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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,
2002 or
| |  | ----------------------------------------------



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

| |  | [No Fee Required]
| |  | -----------------



F

| |  | 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, Suite 250, 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                                   



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 ̈



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Aggregate market value of the voting stock held by non-affiliates:
Not
Applicable



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2



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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., a Georgia corporation, serving as the General Partners. The Partnership was formed on July 31, 1988 for the purpose of acquiring, developing, constructing, owning, operating,
improving, leasing and otherwise 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 a public offering of its limited partnership units pursuant to a Registration Statement filed on Form S-11
under the Securities Act of 1933. The offering was terminated on October 23, 1990 upon receiving and accepting $22,206,310 in limited partner capital contributions for a total of 22,206,310 Class A and Class B limited partner units at $1 per unit.
From the original capital contributions, the Partnership has paid $1,554,442 in acquisition and advisory fees and acquisition expenses and $2,664,668 in selling commissions and organization and offering expenses, invested $17,983,843 in the
properties described below, and maintains a working capital reserve of $3,357. In 1990 and 1991, the Partnership repurchased 6,128 and 19,677 limited partnership units, respectively.





Employees



The Partnership has no direct employees. The employees of Wells Capital, Inc.
and Wells Management Company, Inc., 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, 2002.





Insurance



Wells Management Company, Inc. carries comprehensive liability and extended
coverage with respect to all 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.



3



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ITEM 2.    PROPERTIES



The Partnership owned a 100% interest in Greenville Center, an office
building located in Greenville, North Carolina, through 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 sale proceeds of $2,271,187 and recognized a loss of $494,143.



As of December 31, 2002, the Partnership owned interests in all of its real estate through the following affiliated joint ventures listed below:



|                                  |  | Occupancy %                                                                                                  
|--------------------------------- |  | -------------------------------------------------------------------------------------------------------------
|Joint Venture                     |  | Joint Venture Partners                                                                                       
|Fund II-III Associates Atrium     |  |    Fund II-IIOW Associates*    Wells Real Estate Fund III, L.P.                                            
|                                 
|Fund II-III Associates Brookwood |  |    Fund II-IIOW Associates*    Wells Real Estate Fund III, L.P.                                            
|                                 
|Fund II-III-VI-VII Associates     |  |    Fund II-III AssociatesBrookwood    Wells Real Estate Fund VI, L.P.    Wells Real Estate Fund VII, L.P.
|                                 
|Fund III-IV Associates            |  |    Wells Real Estate Fund III, L.P.    Wells Real Estate Fund IV, L.P.                                     
|                                 
|                                  |  |                                                                                                              



*Fund II-IIOW
Associates is a joint venture between Wells Real Estate Fund II (Wells Fund II) and Wells Real Estate Fund II-OW (Wells Fund IIOW) Wells Fund II and Wells Fund IIOW are public limited partnerships affiliated with the Partnership
through common general partners. The investment objectives of Wells Fund II and Wells Fund IIOW 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 joint ventures using the equity method of accounting. Each of the above properties was acquired on an all cash basis. For further information regarding the foregoing joint ventures and properties, refer to
the footnotes to the financial statements included herein.



As of
December 31, 2002, the lease expirations scheduled during each of the following ten years for all properties in which the Partnership held an interest through investments in joint ventures, assuming no exercise of renewal options or termination
rights, are summarized below:



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|Year of Lease Expiration |  | Number of Leases Expiring |  | Square Feet Expiring |  | Annualized Gross Base Rent |           | Partnership Share of Annualized Gross Base Rent |   | Percentage of Total Square Feet Expiring |  |        | Percentage of Total Annualized Gross Base Rent | 
|------------------------ |  | ------------------------- |  | -------------------- |  | -------------------------- | --------- | ----------------------------------------------- | - | ---------------------------------------- |  | ------ | ---------------------------------------------- | 
|2003                     |  | 3                         |  | 7,289                |  | $                          | 107,128   |                                                 | $ | 41,588                                   |  | 2.50   | %                                              | 
|2004                     |  | 5                         |  | 10,834               |  |                            | 183,311   |                                                 |   | 56,791                                   |  | 3.72   |                                                | 
|2005                     |  | 7                         |  | 13,648               |  |                            | 248,119   |                                                 |   | 86,371                                   |  | 4.68   |                                                | 
|2006                     |  | 3                         |  | 11,896               |  |                            | 255,443   |                                                 |   | 23,117                                   |  | 4.08   |                                                | 
|2007                     |  | 4                         |  | 12,321               |  |                            | 240,326   |                                                 |   | 137,491                                  |  | 4.23   |                                                | 
|2008(1)                  |  | 5                         |  | 121,155              |  |                            | 1,955,263 |                                                 |   | 807,319                                  |  | 41.55  |                                                | 
|2009(2)                  |  | 1                         |  | 43,000               |  |                            | 639,903   |                                                 |   | 366,089                                  |  | 14.75  |                                                | 
|2011(3)                  |  | 1                         |  | 63,986               |  |                            | 492,692   |                                                 |   | 281,869                                  |  | 21.94  |                                                | 
|2012                     |  | 2                         |  | 7,440                |  |                            | 288,492   |                                                 |   | 110,964                                  |  | 2.55   |                                                | 
|                         |  |                           |  |                      |  |                            |           |                                                 |   |                                          |  |        |                                                | 
|                         |  | 31                        |  | 291,569              |  | $                          | 4,410,677 |                                                 | $ | 1,911,599                                |  | 100.00 | %                                              | 
|                         |  |                           |  |                      |  |                            |           |                                                 |   |                                          |  |        |                                                | 

|(1) |  | Boeing lease (106,014 square feet).
|--- |  | -----------------------------------

|(2) |  | Reciprocal Group lease (43,000 square feet).
|--- |  | --------------------------------------------

|(3) |  | Kroger lease (63,986 square feet) at Stockbridge Village Shopping Center.
|--- |  | -------------------------------------------------------------------------



The joint ventures and properties in which the Partnership owned an interest as of December 31, 2002 are further described
below:





Boeing at the Atrium



On
April 3, 1989, the Partnership formed Fund II-III Associates-Atrium with an existing joint venture, Fund II-IIOW Associates. In April 1989, Fund II-III Associates-Atrium 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.



On March 3, 1997, the Boeing Company entered into a five year lease, with an option to renew for an additional five year term, for the entire Boeing at
the Atrium building. Under this lease, Boeing was required to pay base rent of $12.25 per square foot for the first three years and $12.50 per square foot for the final two years of initial lease term. Upon expiration of the initial lease term in
March 2002, Boeing negotiated a new lease, the terms of which are described below.



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) with annual rent of $1,483,698 commencing on September 1, 2002
for approximately six years. 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, estimated to commence July 1, 2003. Upon commencement of occupancy pursuant to
Amendment #3, occupancy of this property will increase to 100%.



As of December 31, 2002, the Partnership and Fund II-IIOW Associates had made total capital



5



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contributions to Fund II-III Associates-Atrium for equity interests of approximately 39% and 61%,
respectively.



The average effective rental rate per square foot
was $6.05 for 2002, $12.35 for 2001, $12.34 for 2000, and $12.35 for 1999 and 1998.





Brookwood Grill



On January 31, 1990, Fund II-IIOW Associates 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 Grill Property) for $1,848,561, including acquisition and closing costs. Concurrently, the Partnership entered into a second joint venture agreement Fund II-IIOW Associates, known as
Fund II-III Associates-Brookwood Grill.



On September 20, 1991,
Fund II-IIOW Associates contributed the Brookwood Grill Property, along with its interest as landlord under the lease agreement referred to below, as a capital contribution to Fund II-III Associates-Brookwood Grill. As of September 20, 1991, Fund
II-IIOW Associates had expended approximately $2,128,000 for the land acquisition and development of Brookwood Grill.



In September 1991, a lease agreement was entered into with the Brookwood Grill of Roswell, Inc. for the development of approximately 1.5 acres and
construction of a 7,440 square foot restaurant, which opened in March 1992, is similar in concept to Houstons, Ruby Tuesday, and TGI Fridays, this lease includes an initial term of 9 years and 11 months, which expires on February 29,
2012. The tenant has the option to exercise two additional five-year renewal options upon expiration. Fund II-III Associates-Brookwood has expended approximately $1,100,000 for the development and construction of the restaurant building together
with parking areas, driveways, landscaping and other improvements.



The average effective rental rate per square foot was $27.04 for 2002, $31.56 for 2001, $30.22 for 2000 and 1999, and $30.26 for 1998.



As of December 31, 2002, the Partnership and Fund II-IIOW Associates had made total contributions to Fund II-III Associates-Brookwood of approximately
$1,330,000 and $2,128,000, respectively, for the acquisition and development of the Brookwood Grill. Accordingly, the Partnership holds an equity interest of approximately 38%, and Fund II-IIOW Associates holds an equity interest of approximately
62% in Fund II-III Associates-Brookwood as of December 31, 2002.



On January 10, 1995, Fund II-III Associates-Brookwood contributed the remaining 4.3 undeveloped acres of land comprising the Brookwood Grill Property to a new joint venture, Fund II-III-VI-VII Associates, as further described below.





Holcomb Bridge Property



In
January 1995, Fund II-III Associates-Brookwood contributed to Fund II-III-VI-VII Associates approximately 4.3 acres of land at the intersection of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton County, Georgia (the Brookwood
Property) including land improvements for the development and construction of two buildings with a total of 49,534 square feet. Once constructed, this property became known as the Holcomb Bridge Property.



