fund II, III, VI and VII Associates               |  |      | (33,497   | ) |      |   | (116,382  | )
|                                                                     |  |      |           |   |      |   |           |  
|Investment in Fund II, III, VI and VII Associates, end of year       |  | $    | 1,159,595 |   |      | $ | 1,134,506 |  
|                                                                     |  |      |           |   |      |   |           |  



The Joint
Ventures investment and percentage ownership in Fund II, III, VI and VII Associates as of December 31, 2003 and 2002 are summarized as follows:



| |  |            |  |         |  |            |  |        
| |  | ---------- |  | ------- |  | ---------- |  | -------
| |  | 2003       |  | 2002   
| |  | Amount     |  | Percent |  | Amount     |  | Percent
| |  | $1,159,595 |  | 23%     |  | $1,134,506 |  | 23%    
| |  |            |  |         |  |            |  |        



Fund II-III-VI-VII
Associates



During 1995, 4.3 acres of land located in
Roswell, Georgia, was transferred at cost to Fund II-III-VI-VII Associates. Development on this property of two buildings containing a total of approximately 49,500 square feet was substantially complete in 1996. Once constructed, this property
became known as the Holcomb Bridge Property.



Page F-28



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



The following
information summarizes the financial position of Fund II, III, VI and VII Associates as of December 31, 2003 and 2002, and the results of operations for the years ended December 31, 2003, 2002, and 2001:



|                                    |  |                |           |                   |            |              |  |   |         |     |      |   |         |  |   |           |  |   |          
|----------------------------------- |  | -------------- | --------- | ----------------- | ---------- | ------------ |  | - | ------- | --- | ---- | - | ------- |  | - | --------- |  | - | ---------
|                                    |  | Total Assets   |           | Total Liabilities |            | Total Equity
|                                    |  | 2003           |           | 2002              |            | 2003         |  |   | 2002    |     | 2003 |   | 2002   
|Fund II, III, VI and VII Associates |  | $              | 5,065,573 |                   | $          | 4,976,432    |  | $ | 117,402 |     |      | $ | 135,338 |  | $ | 4,948,172 |  | $ | 4,841,094
|                                    |  |                |           |                   |            |              |  |   |         |     |      |   |         |  |   |           |  |   |          
|                                    |  |               
|                                    |  | Total Revenues |           |                   | Net Income
|                                    |  | 2003           |           | 2002              |            | 2001         |  |   | 2003    |     | 2002 |   | 2001   
|Fund II, III, VI and VII Associates |  | $              | 720,436   |                   | $          | 714,630      |  | $ | 962,601 | (i) |      | $ | 210,044 |  | $ | 169,386   |  | $ | 263,092  
|                                    |  |                |           |                   |            |              |  |   |         |     |      |   |         |  |   |           |  |   |          



|(i) | Amounts have been restated to reflect tenant reimbursements of $114,438 for Fund II, III, VI and VII Associates as revenues for the twelve months ended December 31, 2001, which
was previously recorded as a reduction of expenses.This change in presentation has no impact on the financial position, net income, or cash flows of the Joint Venture (see Note 1).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page F-29



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31, 2003



|                         |  |              |      |              |                            |                                           |   |                                                    |  |                            |           |                         |   |               |  |                                           |            |  |   |        |  |   |            |  |   |           |  |      |  |         |  |               
|------------------------ |  | ------------ | ---- | ------------ | -------------------------- | ----------------------------------------- | - | -------------------------------------------------- |  | -------------------------- | --------- | ----------------------- | - | ------------- |  | ----------------------------------------- | ---------- |  | - | ------ |  | - | ---------- |  | - | --------- |  | ---- |  | ------- |  | --------------
|                         |  | Encumbrances |      | Initial Cost |                            | Costs CapitalizedSubsequent ToAcquisition |   | Gross Amount at Which Carried at December 31, 2003 |  | Accumulated Depreciation   |           | Date of Construction    |   | Date Acquired |  | Life on whichDepreciation is Computed (c)
|Description              |  |              | Land |              | Buildings and Improvements |                                           |   | Land                                               |  | Buildings and Improvements |           | Constructionin Progress |   | Total         |  |                                           |            | 
|BROOKWOOD GRILL (a)      |  | None         |      | $            | 523,319                    |                                           | $ | 0                                                  |  | $                          | 1,494,717 |                         | $ | 745,223       |  | $                                         | 1,272,813  |  | $ | 0      |  | $ | 2,018,036  |  | $ | 604,055   |  | 1991 |  | 1/31/90 |  | 20 to 25 years
|BOEING AT THE ATRIUM (b) |  | None         |      |              | 1,367,000                  |                                           |   | 10,983,000                                         |  |                            | 4,035,930 |                         |   | 1,504,743     |  |                                           | 14,811,553 |  |   | 69,634 |  |   | 16,385,930 |  |   | 9,230,618 |  | 1988 |  | 4/03/89 |  | 20 to 25 years
|                         |  |              |      |              |                            |                                           |   |                                                    |  |                            |           |                         |   |               |  |                                           |            |  |   |        |  |   |            |  |   |           |  |      |  |         |  |               
|Total                    |  |              |      | $            | 1,890,319                  |                                           | $ | 10,983,000                                         |  | $                          | 5,530,647 |                         | $ | 2,249,966     |  | $                                         | 16,084,366 |  | $ | 69,634 |  | $ | 18,403,966 |  | $ | 9,834,673 |  |      |  |         |  |               
|                         |  |              |      |              |                            |                                           |   |                                                    |  |                            |           |                         |   |               |  |                                           |            |  |   |        |  |   |            |  |   |           |  |      |  |         |  |               