As of December 31, 2002, nine tenants occupied approximately 60% of the
Holcomb Bridge Property, with only one tenant, Bertuccis Restaurant, occupying more than 10% of the space at 5,935 square feet. The



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Bertuccis Restaurant lease currently requires annual base rental payments of $127,850 and expires on
February 28, 2006. Occupancy declined by approximately 29% during 2002, which resulted in a corresponding decrease in revenues of approximately $203,000. Certain leases have been executed that provide for commencement in 2003, and will result in
additional revenues of approximately $45,000 for 2003. Management is actively seeking replacement tenants for the vacant space at this property.



The average effective annual rental rate per square foot was $12.97 for 2002, $17.07 for 2001, $17.55 for 2000, $19.36 for 1999, and $17.63 for 1998.



As of December 31, 2002, the joint venture partners had
contributed the following amounts and held the following equity interests in Fund II-III-VI-VII Associates: (i) Fund II-III Associates-Brookwood$1,729,116, in land and improvements, for an interest of approximately 24%, (ii) Wells Fund
VI$1,929,541 for an interest of approximately 26%, (iii) Wells Real Estate Fund VII, L.P.$3,525,041 for an interest of approximately 50%.





Fund III-IV Associates



On March 27, 1991, the Partnership and Wells Real Estate Fund IV, L.P.,
(Wells Fund IV), a public limited partnership affiliated with the Partnership through common general partners formed Fund III-IV Associates. The investment objectives of Wells Fund IV are substantially identical to those of the
Partnership. As of December 31, 2002, the Partnership had contributed $8,357,551 and Wells Fund IV had contributed $6,415,731 to Fund III-IV Associates for equity interests of approximately 57% and 43%, respectively. The Partnership owns interests
in the following two properties through 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 purchase price of $3,057,729,
including acquisition costs, 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 112,891 square feet, of which
approximately 63,986 square feet are occupied by the Kroger Company, 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 20
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 48,794 square feet are
comprised of 16 separate retail spaces and 3 free-standing retail buildings. As of December 31, 2002, the Partnership had contributed a total of $4,574,247 and Wells Fund IV had contributed a total of $5,114,502 to fund the total costs of $9,688,749
related to the acquisition and development of the Stockbridge Village Shopping Center.



The average effective annual rental rate per square foot was $11.32 for 2002, $11.82 for 2001, $11.29 for 2000, $11.23 for 1999, and $10.82 for 1998.





Reciprocal Group Building



The Reciprocal Group Building is a two-story office
building containing approximately 43,000 square feet located in Richmond, Virginia, which was acquired by Fund III-IV Associates on July 1, 1992, for a purchase price of $4,689,106 including acquisition and closing costs. As of December 31, 2002,
the Partnership had contributed $3,783,304 and Wells Fund IV had contributed $1,301,229 to Fund III-IV Associates for the acquisition of the Reciprocal Group Building.



7



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General Electric, the previous
tenant, elected not to renew its lease at the Reciprocal Group Building, which expired March 31, 2000. Management leased 100% of this building to the Reciprocal Group on October 4, 2000 for a term of eight years, with rent commencing in February
2001. The total cost of refurbishments, tenant improvements and building maintenance was $1,407,002. These costs were funded out of cash from operations otherwise distributable to the Partnership and Wells Fund IV, which caused a substantial
reduction in distributions paid to the Partnership from Fund III-IV Associates and, consequently, distributions payable from the Partnership to the Limited Partners in 2000. The Partnership funded $570,914 as its share of these improvements, which
were fully funded as of December 31, 2001.



The average effective
annual rental rate per square foot was $13.45 for 2002, $12.83 for 2001, $3.07 for 2000 and $12.27 for 1999 and 1998.





ITEM 3.    LEGAL PROCEEDINGS



There were no material pending legal proceedings known to be contemplated by
governmental authorities involving the Partnership during the fourth quarter of 2002.





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 2002.







(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)



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PART II



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



As of February 28, 2002, the Partnership had 19,636,000 outstanding Class A
Units held by a total of 2,293 Limited Partners and 2,544,540 outstanding Class B Units held by a total of 198 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, 2002, to be approximately $0.76 per Class A Unit and $0.76 per Class B Unit, based upon market conditions existing in
early December 2002. In connection with these estimated 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 reasonable; 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 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.



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.



Net Cash From Operations to the Limited Partners is distributed on a annual basis unless Limited Partners elect to have their
cash distributions paid monthly. Cash distributions made to the Limited Partners during the two most recent fiscal years were as follows:



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|Distribution for Quarter Ended |  | Total Cash Distributed |         | Per Class A Unit Investment Income |   | Per Class A Unit Return of Capital |  | Per Class B Unit Return of Capital |      | General Partner
|------------------------------ |  | ---------------------- | ------- | ---------------------------------- | - | ---------------------------------- |  | ---------------------------------- | ---- | ---------------
|March, 31, 2001                |  | $                      | 318,939 |                                    | $ | 0.01                               |  | $                                  | 0.01 |                
|June 30, 2001                  |  | $                      | 294,716 |                                    | $ | 0.00                               |  | $                                  | 0.00 |                
|September 30, 2001             |  | $                      | 294,503 |                                    | $ | 0.00                               |  | $                                  | 0.00 |                
|December 31, 2001              |  | $                      |        |                                    | $ | 0.00                               |  | $                                  | 0.00 |                
|March, 31, 2002                |  | $                      |        |                                    | $ | 0.00                               |  | $                                  | 0.00 |                
|June 30, 2002                  |  | $                      |        |                                    | $ | 0.00                               |  | $                                  | 0.00 |                
|September 30, 2002             |  | $                      |        |                                    | $ | 0.00                               |  | $                                  | 0.00 |                
|December 31, 2002              |  | $                      | 232,801 |                                    | $ | 0.01                               |  | $                                  | 0.00 |                



Distributions were
reserved from the fourth quarter of 2001 through the fourth quarter of 2002 in order to fund leasing commissions and tenant improvements related to the new Boeing lease renewals described in Item 2 above.







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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, 2002, 2001, 2000, 1999, and 1998:



|                                                                  |  | 2002 |            |   | 2001 |   |            | 2000 |  | 1999 |            | 1998
|----------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | ---- | ---------- | ----
|Total assets                                                      |  | $    | 13,576,655 |   |      | $ | 14,008,457 |      |  | $    | 14,532,100 |     
|Total revenues                                                    |  |      | 291,761    |   |      |   | 611,187    |      |  |      | 242,259    |     
|Net income (loss) from continuing operations                      |  |      | 166,299    |   |      |   | 510,230    |      |  |      | 163,704    |     
|Net (loss) income from discontinued operations                    |  |      | (601,854   | ) |      |   | (134,788   | )    |  |      | 170,583    |     
|Net income allocated to General Partners                          |  |      |           |   |      |   |           |      |  |      |           |     
|Net (loss) income allocated to Class A Limited Partners           |  |      | (435,555   | ) |      |   | 375,442    |      |  |      | 334,827    |     
|Net income (loss) allocated to Class B Limited Partners           |  |      |           |   |      |   |           |      |  |      |           |     
|Net (loss) income per Class A Limited Partner Unit                |  | $    | (0.02      | ) |      | $ | 0.02       |      |  | $    | 0.02       |     
|Net income per Class B Limited Partner Unit                       |  |      | 0.00       |   |      |   | 0.00       |      |  |      | 0.00       |     
|Cash distributions to investors per Class A Limited Partner Unit: |  |      |            |   |      |   |            |      |  |      |            |     
|Investment income                                                 |  |      | 0.01       |   |      |   | 0.02       |      |  |      | 0.01       |     
|Return of capital                                                 |  |      | 0.00       |   |      |   | 0.03       |      |  |      | 0.01       |     
|Return of capital per Class B Limited Partner Units               |  |      | 0.00       |   |      |   | 0.00       |      |  |      | 0.00       |     
|Cash distribution to General Partners                             |  |      | 0.00       |   |      |   | 0.00       |      |  |      | 0.00       |     



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ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF

OPERATION



The following discussion and analysis should be read in
conjunction with the Selected Financial Data and the accompanying financial statements of the Partnership and notes thereto.



(a) Forward Looking Statements

This
report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of the financial condition of the Partnership, anticipated
capital expenditures required to complete certain projects, amounts of cash distributions anticipated to be distributed to limited partners in the future and certain other matters. Readers of this report should be aware that there are various
factors that could cause actual results to differ materially from any forward-looking statements made in this report, including construction costs that may exceed estimates, construction delays, lease-up risks, inability to obtain new tenants upon
the expiration of existing leases, and the potential need to fund tenant improvements, leasing commissions or other capital expenditures or lease-up costs out of operating cash flows.





(b) Results of Operations



Gross Revenues of the Partnership



Gross revenues of the Partnership were $291,761, $611,187, and $242,259 for
the years ended December 31, 2002, 2001, and 2000, respectively. The 2002 decrease from 2001 and the 2001 increase from 2000 resulted from the corresponding changes in equity in income of joint ventures as further described below. As further
described below, the results of operations of the Greenville Center, which was sold during 2002, are included in (loss) income from discontinued operations for all periods presented.





Equity In Income of Joint
VenturesOperations



Gross Revenues of Joint
Ventures



Gross revenues of the joint ventures in which
the Partnership holds an interest decreased in 2002, as compared to 2001, primarily due to a reduction in rental and reimbursement revenues for Boeing at the Atrium of approximately $376,000. Rental revenues were not recognized from the expiration
of Boeings original lease, March 2002, until Boeing took occupancy of the top three floors of the building upon completion of the related tenant build-out required under the new lease. Such gross revenues increased in 2001, as compared to
2000, primarily due to the releasing of the Reciprocal Building effective February 1, 2001; whereas, the property was vacant for approximately nine months during 2000.





Expenses of Joint Ventures



The expenses incurred by the joint ventures in which
the Partnership holds an interest decreased in 2002, as compared to 2001, primarily due to a partial year vacancy in 2002 for Boeing at the Atrium, which is further described in the preceding section. Joint venture expenses remained relatively
stable in 2001, as compared to 2000. As further described below, expenses generated from Greenville Center are included in (loss) income from discontinued operations for all periods presented.



12



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Expenses of the Partnership



Total expenses of the Partnership were $125,462 for the year ended December 31, 2002, as compared to $100,957 for 2001 and
$78,555 for 2000. The 2002 increase from 2001 resulted primarily from an increase in administrative salaries and legal and accounting fees. The 2001 increase from 2000 resulted primarily from increases in administrative salaries, computer costs, and
legal and accounting fees.



Accordingly, net (loss) income was at
$(435,555), $375,442, and $334,287 for the years ended December 31, 2002, 2001, and 2000, respectively.





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 (loss) income 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:



|                                           |  | 2002 |          |   | 2001 |   |          | 2000
|------------------------------------------ |  | ---- | -------- | - | ---- | - | -------- | ----
|Total property revenues                    |  | $    | 156,687  |   |      | $ | 274,470  |     
|                                           |  |      |          |   |      |   |          |     
|Operating costs-rental property            |  |      | 160,142  |   |      |   | 212,539  |     
|Depreciation                               |  |      | 89,294   |   |      |   | 176,067  |     
|Management and leasing fees                |  |      | 18,304   |   |      |   | 20,652   |     
|                                           |  |      |          |   |      |   |          |     
|Total expenses                             |  |      | 267,740  |   |      |   | 409,258  |     
|                                           |  |      |          |   |      |   |          |     
|Operating (loss) income                    |  |      | (111,053 | ) |      |   | (134,788 | )   
|Impairment loss                            |  |      | (469,750 | ) |      |   |         |     
|Loss on disposition                        |  |      | (21,051  | ) |      |   |         |     
|                                           |  |      |          |   |      |   |          |     
|(Loss) income from discontinued operations |  | $    | (601,854 | ) |      | $ | (134,788 | )   
|                                           |  |      |          |   |      |   |          |     





(c) Liquidity and Capital Resources



Cash Flows From Operating Activities



Net cash flows provided by (used in) operating activities was ($92,881) for 2002, ($44,035) for 2001, and $292,753 for 2000. The 2002 decrease from 2001
is primarily due to selling costs paid in connection with the sale of Greenville Center. The 2001 decrease from 2000 is due primarily to a decrease in operating cash flows generated by the sale of Greenville Center on September 30, 2001.



13



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Cash Flows Used In
Investing Activities



Net cash flows provided by
investing activities was $2,571,078, $678,733 and $760,353 for 2002, 2001, and 2000, respectively. The 2002 increase from 2001 resulted primarily from net proceeds of approximately $2,275,000 received from the 2002 sale of Greenville Center. The
2001 decrease from 2000 is primarily due to an increase in contributions to Fund III-IV Associates in order to complete funding of tenant improvements for the Reciprocal Group Building, offset by additional distributions received from Fund III-IV
Associates upon commencement on the new Reciprocal Group lease in February 2001; whereas, the property remained vacant for approximately 9 months in 2000.





Cash Flows From Financing Activities



Net cash flows used in financing activities was $0, $909,408 and $772,166 for
2002, 2001 and, 2000, respectively. The 2002 decrease from 2001 is primarily due to a contribution of $757,898 made to Fund II-II Associates-Atrium in order to fund the Partnerships share of the tenant build-out and leasing costs paid in
connection with the new Boeing lease. The 2001 increase from 2000 is primarily due to an increase in distributions received from joint ventures and a decrease in investments made in Greenville Center during the period.





Distributions



The Partnership
made distributions to the limited partners holding Class A units of $0.01, $0.05 and $0.02 per unit for the years ended December 31, 2002, 2001 and, 2000 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. Distributions to limited partners holding Class A units were reserved for the first three quarters
and declared at 4.5% per annum for the fourth quarter of 2002 in order to fund the Partnerships portion of build-out and leasing costs related to the Boeing renewals described in Item 2 above. The Partnership anticipates increasing
distributions during 2003 upon the completion of funding for these costs.





Sales Proceeds



Rather than distributing net sales proceeds to the limited partners, the net proceeds generated from the sale of Greenville Center will be held in reserve
as the Partnership continues to evaluate the capital needs of the existing properties in which it holds an interest, through investments in joint ventures, in consideration of the best interests of the limited partners. Upon completing this
evaluation, the Partnership anticipates distributing the reserves not otherwise utilized to the limited partners in accordance with the terms of the Partnership Agreement in 2003.





(d) Related-Party Transactions



Management and Leasing Fees



In consideration for the management and leasing of the Partnerships
properties, the Partnership pays Wells Management Company, Inc. (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),



14



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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 incurred
management and leasing fees, at the joint venture level, of $102,050, $184,541 and $228,176 for the years ended December 31, 2002, 2001 and 2000, respectively





Administration Reimbursements



Wells Capital, Inc. and its affiliates perform 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 time spent on each fund by individual
administrative personnel. During 2002, 2001 and 2000, the Partnership reimbursed $42,383, $38,847 and $32,100, respectively, to Wells Capital, Inc. and its affiliates for these services.





Conflicts of Interests



The general partners of the Partnership 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.





(e) 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 re-set frequently enough to
cover inflation.





(f) 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.



15



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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 |  | 10-25 years
|Land improvements     |  | 20-25 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.



Management also reviews estimated selling prices of assets held for sale and records impairment losses to reduce the carrying amount of assets held for sale when the carrying amounts exceed the estimated fair value, less costs to
sell. Material long-lived assets held for sale are separately identified in the balance sheets, and the related net operating income is segregated as income from discontinued operations in the statements of income. Depreciation is not recorded for
long-lived assets held for sale. If an asset held for sale reverts to an asset used in operations, the asset will be measured at the lower of the original carrying cost, adjusted for the forgone depreciation, or the fair value at the date of the
decision to hold the assets for use in operations.



Using the
criterion outlined above, the Partnership evaluated the carrying value of its investment in Greenville Center on a held for use basis as of June 30, 2002 and, accordingly, recognized an impairment loss of $373,750 in the second quarter of 2002. Upon
executing the purchase-sale agreement for the sale of Greenville Center during the third quarter of 2002, the Partnership evaluated the carrying value of its investment in Greenville Center on a held for sale basis, which resulted in the recognition
of an additional impairment loss of $96,000 in the third quarter of 2002. Total impairment losses of $469,750 are included in losses from discontinued operations in the accompanying statement of income (loss) for the year ended December 31, 2002.
There has been no impairment of value of real estate assets in which the Partnership has an ownership interest through joint ventures.



Projections of expected future cash flows requires management to estimate future market rental income amounts subsequent to the expiration of current
lease agreements, property operating expenses,



16



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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 and net income of the Partnership.





(g) Subsequent Event



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 sales price of $23,750,000. Contemporaneously
with the Purchasers execution and delivery of the Agreement to the Seller, the Purchaser paid a fully refundable earnest money deposit of $250,000 to the designated escrow agent. This transaction is currently subject to a due diligence period
of 60 days, during which the Purchaser has the right to terminate the Agreement. Accordingly, there are no assurances that this sale will close.



|(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 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                                                                                                                   





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.



17



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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 two years ended December 31, 2002.



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



Andersens reports on the financial statements of the Partnership for the
year ended December 31, 2001 and 2000 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 years ended December 31, 2001 and 2000 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.



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.



18



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PART III



ITEM 10.    GENERAL PARTNERS OF THE
PARTNERSHIP



Wells Capital Inc., L.P.



The executive offices of Wells Capital, Inc. are
located at 6200 The Corners Parkway, Norcross, Georgia, 30092.





Leo F. Wells, III.



Mr. Wells is a resident of Atlanta, Georgia, is 59 years of age and holds a Bachelor of Business Administration Degree in Economics from the University of
Georgia. Mr. Wells is the President, sole Director and sole shareholder of Wells Real Estate Funds, Inc., which is the parent company of Wells Capital, Wells & Associates, Inc., Wells Management Company, Inc. and Wells Investment Securities,
Inc. Mr. Wells is the President and sole Director of Wells Capital. Mr. Wells is the President of Wells & Associates, Inc., a real estate brokerage and investment company formed in 1976 and incorporated in 1978, for which he serves as the
principal broker. Mr. Wells is also the President, sole Director and sole shareholder of Wells Real Estate Funds, Inc., the parent company of Wells Capital, Inc., and the sole Director and President of Wells Management Company, Inc., a property
management company he founded in 1983. In addition, Mr. Wells is the President and Chairman of the Board of Wells Investment Securities, Inc., Wells & Associates, Inc., and Wells Management Company, Inc., all of which are affiliates of the
General Partners. From 1980 to February 1985, Mr. Wells served as vice-president of Hill-Johnson, Inc., a Georgia corporation engaged in the construction business. From 1973 to 1976, he was associated with Sax Gaskin Real Estate Company, and from
1970 to 1973, he was a real estate salesman and property manager for Roy D. Warren & Company, an Atlanta real estate company.