|(a) | Brookwood Grill is a restaurant located in Fulton County, Georgia.
|--- | ------------------------------------------------------------------



|(b) | Boeing at the Atrium is a four-story office building located in Houston, Texas.
|--- | -------------------------------------------------------------------------------



|(c) | Depreciation lives used for buildings are 25 years. Depreciation lives used for land improvements are 20 years.
|--- | ---------------------------------------------------------------------------------------------------------------



Page F-30



---

##### Index to Financial Statements

FUND II AND FUND III ASSOCIATES

(A Georgia Joint
Venture)



SCHEDULE III 
REAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31,
2003



|                             |  |      |            |                          |   |          
|---------------------------- |  | ---- | ---------- | ------------------------ | - | ---------
|                             |  | Cost |            | Accumulated Depreciation
|BALANCE AT DECEMBER 31, 2000 |  | $    | 16,910,968 |                          | $ | 7,551,246
|                             |  |     
|2001 additions               |  |      | 73,696     |                          |   | 828,676  
|                             |  |      |            |                          |   |          
|BALANCE AT DECEMBER 31, 2001 |  |      | 16,984,664 |                          |   | 8,379,922
|                             |  |     
|2002 additions               |  |      | 1,089,770  |                          |   | 702,106  
|                             |  |      |            |                          |   |          
|BALANCE AT DECEMBER 31, 2002 |  |      | 18,074,434 |                          |   | 9,082,028
|                             |  |     
|2003 additions               |  |      | 329,532    |                          |   | 752,645  
|                             |  |      |            |                          |   |          
|BALANCE AT DECEMBER 31, 2003 |  | $    | 18,403,966 |                          | $ | 9,834,673
|                             |  |      |            |                          |   |          



Page F-31



---

##### Index to Financial Statements

REPORT OF INDEPENDENT AUDITORS



The Partners

Fund III and Fund IV Associates:



We have audited the accompanying balance sheets of Fund III and Fund IV Associates, a Georgia joint venture, as of December 31, 2003 and 2002, and the related statements
of income, partners capital, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule
are the responsibility of the Joint Ventures management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fund III and Fund IV Associates at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.



/s/    Ernst & Young LLP



Atlanta, Georgia

February 18, 2004



Page F-32



---

##### Index to Financial Statements

FUND III AND FUND IV ASSOCIATES

(A Georgia Joint
Venture)