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, 2002:



|Name of Individualor Number in Group |  | Capacities in which servedForm of Compensation |  | Cash Compensation
|------------------------------------ |  | ---------------------------------------------- |  | -----------------
|Wells Management Company, Inc.       |  | Property Manager-Management and Leasing Fees   |  | $102,050(1)      



|(1) |  | The majority of these 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, some of which were accrued for accounting purposes in 2002 but not actually paid until January, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





19



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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 28, 2003:



|Title of Class |  | Name and Address of Beneficial Owner |  | Amount and Nature of Beneficial Ownership         |  | Percent of Class
|-------------- |  | ------------------------------------ |  | ------------------------------------------------- |  | ----------------
|Class A Units  |  | Leo F. Wells, III                    |  | 24,392.79 Units (IRA, 401 (k) and Profit Sharing) |  | Less than 1%    
|Class B Units  |  | Leo F. Wells, III                    |  | 1,750.00 Units (IRA, 401 (k) and Profit Sharing)  |  | 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, 2002, the General Partners received no 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 received no distribution from net sales proceeds.





Property Management and Leasing Fees



Wells Management Company, Inc., 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, 2002, Wells Management Company, Incs compensation
totaled $102,050 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



20



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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. During 2002, no real estate commissions were paid to the General Partners.





ITEM 14.    CONTROLS AND PROCEDURES



Within the 90 days prior to the date of this report, the Partnership carried out an evaluation, under the supervision and
with the participation of management of Wells Capital, Inc., 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 pursuant to Rule 13a-14 under 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 controls or other factors that could significantly affect such controls subsequent to the date of their evaluation.





(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)



21



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PART IV



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



|(a)1. |  | The Financial Statements are contained on pages F-2 through F-58 of this Annual Report on Form 10-K, and the list of the Financial Statements contained herein is set
forth on page F-1, which is hereby incorporated by reference.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(a)2. |  | Financial Statement Schedule III
|----- |  | --------------------------------

Information with respect to this item begins on Page F-35 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) |  | On October 15, 2002, the Partnership filed a Current Report on Form 8-K dated September 30, 2002 reporting the sale of the Greenville Center.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
| | --- |  | -------------------------------------------------------------------------------------------------------------



| | (d) |  | See item (a) (2) above.
| | --- |  | -----------------------



22



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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.



|March 31, 2003     March 31, 2003 |  |  |  | WELLS REAL ESTATE FUND III, L.P. (Registrant)  By: WELLS CAPITAL, INC. (Corporate General Partners)  /S/    LEO F. WELLS, IIILeo F. Wells, III President   /S/    DOUGLAS P. WILLIAMSDouglas P. Williams Principal Financial Officer of Wells Capital, Inc.
|--------------------------------- |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



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CERTIFICATIONS



I, Leo F. Wells, III,
certify that:



|1. |  | I have reviewed this annual report on Form 10-K of the Partnership;
|-- |  | -------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared,
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the board of
directors of the corporate General Partner:
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                      |  |  |  |    
|--------------------- |  |  |  | ---
|                     
|Dated: March 31, 2003 |  |  |  | By:
|                      |  |  |  |    



24



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CERTIFICATIONS



I, Douglas P. Williams,
certify that:



|1. |  | I have reviewed this annual report on Form 10-K of the Partnership;
|-- |  | -------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining
|-- |  | -------------------------------------------------------------------------------------------------

| | disclosure |  | controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
| | ---------- |  | ---------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared,
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the board of the
corporate General Partner:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                      |  |  |  |    
|--------------------- |  |  |  | ---
|                     
|                      |  |  |  | By:
|Dated: March 31, 2003 |  |  |  |    



25



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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT

TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT BEEN

REGISTERED PURSUANT TO SECTION 12 OF THE ACT.



No annual report or proxy material relating to an annual or other meeting of security holders has been sent to security holders.



26



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EXHIBIT INDEX

TO

2002 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.



|Exhibit Number |     |  | 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                                                            



27



---



|   
|---
|   
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10

|
|

|
|

|
|

|
|



28



---

|   
|---
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10
|   
|*10



29



---

|    
|----
|*10 
|    
|*10 
|    
|*10 
|    
|*10 
|    
|*10 
|    
|*10 
|    
|99.1
|    
|99.2



30



---



INDEX TO
FINANCIAL STATEMENTS



|Financial Statements                                                                 |  | Page
|------------------------------------------------------------------------------------ |  | ----
|WELLS REAL ESTATE FUND III                                                           |  |     
|Report of Independent AuditorsErnst & Young LLP                                     |  | F-2 
|Balance Sheets as of December 31, 2002 and 2001                                      |  | F-3 
|Statements of Income (Loss) for the Years Ended December 31, 2002, 2001 and
2000     |  | F-4 
|Statements of Partners Capital for the Years Ended December 31, 2002, 2001 and
2000 |  | F-5 
|Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
2000        |  | F-6 
|Notes to Financial Statements                                                        |  | F-7 
|Schedule IIIReal Estate and Accumulated Depreciation                                |  | F-35
|                                                                                    
|FUND II AND FUND III ASSOCIATES                                                      |  |     
|Report of Independent Auditors                                                       |  | F-37
|Balance Sheets as of December 31, 2002 and 2001                                      |  | F-38
|Statements of Income (Loss) for the Years Ended December 31, 2002, 2001 and
2000     |  | F-39
|Statements of Partners Capital for the Years Ended December 31, 2002, 2001 and
2000 |  | F-40
|Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
2000        |  | F-41
|Notes to Financial Statements                                                        |  | F-42
|Schedule IIIReal Estate and Accumulated Depreciation                                |  | F-46
|                                                                                    
|FUND III AND FUND IV ASSOCIATES                                                      |  |     
|Report of Independent Auditors                                                       |  | F-48
|Balance Sheets as of December 31, 2002 and 2001                                      |  | F-49
|Statements of Income for the Years Ended December 31, 2002, 2001 and
2000            |  | F-50
|Statements of Partners Capital for the Years Ended December 31, 2002, 2001 and
2000 |  | F-51
|Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
2000        |  | F-52
|Notes to Financial Statements                                                        |  | F-53
|Schedule IIIReal Estate and Accumulated Depreciation                                |  | F-57



F-1



---



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, 2002 and 2001, and the related statements of income (loss), partners capital, and cash flows for each of the three years in the period ended December 31, 2002. Our audit also included the financial statement schedule listed in
the index at Item 15(a). 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, 2002 and 2001, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2002 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.



As discussed in Note 1, in 2002 the Partnership adopted Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long Lived Assets.





/S/    ERNST & YOUNG LLP



Atlanta, Georgia

January 24, 2003





F-2



---



WELLS REAL
ESTATE FUND III, L.P.



(A Georgia Public
Limited Partnership)



BALANCE SHEETS



DECEMBER 31, 2002 AND 2001





ASSETS

|                                                                                                                          |  | 2002 |            | 2001
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ----
|REAL ESTATE ASSETS, at cost:                                                                                              |  |      |            |     
|Land                                                                                                                      |  | $    |           |     
|Building and improvements, less accumulated depreciation of $0 and $1,434,858 at
December 31, 2002 and 2001, respectively |  |      |           |     
|                                                                                                                          |  |      |            |     
|Total real estate assets                                                                                                  |  |      |           |     
|INVESTMENT IN JOINT VENTURES                                                                                              |  |      | 10,722,303 |     
|CASH AND CASH EQUIVALENTS                                                                                                 |  |      | 2,612,963  |     
|DUE FROM JOINT VENTURES                                                                                                   |  |      | 241,190    |     
|PREPAID EXPENSES AND OTHER ASSETS, net                                                                                    |  |      | 199        |     
|                                                                                                                          |  |      |            |     
|Total assets                                                                                                              |  | $    | 13,576,655 |     
|                                                                                                                          |  |      |            |     



LIABILITIES AND PARTNERS CAPITAL

|LIABILITIES:                                    |  |   |            |  |   |           
|----------------------------------------------- |  | - | ---------- |  | - | ----------
|Partnership distributions payable               |  | $ | 238,320    |  | $ | 5,519     
|Accounts payable and accrued expenses           |  |   | 27,245     |  |   | 23,492    
|                                                |  |   |            |  |   |           
|Total liabilities                               |  |   | 265,565    |  |   | 29,011    
|                                                |  |   |            |  |   |           
|COMMITMENTS AND CONTINGENCIES                   |  |   |            |  |   |           
|PARTNERS CAPITAL:                              |  |   |            |  |   |           
|Limited partners:                               |  |   |            |  |   |           
|Class A19,635,965 units issued and outstanding |  |   | 13,311,090 |  |   | 13,979,446
|Class B2,544,540 units issued and outstanding  |  |   |           |  |   |          
|                                                |  |   |            |  |   |           
|Total partners capital                         |  |   | 13,311,090 |  |   | 13,979,446
|                                                |  |   |            |  |   |           
|Total liabilities and partners capital         |  | $ | 13,576,655 |  | $ | 14,008,457
|                                                |  |   |            |  |   |           















See accompanying notes.





F-3



---



WELLS REAL
ESTATE FUND III, L.P.



(A Georgia Public
Limited Partnership)



STATEMENTS OF INCOME
(LOSS)



FOR THE YEARS ENDED DECEMBER 31,
2002, 2001 AND 2000





|                                                        |  | 2002 |          |   | 2001 |   |          | 2000
|------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ----
|REVENUES:                                               |  |      |          |   |      |   |          |     
|Equity in income of Joint Ventures                      |  | $    | 273,251  |   |      | $ | 602,145  |     
|Interest income                                         |  |      | 16,601   |   |      |   | 9,042    |     
|Other income                                            |  |      | 1,909    |   |      |   |         |     
|                                                        |  |      |          |   |      |   |          |     
|                                                        |  |      | 291,761  |   |      |   | 611,187  |     
|                                                        |  |      |          |   |      |   |          |     
|EXPENSES:                                               |  |      |          |   |      |   |          |     
|Partnership administration                              |  |      | 74,489   |   |      |   | 64,276   |     
|Legal and accounting                                    |  |      | 42,648   |   |      |   | 21,153   |     
|Other general and administrative                        |  |      | 8,325    |   |      |   | 15,528   |     
|                                                        |  |      |          |   |      |   |          |     
|                                                        |  |      | 125,462  |   |      |   | 100,957  |     
|                                                        |  |      |          |   |      |   |          |     
|NET INCOME FROM CONTINUING OPERATIONS                   |  |      | 166,299  |   |      |   | 510,230  |     
|                                                        |  |      |          |   |      |   |          |     
|DISCONTINUED OPERATIONS:                                |  |      |          |   |      |   |          |     
|Operating loss                                          |  |      | (111,053 | ) |      |   | (134,788 | )   
|Impairment loss                                         |  |      | (469,750 | ) |      |   |         |     
|Loss on disposition                                     |  |      | (21,051  | ) |      |   |         |     
|                                                        |  |      |          |   |      |   |          |     
|(LOSS) INCOME FROM DISCONTINUED OPERATIONS              |  |      | (601,854 | ) |      |   | (134,788 | )   
|                                                        |  |      |          |   |      |   |          |     
|NET (LOSS) INCOME                                       |  | $    | (435,555 | ) |      | $ | 375,442  |     
|                                                        |  |      |          |   |      |   |          |     
|NET (LOSS) INCOME ALLOCATED TO CLASS A LIMITED PARTNERS |  | $    | (435,555 | ) |      | $ | 375,442  |     
|                                                        |  |      |          |   |      |   |          |     
|NET (LOSS) INCOME PER CLASS A LIMITED PARTNER UNIT      |  | $    | (0.02    | ) |      | $ | 0.02     |     
|                                                        |  |      |          |   |      |   |          |     
|DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT           |  | $    | 0.01     |   |      | $ | 0.05     |     
|                                                        |  |      |          |   |      |   |          |     











See accompanying notes.





F-4



---



WELLS REAL
ESTATE FUND III, L.P.



(A Georgia Public
Limited Partnership)



STATEMENTS OF
PARTNERS CAPITAL



FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000





|                           |  | Limited Partners |  | Total Partners Capital |           
|-------------------------- |  | ---------------- |  | ----------------------- | ----------
|                           |  | Class A          |  |                         | Class B   
|                           |  | Units            |  | Amount                  |           
|BALANCE, December 31, 1999 |  | 19,635,965       |  | $                       | 14,521,435
|Net income                 |  |                 |  |                         | 334,287   
|Partnership distributions  |  |                 |  |                         | (343,560  
|                           |  |                  |  |                         |           
|BALANCE, December 31, 2000 |  | 19,635,965       |  |                         | 14,512,162
|Net income                 |  |                 |  |                         | 375,442   
|Partnership distributions  |  |                 |  |                         | (908,158  
|                           |  |                  |  |                         |           
|BALANCE, December 31, 2001 |  | 19,635,965       |  |                         | 13,979,446
|Net loss                   |  |                 |  |                         | (435,555  
|Partnership distributions  |  |                 |  |                         | (232,801  
|                           |  |                  |  |                         |           
|BALANCE, December 31, 2002 |  | 19,635,965       |  | $                       | 13,311,090
|                           |  |                  |  |                         |           









See accompanying notes.





F-5



---



WELLS REAL
ESTATE FUND III, L.P.



(A Georgia Public
Limited Partnership)



STATEMENTS OF CASH
FLOWS



FOR THE YEARS ENDED DECEMBER 31,
2002, 2001 AND 2000





|                                                                                                         |  | 2002 |           |   | 2001 |   |           | 2000 | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                    |  |      |           |   |      |   |           |      | 
|Net income from continuing operations                                                                    |  | $    | 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                                                                       |  |      | (273,251  | ) |      |   | (602,145  | )    | 
|Changes in assets and liabilities:                                                                       |  |      |           |   |      |   |           |      | 
|Due from affiliates                                                                                      |  |      |          |   |      |   | 3,216     |      | 
|Accounts receivable                                                                                      |  |      |          |   |      |   | 5,313     |      | 
|Prepaid expenses and other assets, net                                                                   |  |      | 20,316    |   |      |   | (3,567    | )    | 
|Accounts payable                                                                                         |  |      | 3,753     |   |      |   | 10,323    |      | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|Net cash used in continuing operations                                                                   |  |      | (82,883   | ) |      |   | (76,630   | )    | 
|Net cash (used in) provided by discontinued operations                                                   |  |      | (9,998    | ) |      |   | 32,595    |      | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|Net cash (used in) provided by operating activities                                                      |  |      | (92,881   | ) |      |   | (44,035   | )    | 
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                    |  |      |           |   |      |   |           |      | 
|Investment in real estate                                                                                |  |      |          |   |      |   | (24,619   | )    | 
|Net proceeds from sale of real estate                                                                    |  |      | 2,271,187 |   |      |   |           |      | 
|Investment in Joint Ventures                                                                             |  |      | (757,900  | ) |      |   | (502,342  | )    | 
|Distributions received from Joint Ventures                                                               |  |      | 1,057,791 |   |      |   | 1,205,694 |      | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|Net cash provided by investing activities                                                                |  |      | 2,571,078 |   |      |   | 678,733   |      | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                    |  |      |           |   |      |   |           |      | 
|Partnership distributions paid from accumulated earnings                                                 |  |      |          |   |      |   | (332,890  | )    | 
|Partnership distributions paid in excess of accumulated earnings                                         |  |      |          |   |      |   | (576,518  | )    | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|Net cash used in financing activities                                                                    |  |      |          |   |      |   | (909,408  | )    | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                     |  |      | 2,478,197 |   |      |   | (274,710  | )    | 
|CASH AND CASH EQUIVALENTS, beginning of year                                                             |  |      | 134,766   |   |      |   | 409,476   |      | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|CASH AND CASH EQUIVALENTS, end of year                                                                   |  | $    | 2,612,963 |   |      | $ | 134,766   |      | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:                                                          |  |      |           |   |      |   |           |      | 
|Joint venture distributions receivable                                                                   |  | $    | 241,190   |   |      | $ | 334,616   |      | 
|                                                                                                         |  |      |           |   |      |   |           |      | 
|Partnership distributions payable                                                                        |  | $    | 238,320   |   |      | $ | 5,519     |      | 
|                                                                                                         |  |      |           |   |      |   |           |      | 









See accompanying notes.





F-6



---



WELLS REAL
ESTATE FUND III, L.P.



(A Georgia Public
Limited Partnership)



DECEMBER 31, 2002,
2001 AND 2000



NOTES TO FINANCIAL
STATEMENTS





1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Organization and Business



Wells Real Estate Fund III, L.P. (the Partnership) is a public limited partnership organized on July 31, 1988 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Capital, Inc. (the Company). The Partnership has two classes of limited partnership interests, Class A and Class B units. 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) 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 partnership unit has equal voting rights, regardless of class.



The Partnership owned a 100% interest in Greenville Center, an office building located in Greenville, North Carolina, through 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.



The Partnership owns interests in the remainder of its real estate assets through joint ventures with other affiliated Wells Real Estate Funds (the Joint Ventures). As of December 31, 2002,
the Partnership owned interests in the following five properties through the affiliated Joint Ventures listed below:



|Joint Venture                    |  | Joint Venture Partners                                                                                        |  | Properties                                                                                                                                                                    
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Fund II-III AssociatesAtrium    |  |    Fund II-IIOW Associates*    Wells Real Estate Fund III, L.P.                                             |  | 1. Boeing at the Atrium A four story office building located in Houston Texas                                                                                                 
|                                
|Fund II-III AssociatesBrookwood |  |    Fund II-IIOW Associates*    Wells Real Estate Fund III, L.P.                                             |  | 2. Brookwood Grill A restaurant located in Fulton County, Georgia                                                                                                             
|                                
|Fund II-III-VI-VII Associates    |  |    Fund II-III AssociatesBrookwood    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-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. Reciprocal Group Building An office building located in Richmond, Virginia



|* |  | Fund II-IIOW Associates is a joint venture between Wells Real Estate Fund II and Wells Real Estate Fund II-OW.
|- |  | --------------------------------------------------------------------------------------------------------------



F-7



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Each of the above properties was acquired on an all cash basis.





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.





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. 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 limited partners until all limited partners have received 100% of their adjusted capital contributions, as defined
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners holding Class B units until they receive 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 they receive a cumulative 12% per annum return on their adjusted capital contributions, as defined
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners until they receive an amount equal to their respective cumulative distributions, as defined
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | 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
| | - |  | -----------------------------------------------------------------------





F-8



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





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/her 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 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.



Real Estate Assets



Real estate assets are stated at cost, less accumulated depreciation. Amounts
capitalized to real estate assets consist of the cost of acquisition or construction, and any tenant improvements or major improvements and betterments which extend the useful life of the related asset. All repairs and maintenance are expensed as
incurred.