BALANCE SHEETS



DECEMBER 31,
2003 AND 2002



ASSETS



|                                                                                                                                  |  |      |            |      |   |           
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                                                                                                                  |  | 2003 |            | 2002
|Real estate assets, at cost:                                                                                                      |  |      |            |      |   |           
|Land                                                                                                                              |  | $    | 573,582    |      | $ | 573,582   
|Building and improvements, less accumulated depreciation of $2,934,925 and $1,957,642 at December 31, 2003 and 2002,
respectively |  |      | 2,574,456  |      |   | 3,551,740 
|Assets held for sale                                                                                                              |  |      | 7,251,981  |      |   | 7,251,009 
|                                                                                                                                  |  |      |            |      |   |           
|Total real estate assets                                                                                                          |  |      | 10,400,019 |      |   | 11,376,331
|Accounts receivable, net                                                                                                          |  |      | 229,927    |      |   | 131,297   
|Cash and cash equivalents                                                                                                         |  |      | 139,062    |      |   | 361,251   
|Other assets, net                                                                                                                 |  |      | 66,218     |      |   | 290,534   
|                                                                                                                                  |  |      |            |      |   |           
|Total assets                                                                                                                      |  | $    | 10,835,226 |      | $ | 12,159,413
|                                                                                                                                  |  |      |            |      |   |           
|                                                                                                                                 
|LIABILITIES AND PARTNERS CAPITAL                                                                                                
|                                                                                                                                  |  |     
|Liabilities:                                                                                                                      |  |      |            |      |   |           
|Partnership distributions payable                                                                                                 |  | $    | 231,237    |      | $ | 351,517   
|Accounts payable and refundable security deposits                                                                                 |  |      | 58,712     |      |   | 52,618    
|Deferred rent                                                                                                                     |  |      | 62,715     |      |   | 0         
|                                                                                                                                  |  |      |            |      |   |           
|Total liabilities                                                                                                                 |  |      | 352,664    |      |   | 404,135   
|                                                                                                                                  |  |      |            |      |   |           
|Partners capital:                                                                                                                |  |      |            |      |   |           
|Wells Real Estate Fund III, L.P.                                                                                                  |  |      | 5,997,232  |      |   | 6,725,376 
|Wells Real Estate Fund IV, L.P.                                                                                                   |  |      | 4,485,330  |      |   | 5,029,902 
|                                                                                                                                  |  |      |            |      |   |           
|Total partners capital                                                                                                           |  |      | 10,482,562 |      |   | 11,755,278
|                                                                                                                                  |  |      |            |      |   |           
|Total liabilities and partners capital                                                                                           |  | $    | 10,835,226 |      | $ | 12,159,413
|                                                                                                                                  |  |      |            |      |   |           



See accompanying notes.



Page F-33



---

##### Index to Financial Statements

FUND III AND FUND IV ASSOCIATES

(A Georgia Joint
Venture)



STATEMENTS OF INCOME



FOR THE
YEARS ENDED

DECEMBER 31, 2003, 2002, AND 2001



|                                                         |  |      |            |   |      |   |         |  |   |          
|-------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ------- |  | - | ---------
|                                                         |  | 2003 |            |   | 2002 |   | 2001   
|Revenues:                                                |  |      |            |   |      |   |         |  |   |          
|Rental income                                            |  | $    | 223,726    |   |      | $ | 578,335 |  | $ | 530,141  
|Reimbursement income                                     |  |      | 31,352     |   |      |   | 47,620  |  |   | 47,689   
|Interest income                                          |  |      | 614        |   |      |   | 0       |  |   | 0        
|Other income                                             |  |      | 0          |   |      |   | 0       |  |   | 20,000   
|                                                         |  |      |            |   |      |   |         |  |   |          
|                                                         |  |      | 255,692    |   |      |   | 625,955 |  |   | 597,830  
|                                                         |  |      |            |   |      |   |         |  |   |          
|Expenses:                                                |  |      |            |   |      |   |         |  |   |          
|Depreciation                                             |  |      | 977,283    |   |      |   | 315,628 |  |   | 251,284  
|Write-off of deferred leasing costs                      |  |      | 195,325    |   |      |   | 0       |  |   | 0        
|Management and leasing fees                              |  |      | 41,836     |   |      |   | 59,677  |  |   | 52,464   
|Operating costs                                          |  |      | 77,527     |   |      |   | 50,340  |  |   | 52,419   
|Joint Venture administration                             |  |      | 31,386     |   |      |   | 12,661  |  |   | 11,363   
|Legal and accounting                                     |  |      | 26,840     |   |      |   | 7,665   |  |   | 5,000    
|                                                         |  |      |            |   |      |   |         |  |   |          
|                                                         |  |      | 1,350,197  |   |      |   | 445,971 |  |   | 372,530  
|                                                         |  |      |            |   |      |   |         |  |   |          
|Net (loss) income from continuing operations             |  |      | (1,094,505 | ) |      |   | 179,984 |  |   | 225,300  
|                                                         |  |      |            |   |      |   |         |  |   |          
|Income from discontinued operations                      |  |      | 1,135,650  |   |      |   | 700,913 |  |   | 799,349  
|                                                         |  |      |            |   |      |   |         |  |   |          
|Net income                                               |  | $    | 41,145     |   |      | $ | 880,897 |  | $ | 1,024,649
|                                                         |  |      |            |   |      |   |         |  |   |          
|Net income allocated to Wells Real Estate Fund III, L.P. |  | $    | 23,540     |   |      | $ | 503,975 |  | $ | 586,219  
|                                                         |  |      |            |   |      |   |         |  |   |          
|Net income allocated to Wells Real Estate Fund IV, L.P.  |  | $    | 17,605     |   |      | $ | 376,922 |  | $ | 438,430  
|                                                         |  |      |            |   |      |   |         |  |   |          



See accompanying notes.