The estimated useful lives of the Partnerships
real estate assets by class are as follows:



|Buildings             |  | 25 years   
|--------------------- |  | -----------
|Building improvements |  | 5-25 years 
|Land improvements     |  | 10-25 years
|Tenant Improvements   |  | Lease term 



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.



F-9



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Management also reviews
estimated selling prices of assets held for sale and records impairment losses to reduce the carrying amount of assets held for sale when the carrying amounts exceed the estimated fair value, less costs to sell. Material long-lived assets held for
sale are separately identified in the balance sheets, and the related net operating income is segregated as income from discontinued operations in the statements of income. Depreciation is not recorded for long-lived assets held for sale. If an
asset held for sale reverts to an asset used in operations, the asset will be measured at the lower of the original carrying cost, adjusted for the forgone depreciation, or the fair value at the date of the decision to hold the assets for use in
operations.



Using the criterion outlined above, the Partnership
evaluated the carrying value of its investment in Greenville Center on a held for use basis as of June 30, 2002 and, accordingly, recognized an impairment loss of $373,750 in the second quarter of 2002. Upon executing the purchase-sale agreement for
the sale of Greenville Center during the third quarter of 2002, the Partnership evaluated the carrying value of its investment in Greenville Center on a held for sale basis, which resulted in the recognition of an additional impairment loss of
$96,000 in the third quarter of 2002. Total impairment losses of $469,750 are included in losses from discontinued operations in the accompanying statement of income (loss) for the year ended December 31, 2002.





Investment in Joint Venture



Basis
of Presentation



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, as further described below.





Allocation of Income and Distributions



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 is distributed to the joint venture partners on a quarterly basis.





Real Estate Assets



The Joint
Ventures 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.



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



F-10



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





determined that there has
been no impairment in the carrying value of real estate assets held by the Joint Ventures to date.





Revenue Recognition



The Joint Ventures leases typically include renewal options, escalation provisions and provisions requiring tenants to reimburse the Joint Ventures
for a pro rata share of operating costs incurred. All of the Joint Ventures 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.





Rental Income



The future minimum rental income due Fund II and III AssociatesThe
Atrium under noncancelable operating leases at December 31, 2002 is as follows:



|Year ended December 31: |  |   |          
|----------------------- |  | - | ---------
|2003                    |  | $ | 1,681,721
|2004                    |  |   | 1,681,721
|2005                    |  |   | 1,681,721
|2006                    |  |   | 1,681,721
|2007                    |  |   | 1,681,721
|Thereafter              |  |   | 420,430  
|                        |  |   |          
|                        |  | $ | 8,829,035
|                        |  |   |          



One tenant at The
Atrium contributed 100% of rental income for the year ended December 31, 2002 and will contribute 100% of future minimum rental income.



The future minimum rental income due Fund II and III AssociatesBrookwood Grill under noncancelable operating leases at December 31, 2002 is as
follows:



|Year ended December 31: |  |   |          
|----------------------- |  | - | ---------
|2003                    |  | $ | 221,400  
|2004                    |  |   | 226,932  
|2005                    |  |   | 232,608  
|2006                    |  |   | 238,416  
|2007                    |  |   | 244,380  
|Thereafter              |  |   | 1,086,242
|                        |  |   |          
|                        |  | $ | 2,249,978
|                        |  |   |          



One tenant contributed
100% of rental income for the year ended December 31, 2002 and will contribute 100% of future minimum rental income.



F-11



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





The future minimum rental
income due Fund II, III, VI, and VII Associates under noncancelable operating leases is as follows:



|Year ended December 31: |  |   |          
|----------------------- |  | - | ---------
|2003                    |  | $ | 469,083  
|2004                    |  |   | 427,620  
|2005                    |  |   | 337,710  
|2006                    |  |   | 105,580  
|2007                    |  |   |         
|Thereafter              |  |   |         
|                        |  |   |          
|                        |  | $ | 1,339,993
|                        |  |   |          



Three tenants contributed approximately 21%, 20% and 10% of rental income for the year ended December 31, 2002. In addition, one tenant will contribute approximately 30% of future minimum rental income.



The future minimum rental income due Fund III
and IV Associates under noncancelable operating leases at December 31, 2002 is as follows:



|Year ending December 31: |  |   |           
|------------------------ |  | - | ----------
|2003                     |  | $ | 1,724,002 
|2004                     |  |   | 1,665,332 
|2005                     |  |   | 1,586,752 
|2006                     |  |   | 1,542,813 
|2006                     |  |   | 1,392,424 
|Thereafter               |  |   | 2,696,460 
|                         |  |   |           
|                         |  | $ | 10,607,783
|                         |  |   |           



Two tenants contributed
approximately 29% and 27% of rental income for the year ended December 31, 2002. In addition, two tenants will contribute approximately 41% and 34% of future minimum rental income.





Prepaid Expenses and Other Assets



Prepaid expenses and other assets of the Joint Ventures
is comprised primarily of deferred leasing costs and refundable security deposits. Deferred leasing costs reflect costs incurred to procure operating leases, which are capitalized and amortized on a straight-line basis over the terms of the related
leases. Refundable security deposits represent cash deposits received from tenants, the offset to which is included in accounts payable and refundable security deposits in the corresponding balance sheets. Pursuant to the respective leases, the
Joint Ventures 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.



F-12



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





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.





Restatement



The Partnership and its Joint Ventures have historically reported property operating costs net of reimbursements from tenants as an expense in their
consolidated 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 Partnership and its 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 its Joint Ventures.





2.    RELATED-PARTY TRANSACTIONS



Due from affiliates at December 31, 2002 and 2001 represents the
Partnerships share of cash to be distributed from its joint venture investments with respect to the fourth quarters of 2002 and 2001, respectively, as follows:



|                                           |  | 2002 |         | 2001
|------------------------------------------ |  | ---- | ------- | ----
|Fund III and IV Associates                 |  | $    | 201,112 |     
|Fund II and III AssociatesThe Atrium      |  |      | 0       |     
|Fund II and III AssociatesBrookwood Grill |  |      | 40,079  |     
|                                           |  |      |         |     
|                                           |  | $    | 241,191 |     
|                                           |  |      |         |     



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.



F-13



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





The Partnership and its
Joint Ventures incurred management and leasing fees of $102,050, $184,541, and $228,176 for the years ended December 31, 2002, 2001 and 2000, respectively, which were paid to Wells Management.



The Company 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 time spent on each fund by individual administrative personnel. In the opinion of
management, such allocation is a reasonable estimation of such expenses. During 2002, 2001 and 2000, the Partnership reimbursed $42,383, $38,847 and $32,100 to the Company 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



The Partnership adopted 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, 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 (loss) income for all periods presented. The Greenville Center property was sold on September 30, 2002.



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



|                                           |  | 2002 |          |   | 2001 |   |          | 2000 | 
|------------------------------------------ |  | ---- | -------- | - | ---- | - | -------- | ---- | 
|Total property revenues(1)                 |  | $    | 156,687  |   |      | $ | 274,470  | (1)  | 
|                                           |  |      |          |   |      |   |          |      | 
|Operating costs-rental property(1)         |  |      | 160,142  |   |      |   | 212,539  | (1)  | 
|Depreciation                               |  |      | 89,294   |   |      |   | 176,067  |      | 
|Management and leasing fees                |  |      | 18,304   |   |      |   | 20,652   |      | 
|                                           |  |      |          |   |      |   |          |      | 
|Total expenses                             |  |      | 267,740  |   |      |   | 409,258  |      | 
|                                           |  |      |          |   |      |   |          |      | 
|Operating (loss) income                    |  |      | (111,053 | ) |      |   | (134,788 | )    | 
|Impairment loss                            |  |      | (469,750 | ) |      |   |         |      | 
|Loss on disposition                        |  |      | (21,051  | ) |      |   |         |      | 
|                                           |  |      |          |   |      |   |          |      | 
|(Loss) income from discontinued operations |  | $    | (601,854 | ) |      | $ | (134,788 | )    | 
|                                           |  |      |          |   |      |   |          |      | 

|(1) |  | Amounts have been restated to reflect tenant reimbursements of $5,558 in 2001 and $42,312 in 2000 as revenue and gross property operating costs as expenses as
disclosed in the Restatement section of Note 1.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-14



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





4.    INVESTMENT IN JOINT VENTURES



The Partnerships investment and percentage ownership in the Joint Ventures at December 31, 2002 and 2001, respectively, are summarized as follows:



|                                           |  | 2002   |            |         | 2001 |  
|------------------------------------------ |  | ------ | ---------- | ------- | ---- | -
|                                           |  | Amount |            | Percent |      |  
|Fund III and IV Associates                 |  | $      | 6,725,376  |         | 57   | %
|Fund II and III AssociatesThe Atrium      |  |        | 3,010,438  |         | 36   |  
|Fund II and III AssociatesBrookwood Grill |  |        | 986,489    |         | 38   |  
|                                           |  |        |            |         |      |  
|                                           |  | $      | 10,722,303 |         |      |  
|                                           |  |        |            |         |      |  



The following is a
roll-forward of the Partnerships investment in the Joint Ventures for the years ended December 31, 2002 and 2001:



|                                                |  | 2002 |            |   | 2001 |  
|----------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Investment in Joint Ventures, beginning of year |  | $    | 10,655,517 |   |      | $
|Equity in income of Joint Ventures              |  |      | 273,251    |   |      |  
|Contributions to Joint Ventures                 |  |      | 757,900    |   |      |  
|Distributions from Joint Ventures               |  |      | (964,365   | ) |      |  
|                                                |  |      |            |   |      |  
|Investment in Joint Ventures, end of year       |  | $    | 10,722,303 |   |      | $
|                                                |  |      |            |   |      |  





Fund II and Fund III Associates



On April 3, 1989, Fund II and II-OW entered into a joint venture agreement with Wells Real Estate Fund III, L.P. (Fund III) known as
Fund II and Fund III Associates for the purpose of investing in commercial and industrial real properties. In April 1989, Fund II and Fund III Associates acquired the Atrium property, a four-story office building located in Houston
Texas. In 1991, Fund II and II-OW contributed its interest in a 5.8-acre parcel of land known as 880 Holcomb Bridge located in Roswell, Georgia, to Fund II and Fund III Associates. A restaurant was developed on 1.5 acres of
880 Holcomb Bridge and is currently operating as the Brookwood Grill restaurant. During 1995, the remaining 4.3 acres of 880 Holcomb Bridge were transferred at cost to the Fund II, III, VI, and VII Associates joint venture, a joint venture
partnership between Fund II and Fund III Associates, Wells Real Estate Fund VI, L.P., and Wells Real Estate Fund VII, L.P. Fund II and Fund III Associates investment in this transferred parcel of 880 Holcomb Bridge was
$1,134,506 and $1,210,117 at December 31, 2002 and 2001, respectively, which represents a 24% interest for each year.