Page F-34



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##### Index to Financial Statements

FUND III AND FUND IV ASSOCIATES

(A Georgia Joint
Venture)



STATEMENTS OF PARTNERS CAPITAL



FOR THE YEARS ENDED

DECEMBER 31, 2003, 2002, AND 2001



|                           |  |                                 |           |   |                                |   |           |                         |  |   |            |  
|-------------------------- |  | ------------------------------- | --------- | - | ------------------------------ | - | --------- | ----------------------- |  | - | ---------- | -
|                           |  | Wells RealEstate Fund III, L.P. |           |   | Wells RealEstate Fund IV, L.P. |   |           | Total Partners Capital | 
|Balance, December 31, 2000 |  | $                               | 6,910,490 |   |                                | $ | 5,168,329 |                         |  | $ | 12,078,819 |  
|                           |  |                                 |          
|Net income                 |  |                                 | 586,219   |   |                                |   | 438,430   |                         |  |   | 1,024,649  |  
|Partnership contributions  |  |                                 | 502,342   |   |                                |   | 375,720   |                         |  |   | 878,062    |  
|Partnership distributions  |  |                                 | (919,618  | ) |                                |   | (687,778  | )                       |  |   | (1,607,396 | )
|                           |  |                                 |           |   |                                |   |           |                         |  |   |            |  
|Balance, December 31, 2001 |  |                                 | 7,079,433 |   |                                |   | 5,294,701 |                         |  |   | 12,374,134 |  
|                           |  |                                 |          
|Net income                 |  |                                 | 503,975   |   |                                |   | 376,922   |                         |  |   | 880,897    |  
|Partnership distributions  |  |                                 | (858,032  | ) |                                |   | (641,721  | )                       |  |   | (1,499,753 | )
|                           |  |                                 |           |   |                                |   |           |                         |  |   |            |  
|Balance, December 31, 2002 |  |                                 | 6,725,376 |   |                                |   | 5,029,902 |                         |  |   | 11,755,278 |  
|                           |  |                                 |          
|Net income                 |  |                                 | 23,540    |   |                                |   | 17,605    |                         |  |   | 41,145     |  
|Partnership distributions  |  |                                 | (751,684  | ) |                                |   | (562,177  | )                       |  |   | (1,313,861 | )
|                           |  |                                 |           |   |                                |   |           |                         |  |   |            |  
|Balance, December 31, 2003 |  | $                               | 5,997,232 |   |                                | $ | 4,485,330 |                         |  | $ | 10,482,562 |  
|                           |  |                                 |           |   |                                |   |           |                         |  |   |            |  



See accompanying notes.



Page F-35



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##### Index to Financial Statements

FUND III AND FUND IV ASSOCIATES

(A Georgia Joint
Venture)



STATEMENTS OF CASH FLOWS



FOR
THE YEARS ENDED

DECEMBER 31, 2003, 2002, AND 2001



|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                         |  | 2003 |            |   | 2002 |   |            | 2001 | 
|Cash flows from operating activities:                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Net (loss) income from continuing operations                                             |  | $    | (1,094,505 | ) |      | $ | 179,984    |      |  | $ | 225,300    |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |      |            |   |      |   |            |      |  |   |            |  
|Depreciation                                                                             |  |      | 977,283    |   |      |   | 315,629    |      |  |   | 251,284    |  
|Amortization of deferred lease acquisition costs                                         |  |      | 229,611    |   |      |   | 47,734     |      |  |   | 41,831     |  
|Changes in assets and liabilities:                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Accounts receivable, net                                                                 |  |      | (98,630    | ) |      |   | 82,702     |      |  |   | (83,773    | )
|Security deposit escrow                                                                  |  |      | 6,950      |   |      |   | (4,492     | )    |  |   | 517        |  
|Accounts payable and refundable security deposits                                        |  |      | 6,094      |   |      |   | 12,953     |      |  |   | (1,231     | )
|Deferred rent                                                                            |  |      | 62,715     |   |      |   | 0          |      |  |   | 0          |  
|Due to affiliates                                                                        |  |      | 0          |   |      |   | (3,406     | )    |  |   | 1,536      |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Total adjustments                                                                        |  |      | 1,184,023  |   |      |   | 451,120    |      |  |   | 210,164    |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by continuing operations                                               |  |      | 89,518     |   |      |   | 631,104    |      |  |   | 435,464    |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by discontinued operations                                             |  |      | 1,211,797  |   |      |   | 1,048,825  |      |  |   | 1,165,020  |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by operating activities                                                |  |      | 1,301,315  |   |      |   | 1,679,929  |      |  |   | 1,600,484  |  
|Cash flows from investing activities:                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Payments of deferred lease acquisition costs                                             |  |      | (12,245    | ) |      |   | (12,245    | )    |  |   | (172,157   | )
|Investment in real estate assets                                                         |  |      | (77,118    | ) |      |   | (64,984    | )    |  |   | (719,892   | )
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash used in investing activities                                                    |  |      | (89,363    | ) |      |   | (77,229    | )    |  |   | (892,049   | )
|Cash flows from financing activities:                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Contributions from joint venture partners                                                |  |      | 0          |   |      |   | 0          |      |  |   | 878,062    |  
|Distributions to joint venture partners                                                  |  |      | (1,434,141 | ) |      |   | (1,556,774 | )    |  |   | (1,376,276 | )
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash used in financing activities                                                    |  |      | (1,434,141 | ) |      |   | (1,556,774 | )    |  |   | (498,214   | )
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Net (decrease) increase in cash and cash equivalents                                     |  |      | (222,189   | ) |      |   | 45,926     |      |  |   | 210,221    |  
|Cash and cash equivalents, beginning of year                                             |  |      | 361,251    |   |      |   | 315,325    |      |  |   | 105,104    |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents, end of year                                                   |  | $    | 139,062    |   |      | $ | 361,251    |      |  | $ | 315,325    |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Partnership distributions payable                                                        |  | $    | 231,237    |   |      | $ | 351,517    |      |  | $ | 408,538    |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  
|Write-off of fully amortized deferred leasing costs                                      |  | $    | 292,676    |   |      | $ | 10,708     |      |  | $ | 36,947     |  
|                                                                                         |  |      |            |   |      |   |            |      |  |   |            |  



See accompanying notes.



Page F-36



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##### Index to Financial Statements

FUND III AND FUND IV ASSOCIATES

(A Georgia Joint
Venture)



NOTES TO FINANCIAL STATEMENTS



DECEMBER 31, 2003, 2002, AND 2001



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Organization and Business



On March 27, 1991, Wells Real Estate Fund III, L.P. (Wells Fund III) entered into a joint venture with Wells Real Estate Fund IV, L.P.
(Wells Fund IV) to form Fund III and Fund IV Associates (the Joint Venture). The general partners of Wells Fund III are Leo F. Wells, III and Wells Capital (Wells Capital). The general partners of Wells Fund IV
are Leo F. Wells, III and Wells Partners, L.P., a private Georgia limited partnership.



The Joint Venture was created for the purpose of developing, constructing, and operating the Stockbridge Village Center, a 64,097 building located on 13.62 acres of real property in Stockbridge, Georgia. In July 1992,
the Joint Venture also acquired 4400 Cox Road (formerly known as the Reciprocal Group Building), a two-story office building containing approximately 43,000 square feet and located in Richmond, Virginia.



Use of Estimates



The preparation of the Joint Ventures financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from
those estimates.



Real Estate Assets



Real estate assets are stated at cost less accumulated depreciation. Major
improvements and betterments are capitalized when they extend the useful lives of the related assets. All repairs and maintenance expenditures are expensed as incurred. Depreciation for buildings and improvements is calculated using the
straight-line method over 25 years. Tenant improvements are amortized over the life of the related lease or real estate asset.



Effective January 1, 2002, the Joint Venture adopted the Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long Lived Assets(SFAS 144), which supersedes Statement of Financial Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(SFAS 121) and Accounting Principles Board No. 30 Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual or Infrequently Occurring Events or
Transactions, with regard to impairment assessment and discontinued operations, respectively. Under this accounting standard, management continually monitors events and changes in circumstances that could indicate that carrying amounts of
real estate assets held for investment may not be recoverable. When indicators of potential impairment are present and the real estate assets are classified as Held and Used, management assesses the recoverability of the assets by determining
whether the carrying value of the real estate assets will be recovered through the undiscounted future cash flows expected from the use and eventual disposition of the asset. In the event the expected undiscounted future cash flows do not exceed the
carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. Management has determined that there has been no impairment in the carrying value of real estate assets held for investment by the Joint
Venture to date. Assets designated as held for sale are adjusted for the lower of cost or fair value less costs to sell, and depreciation is ceased.