Following is selected financial information for Fund II and Fund III Associates interest in the Atrium Building:



F-15



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II
and III AssociatesThe Atrium Building

Balance Sheets

December 31, 2002 and 2001



|                                                                                                      |  | 2002 |           | 2001
|----------------------------------------------------------------------------------------------------- |  | ---- | --------- | ----
|Assets                                                                                                |  |      |           |     
|Real estate assets, at cost:                                                                          |  |      |           |     
|Land                                                                                                  |  | $    | 1,504,743 |     
|Building and improvements, less accumulated depreciation of $8,533,223 in 2002 and
$7,889,603 in 2001 |  |      | 6,018,432 |     
|                                                                                                      |  |      |           |     
|Total real estate assets                                                                              |  |      | 7,523,175 |     
|Cash and cash equivalents                                                                             |  |      | 503,926   |     
|Accounts receivable                                                                                   |  |      | 492,243   |     
|Prepaid expenses and other assets, net                                                                |  |      | 449,114   |     
|                                                                                                      |  |      |           |     
|Total assets                                                                                          |  | $    | 8,968,458 |     
|                                                                                                      |  |      |           |     
|Liabilities and Owners Equity                                                                        |  |      |           |     
|Liabilities:                                                                                          |  |      |           |     
|Accounts payable and accrued expenses                                                                 |  | $    | 538,297   |     
|Deferred rent                                                                                         |  |      | 123,675   |     
|Owner distributions payable                                                                           |  |      |          |     
|                                                                                                      |  |      |           |     
|Total liabilities                                                                                     |  |      | 661,972   |     
|                                                                                                      |  |      |           |     
|Owners equity:                                                                                       |  |      |           |     
|Fund II and Fund II-OW                                                                                |  |      | 5,296,047 |     
|Wells Fund III                                                                                        |  |      | 3,010,439 |     
|                                                                                                      |  |      |           |     
|Total owners equity                                                                                  |  |      | 8,306,486 |     
|                                                                                                      |  |      |           |     
|Total liabilities and owners equity                                                                  |  | $    | 8,968,458 |     
|                                                                                                      |  |      |           |     



F-16



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II
and III AssociatesThe Atrium Building

Statements of (Loss) Income

for the Years Ended December 31, 2002, 2001 and 2000



|                                                        |  | 2002 |           |   | 2001 |   |           | 2000 | 
|------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- | 
|Revenues:                                               |  |      |           |   |      |   |           |      | 
|Rental income                                           |  | $    | 710,919   |   |      | $ | 1,470,144 |      | 
|Reimbursement income (1)                                |  |      | 58,799    |   |      |   | 262,078   | (1)  | 
|Interest income                                         |  |      | 1,730     |   |      |   | 7,730     |      | 
|                                                        |  |      |           |   |      |   |           |      | 
|                                                        |  |      | 771,448   |   |      |   | 1,739,952 |      | 
|                                                        |  |      |           |   |      |   |           |      | 
|Expenses:                                               |  |      |           |   |      |   |           |      | 
|Depreciation                                            |  |      | 643,620   |   |      |   | 776,116   |      | 
|Operating costs                                         |  |      | 619,591   |   |      |   | 860,044   |      | 
|Management and leasing fees                             |  |      | 143,757   |   |      |   | 190,978   |      | 
|Partnership administration                              |  |      | 93,547    |   |      |   | 37,930    |      | 
|Legal and accounting                                    |  |      | 26,708    |   |      |   | 9,002     |      | 
|                                                        |  |      |           |   |      |   |           |      | 
|                                                        |  |      | 1,527,223 |   |      |   | 1,874,070 |      | 
|                                                        |  |      |           |   |      |   |           |      | 
|Net loss                                                |  | $    | (755,775  | ) |      | $ | (134,118  | )    | 
|                                                        |  |      |           |   |      |   |           |      | 
|Net loss allocated to Fund II and Fund II-OW Associates |  | $    | (463,291  | ) |      | $ | (82,214   | )    | 
|                                                        |  |      |           |   |      |   |           |      | 
|Net loss allocated to Wells Real Estate Fund III, L.P.  |  | $    | (292,484  | ) |      | $ | (51,904   | )    | 
|                                                        |  |      |           |   |      |   |           |      | 



|(1) |  | Amounts have been restated to reflect tenant reimbursements of $262,078 in 2001 and $119,384 in 2000 as revenue and gross property operating costs as expenses as
disclosed in the Restatement Adjustments section of Note 1.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-17



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II
and III AssociatesThe Atrium Building

Statements of Owners Equity

for the Years Ended December 31, 2002, 2001 and 2000



|                           |  | Fund II and Fund II-OW Associates |           |   | Wells Real Estate Fund III, L.P. |   |           | Total Owners Equity | 
|-------------------------- |  | --------------------------------- | --------- | - | -------------------------------- | - | --------- | -------------------- | 
|Balance, December 31, 1999 |  | $                                 | 5,615,740 |   |                                  | $ | 3,212,263 |                      | 
|Net loss                   |  |                                   | (206,781  | ) |                                  |   | (130,545  | )                    | 
|Distributions              |  |                                   | (354,232  | ) |                                  |   | (223,633  | )                    | 
|                           |  |                                   |           |   |                                  |   |           |                      | 
|Balance, December 31, 2000 |  |                                   | 5,054,727 |   |                                  |   | 2,858,085 |                      | 
|Net loss                   |  |                                   | (82,214   | ) |                                  |   | (51,904   | )                    | 
|Distributions              |  |                                   | (413,673  | ) |                                  |   | (261,157  | )                    | 
|                           |  |                                   |           |   |                                  |   |           |                      | 
|Balance, December 31, 2001 |  |                                   | 4,558,840 |   |                                  |   | 2,545,024 |                      | 
|Net loss                   |  |                                   | (463,291  | ) |                                  |   | (292,484  | )                    | 
|Distributions              |  |                                   | 1,200,498 |   |                                  |   | 757,899   |                      | 
|                           |  |                                   |           |   |                                  |   |           |                      | 
|Balance, December 31, 2002 |  | $                                 | 5,296,047 |   |                                  | $ | 3,010,439 |                      | 
|                           |  |                                   |           |   |                                  |   |           |                      | 



F-18



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)



Fund II and III AssociatesThe Atrium Building

Statements of Cash Flows

for the Years Ended December 31, 2002, 2001 and 2000



|                                                                                |  | 2002 |            |   | 2001 |   |          | 2000 | 
|------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | ---- | 
|Cash flows from operating activities:                                           |  |      |            |   |      |   |          |      | 
|Net loss                                                                        |  | $    | (755,775   | ) |      | $ | (134,118 | )    | 
|                                                                                |  |      |            |   |      |   |          |      | 
|Adjustments to reconcile net loss to net cash provided by operating
activities: |  |      |            |   |      |   |          |      | 
|Depreciation                                                                    |  |      | 643,620    |   |      |   | 776,116  |      | 
|Amortization of deferred lease acquisition costs                                |  |      | 101,742    |   |      |   | 89,745   |      | 
|Changes in assets and liabilities:                                              |  |      |            |   |      |   |          |      | 
|Accounts receivable                                                             |  |      | (486,897   | ) |      |   | 17,856   |      | 
|Prepaid expenses and other assets, net                                          |  |      | 44,300     |   |      |   | (45,300  | )    | 
|Accounts payable                                                                |  |      | 561,607    |   |      |   | (3,956   | )    | 
|                                                                                |  |      |            |   |      |   |          |      | 
|Total adjustments                                                               |  |      | 864,372    |   |      |   | 834,461  |      | 
|                                                                                |  |      |            |   |      |   |          |      | 
|Net cash provided by operating activities                                       |  |      | 108,597    |   |      |   | 700,343  |      | 
|Cash flows from investing activities:                                           |  |      |            |   |      |   |          |      | 
|Investment in deferred lease acquisition costs                                  |  |      | (516,202   | ) |      |   |         |      | 
|Investment in real estate assets                                                |  |      | (1,089,770 | ) |      |   | (73,696  | )    | 
|                                                                                |  |      |            |   |      |   |          |      | 
|Net cash used in investing activities                                           |  |      | (1,605,972 | ) |      |   | (73,696  | )    | 
|Cash flows from financing activities:                                           |  |      |            |   |      |   |          |      | 
|Contributions from joint venture partners                                       |  |      | 1,958,397  |   |      |   |         |      | 
|Distributions to joint venture partners                                         |  |      | (169,050   | ) |      |   | (655,007 | )    | 
|                                                                                |  |      |            |   |      |   |          |      | 
|Net cash provided by (used in) financing activities                             |  |      | 1,789,347  |   |      |   | (655,007 | )    | 
|                                                                                |  |      |            |   |      |   |          |      | 
|Net increase (decrease) in cash and cash equivalents                            |  |      | 291,972    |   |      |   | (28,360  | )    | 
|Cash and cash equivalents, beginning of year                                    |  |      | 211,954    |   |      |   | 240,314  |      | 
|                                                                                |  |      |            |   |      |   |          |      | 
|Cash and cash equivalents, end of year                                          |  | $    | 503,926    |   |      | $ | 211,954  |      | 
|                                                                                |  |      |            |   |      |   |          |      | 
|Supplemental disclosure of noncash activities:                                  |  |      |            |   |      |   |          |      | 
|Distributions payable                                                           |  | $    |           |   |      | $ | 169,050  |      | 
|                                                                                |  |      |            |   |      |   |          |      | 