Page F-37



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##### Index to Financial Statements

FUND III AND FUND IV ASSOCIATES

(A Georgia Joint
Venture)



Assets Held for Sale



On March 18, 2003, the Joint Venture and the three
affiliated joint ventures (collectively, the Seller, defined below) entered into an agreement (the Agreement) to sell five real properties (the Sale Properties, defined below) located in Stockbridge, Georgia to an
unrelated third party (the Purchaser). Contemporaneously, the Sale Properties were classified as Held for Sale in accordance with paragraph 30 of Statement of Financial Accounting Standard (SFAS) No. 144 Accounting
for the Impairment or Disposal of Long Lived Assets, which supersedes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and Accounting Principles Board No. 30
Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual or Infrequently Occurring Events or Transactions,effective January 1, 2002. SFAS No. 144 requires, among
other things, assets held for sale to be presented separately in the accompanying balance sheets and that the operating results of real estate assets sold or held for sale subsequent to January 1, 2002 be included in discontinued operations in the
statements of income for all periods presented (see Note 3).



|                                                |  |                                                                    |  |                                                                                                                                                                                       
|----------------------------------------------- |  | ------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Collectively, the Seller) The Joint Ventures |  | Joint Venture Partners                                             |  | Sale Properties                                                                                                                                                                       
|The Joint Venture                               |  | Wells Real Estate Fund III, L.P. Wells Real Estate Fund
IV, L.P.   |  | 1. Stockbridge Village Center A
retail shopping center located in Stockbridge, Georgia                                                                                                
|                                               
|                                                |  |                                                                   
|Fund V and Fund VI Associates                   |  | Wells Real Estate Fund V, L.P. Wells Real Estate Fund
VI, L.P.     |  | 2. Stockbridge Village II Two
retail buildings located in Stockbridge, Georgia                                                                                                        
|                                               
|                                                |  |                                                                   
|Fund VI and Fund VII Associates                 |  | Wells Real Estate Fund VI, L.P. Wells Real Estate Fund
VII, L.P.   |  | 3. Stockbridge Village I Expansion A retail shopping center expansion located in Stockbridge, Georgia  4. Stockbridge Village III Two retail buildings located in Stockbridge, Georgia
|                                               
|                                                |  |                                                                   
|Fund VII and Fund VIII Associates               |  | Wells Real Estate Fund VII, L.P. Wells Real Estate Fund
VIII, L.P. |  | 5. Hannover Center A retail
center located in Stockbridge, Georgia                                                                                                                    
|                                               



Accounts
Receivable, Net



Accounts receivable, net, is comprised of
tenant receivables and straight-line rent receivables. Management assesses the collectibility of accounts receivable on an ongoing basis and provides for allowances as such balances, or portions thereof, become uncollectible. Allowances of $5,873
and $ 0 are included in accounts receivable, net, as of December 31, 2003 and 2002, respectively.



Cash and Cash Equivalents



The Joint Venture considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash
equivalents include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value, and consist of investments in money market accounts.



Page F-38



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##### Index to Financial Statements

FUND III AND FUND IV ASSOCIATES

(A Georgia Joint
Venture)



Other Assets, net



As of December 31, 2003 and 2002, other assets, net, is
comprised of the following items:



|                             |  |      |        |      |   |        
|---------------------------- |  | ---- | ------ | ---- | - | -------
|                             |  | 2003 |        | 2002
|Deferred leasing costs, net  |  | $    | 33,686 |      | $ | 251,052
|Refundable security deposits |  |      | 32,532 |      |   | 39,482 
|                             |  |      |        |      |   |        
|Total                        |  | $    | 66,218 |      | $ | 290,534
|                             |  |      |        |      |   |        



Deferred leasing
costs, net, reflects costs incurred to procure operating leases, which are capitalized and amortized on a straight-line basis over the terms of the related leases. Deferred leasing costs are presented net of accumulated amortization of $259,516 and
$322,581 as of December 31, 2003 and 2002, respectively. Refundable security deposits represent cash deposits received from tenants, the offset to which is included in accounts payable and refundable security deposits in the accompanying balance
sheets. Pursuant to the respective leases, the Joint Venture may apply such balances towards unpaid receivable balances or property damages, where applicable, or will refund such balances to the tenants upon the expiration of the lease term.



Revenue Recognition



The Joint Ventures leases typically include renewal options,
escalation provisions and provisions requiring tenants to reimburse the Joint Venture for a pro rata share of operating costs incurred. All of the Joint Ventures leases are classified as operating leases, and the related rental income,
including scheduled rental rate increases (other than scheduled increases based on the Consumer Price Index) is recognized on a straight-line basis over the terms of the respective leases. Rental revenues collected in advance are recorded as
deferred rent in the accompanying balance sheets.



Income
Taxes



The Joint Venture is not subject to federal or
state income taxes; therefore, none have been provided for in the accompanying financial statements. The partners of Wells Fund III and Wells Fund IV are required to include their respective share of profits and losses from the Joint Venture in
their individual income tax returns.



Allocation of Income
and Distributions



Pursuant to the terms of the joint
venture agreement, all income and distributions are allocated to Wells Fund III and Wells Fund IV in accordance with their respective ownership interests of 57% and 43%, respectively. Net cash from operations is distributed to the joint venture
partners on a quarterly basis.



|2. | RELATED-PARTY TRANSACTIONS
|-- | --------------------------



Wells Fund III and Wells Fund IV entered into property management and leasing agreements with Wells Management Company, Inc. (Wells
Management), an affiliate of the general partners of Wells Fund III and Wells Fund IV. In consideration for management and leasing of the Joint Ventures properties, the Joint Venture will generally pay Wells Management fees equal to (a)
3% of the gross revenues for management and 3% of the gross revenues for leasing (aggregate maximum of 6%) plus a separate fee for the one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in
arms-length transactions by others rendering similar services in the same geographic area for similar properties or (b) in the case of commercial properties which are leased on a long-term net basis (ten or more years), 1%



Page F-39



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##### Index to Financial Statements

FUND III AND FUND IV ASSOCIATES

(A Georgia Joint
Venture)



of the gross revenues,
except for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term. The Joint Venture incurred management and leasing fees of $153,209, $120,443, and $116,360 for the years ended December 31, 2003, 2002,
and 2001, respectively, which are payable to Wells Management.



Wells Capital, Inc., an affiliate of the General Partners, and its affiliates perform certain administrative services for the Partnership, such as accounting, property management, and other partnership administration, and incur the related
expenses. Such expenses are allocated among these entities based on time spent on each entity by individual personnel. During 2003, 2002, and 2001, the Joint Venture reimbursed $61,992, $45,616, and $31,839, respectively, to Wells Capital, Inc. and
its affiliates for these services.



The general partners of
Wells Fund III and Wells Fund IV are also general partners of other Wells Real Estate Funds. As such, there may exist conflicts of interest where the general partners in their capacity as general partners of other Wells Real Estate Funds may be in
competition with the Joint Venture for tenants in similar geographic markets.



|3. | DISCONTINUED OPERATIONS
|-- | -----------------------



On March 18, 2003, Stockbridge Village Center was classified as held for sale. As such, the results of discontinued operations included in the
accompanying statements of income for the years ended December 31, 2003, 2002, and 2001 are summarized below:



|                                    |  |      |           |      |   |           |  |   |          
|----------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                    |  | 2003 |           | 2002 |   | 2001     
|Total property revenues             |  | $    | 1,685,883 |      | $ | 1,457,794 |  | $ | 1,545,420
|                                    |  |      |           |      |   |           |  |   |          
|Operating costs-rental property     |  |      | 371,420   |      |   | 306,333   |  |   | 264,221  
|Depreciation                        |  |      | 76,146    |      |   | 347,912   |  |   | 365,671  
|Management and leasing fees         |  |      | 102,667   |      |   | 102,636   |  |   | 116,179  
|                                    |  |      |           |      |   |           |  |   |          
|Total expenses                      |  |      | 550,233   |      |   | 756,881   |  |   | 746,071  
|                                    |  |      |           |      |   |           |  |   |          
|Income from discontinued operations |  | $    | 1,135,650 |      | $ | 700,913   |  | $ | 799,349  
|                                    |  |      |           |      |   |           |  |   |          



|4. | RENTAL INCOME
|-- | -------------



Two tenants contributed approximately 32% and 21% of rental income for the year ended December 31, 2003. The Reciprocal Group, sole tenant of 4400 Cox
Road, cancelled its lease and vacated the premises in July 2003. In addition, no future minimum rental income is due to the Joint Venture from Stockbridge Village Center, as this property is classified as held for sale as of December 31, 2003.



Page F-40



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##### Index to Financial Statements

FUND III AND IV ASSOCIATES

(A Georgia Joint
Venture)



SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31, 2003



|                                                                      |  |              |      |              |                            |                                           |   |                                                    |  |                            |           |                          |   |               |  |                                          |            |  |   |   |  |   |            |  |   |           |  |      |  |          |  |               
|--------------------------------------------------------------------- |  | ------------ | ---- | ------------ | -------------------------- | ----------------------------------------- | - | -------------------------------------------------- |  | -------------------------- | --------- | ------------------------ | - | ------------- |  | ---------------------------------------- | ---------- |  | - | - |  | - | ---------- |  | - | --------- |  | ---- |  | -------- |  | --------------
|                                                                      |  | Encumbrances |      | Initial Cost |                            | Costs CapitalizedSubsequent toAcquisition |   | Gross Amount at Which Carried at December 31, 2003 |  | Accumulated Depreciation   |           | Date of Construction     |   | Date Acquired |  | Life on whichDepreciation isComputed (c)
|Description                                                           |  |              | Land |              | Buildings and Improvements |                                           |   | Land                                               |  | Buildings and Improvements |           | Construction in Progress |   | Total         |  |                                          |            | 
|STOCKBRIDGE VILLAGE SHOPPING CENTER (a)                               |  | None         |      | $            | 2,551,645                  |                                           | $ | 0                                                  |  | $                          | 8,080,202 |                          | $ | 2,815,561     |  | $                                        | 7,816,286  |  | $ | 0 |  | $ | 10,631,847 |  | $ | 3,379,866 |  | 1991 |  | 04/04/91 |  | 20 to 25 years
|4400 COX ROAD (formerly known as the RECIPROCAL GROUP BUILDING) (b) |  | None         |      |              | 529,546                    |                                           |   | 4,158,223                                          |  |                            | 1,395,194 |                          |   | 573,582       |  |                                          | 5,509,381  |  |   | 0 |  |   | 6,082,963  |  |   | 2,934,925 |  | 1991 |  | 07/01/92 |  | 20 to 25 years
|                                                                      |  |              |      |              |                            |                                           |   |                                                    |  |                            |           |                          |   |               |  |                                          |            |  |   |   |  |   |            |  |   |           |  |      |  |          |  |               
|Total                                                                 |  |              |      | $            | 3,081,191                  |                                           | $ | 4,158,223                                          |  | $                          | 9,475,396 |                          | $ | 3,389,143     |  | $                                        | 13,325,667 |  | $ | 0 |  | $ | 16,714,810 |  | $ | 6,314,791 |  |      |  |          |  |               
|                                                                      |  |              |      |              |                            |                                           |   |                                                    |  |                            |           |                          |   |               |  |                                          |            |  |   |   |  |   |            |  |   |           |  |      |  |          |  |               



|(a) | Stockbridge Village Shopping Center, a retail shopping center located in Stockbridge, Georgia, was classified as held for sale on March 18, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | 4400 Cox Road is an office building located in Richmond, Virginia.
|--- | ------------------------------------------------------------------



|(c) | Depreciation lives used for buildings are 25 years. Depreciation lives used for land improvements are 20 years.
|--- | ---------------------------------------------------------------------------------------------------------------



Page F-41



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##### Index to Financial Statements

FUND III AND IV ASSOCIATES

(A Georgia Joint
Venture)



SCHEDULE III 
REAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31,
2003



|                             |  |      |            |                          |   |          
|---------------------------- |  | ---- | ---------- | ------------------------ | - | ---------
|                             |  | Cost |            | Accumulated Depreciation
|BALANCE AT DECEMBER 31, 2000 |  | $    | 15,852,817 |                          | $ | 3,980,866
|                             |  |     
|2001 additions               |  |      | 719,893    |                          |   | 616,956  
|                             |  |      |            |                          |   |          
|BALANCE AT DECEMBER 31, 2001 |  |      | 16,572,710 |                          |   | 4,597,822
|                             |  |     
|2002 additions               |  |      | 64,983     |                          |   | 663,540  
|                             |  |      |            |                          |   |          
|BALANCE AT DECEMBER 31, 2002 |  |      | 16,637,693 |                          |   | 5,261,362
|                             |  |     
|2003 additions               |  |      | 77,117     |                          |   | 1,053,429
|                             |  |      |            |                          |   |          
|BALANCE AT DECEMBER 31, 2003 |  | $    | 16,714,810 |                          | $ | 6,314,791
|                             |  |      |            |                          |   |          



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