Following is selected
financial information for Fund II and Fund III Associates interest in the Brookwood Grill Restaurant:



F-19



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II
and III AssociatesBrookwood Grill Restaurant

Balance Sheets

December 31, 2002 and 2001



|Assets                                                                                            |  |      |           |      |   |          
|------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                                                                  |  |      |           |     
|                                                                                                  |  | 2002 |           | 2001
|Real estate assets, at cost:                                                                      |  |      |           |      |   |          
|Land                                                                                              |  | $    | 745,223   |      | $ | 745,223  
|Building and improvements, less accumulated depreciation of $548,805 in 2002 and
$490,320 in 2001 |  |      | 724,008   |      |   | 782,493  
|                                                                                                  |  |      |           |      |   |          
|Total real estate assets                                                                          |  |      | 1,469,231 |      |   | 1,527,716
|Investment in joint venture                                                                       |  |      | 1,134,506 |      |   | 1,210,117
|Cash and cash equivalents                                                                         |  |      | 89,729    |      |   | 22,272   
|Due from affiliate                                                                                |  |      | 21,607    |      |   | 32,501   
|Accounts receivable                                                                               |  |      | 16,297    |      |   | 8,927    
|Prepaid expenses and other assets, net                                                            |  |      |          |      |   | 3,188    
|                                                                                                  |  |      |           |      |   |          
|Total assets                                                                                      |  | $    | 2,731,370 |      | $ | 2,804,721
|                                                                                                  |  |      |           |      |   |          
|                                                                                                  |  |      |           |      |   |          
|Liabilities and Owners Equity                                                                    |  |      |           |      |   |          
|                                                                                                  |  |      |           |     
|Liabilities:                                                                                      |  |      |           |      |   |          
|Partnership distributions payable                                                                 |  | $    | 106,452   |      | $ | 63,358   
|Accounts payable                                                                                  |  |      | 4,491     |      |   | 2,553    
|                                                                                                  |  |      |           |      |   |          
|Total liabilities                                                                                 |  |      | 110,943   |      |   | 65,911   
|                                                                                                  |  |      |           |      |   |          
|Owners equity:                                                                                   |  |      |           |      |   |          
|Fund II and Fund II-OW Associates                                                                 |  |      | 1,633,938 |      |   | 1,707,750
|Wells Real Estate Fund III, L.P.                                                                  |  |      | 986,489   |      |   | 1,031,060
|                                                                                                  |  |      |           |      |   |          
|Total owners equity                                                                              |  |      | 2,620,427 |      |   | 2,738,810
|                                                                                                  |  |      |           |      |   |          
|Total liabilities and owners equity                                                              |  | $    | 2,731,370 |      | $ | 2,804,721
|                                                                                                  |  |      |           |      |   |          





F-20



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II
and III AssociatesBrookwood Grill Restaurant

Statements of Income

for the Years Ended December 31, 2002, 2001 and 2000



|                                                   |  | 2002 |         |   | 2001 |   |         | 2000 | 
|-------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Revenues:                                          |  |      |         |   |      |   |         |      | 
|Rental income                                      |  | $    | 201,187 |   |      | $ | 234,810 |      | 
|Reimbursement Income (1)                           |  |      | 25,292  |   |      |   | 34,845  | (1)  | 
|Equity in income of joint venture                  |  |      | 40,771  |   |      |   | 63,326  |      | 
|Other income                                       |  |      |        |   |      |   | 2,580   |      | 
|                                                   |  |      |         |   |      |   |         |      | 
|                                                   |  |      | 267,250 |   |      |   | 335,561 |      | 
|                                                   |  |      |         |   |      |   |         |      | 
|Expenses:                                          |  |      |         |   |      |   |         |      | 
|Depreciation                                       |  |      | 58,485  |   |      |   | 52,561  |      | 
|Operating costs                                    |  |      | 27,397  |   |      |   | 25,636  |      | 
|Management and leasing fees                        |  |      | 23,864  |   |      |   | 28,673  |      | 
|Legal and accounting                               |  |      | 11,086  |   |      |   | 3,510   |      | 
|Partnership administration                         |  |      | (17,617 | ) |      |   | 45,022  |      | 
|                                                   |  |      |         |   |      |   |         |      | 
|                                                   |  |      | 103,215 |   |      |   | 155,402 |      | 
|                                                   |  |      |         |   |      |   |         |      | 
|Net income                                         |  | $    | 164,035 |   |      | $ | 180,159 |      | 
|                                                   |  |      |         |   |      |   |         |      | 
|Net income allocated to Fund II and II-OW          |  | $    | 102,276 |   |      | $ | 112,329 |      | 
|                                                   |  |      |         |   |      |   |         |      | 
|Net income allocated to Wells Real Estate Fund III |  | $    | 61,759  |   |      | $ | 67,830  |      | 
|                                                   |  |      |         |   |      |   |         |      | 



|(1) |  | Amounts have been restated to reflect tenant reimbursements of $34,845 in 2001 and $40,061 in 2000 as revenue and gross property operating costs as expenses as
disclosed in the Restatement Adjustments section of Note 1.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

.



F-21



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II
and III AssociatesBrookwood Grill Restaurant

Statements of Partners Capital

for the Years Ended December 31, 2002, 2001 and 2000



|                           |  | Fund II and II-OW |           |   | Wells Real Estate Fund III |   |           | Total Owners Equity | 
|-------------------------- |  | ----------------- | --------- | - | -------------------------- | - | --------- | -------------------- | 
|Balance, December 31, 1999 |  | $                 | 1,927,383 |   |                            | $ | 1,163,685 |                      | 
|Net income                 |  |                   | 121,235   |   |                            |   | 73,208    |                      | 
|Distributions              |  |                   | (236,065  | ) |                            |   | (142,546  | )                    | 
|                           |  |                   |           |   |                            |   |           |                      | 
|Balance, December 31, 2000 |  |                   | 1,812,553 |   |                            |   | 1,094,347 |                      | 
|Net income                 |  |                   | 112,329   |   |                            |   | 67,830    |                      | 
|Distributions              |  |                   | (217,132  | ) |                            |   | (131,117  | )                    | 
|                           |  |                   |           |   |                            |   |           |                      | 
|Balance, December 31, 2001 |  |                   | 1,707,750 |   |                            |   | 1,031,060 |                      | 
|Net income                 |  |                   | 102,276   |   |                            |   | 61,759    |                      | 
|Distributions              |  |                   | (176,088  | ) |                            |   | (106,330  | )                    | 
|                           |  |                   |           |   |                            |   |           |                      | 
|Balance, December 31, 2002 |  | $                 | 1,633,938 |   |                            | $ | 986,489   |                      | 
|                           |  |                   |           |   |                            |   |           |                      | 



F-22



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II
and III AssociatesBrookwood Grill Restaurant

Statements of Cash Flows

for the Years Ended December 31, 2002, 2001 and 2000



|                                                                                  |  | 2002 |          |   | 2001 |   |          | 2000 | 
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- | 
|Cash flows from operating activities:                                             |  |      |          |   |      |   |          |      | 
|Net income                                                                        |  | $    | 164,035  |   |      | $ | 180,159  |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |      |          |   |      |   |          |      | 
|Depreciation                                                                      |  |      | 58,485   |   |      |   | 52,561   |      | 
|Amortization of deferred lease acquisition costs                                  |  |      | 775      |   |      |   | 5,568    |      | 
|Equity in income of joint venture                                                 |  |      | (40,771  | ) |      |   | (63,326  | )    | 
|Changes in assets and liabilities:                                                |  |      |          |   |      |   |          |      | 
|Accounts receivable                                                               |  |      | (7,370   | ) |      |   | 29,787   |      | 
|Prepaid expenses and other assets, net                                            |  |      | 2,413    |   |      |   | (2,412   | )    | 
|Accounts payable                                                                  |  |      | 1,938    |   |      |   | (2,027   | )    | 
|Due to affiliates                                                                 |  |      |         |   |      |   | (917     | )    | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Total adjustments                                                                 |  |      | 15,470   |   |      |   | 19,234   |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Net cash provided by operating activities                                         |  |      | 179,505  |   |      |   | 199,393  |      | 
|Cash flows from investing activities:                                             |  |      |          |   |      |   |          |      | 
|Distributions received from joint venture                                         |  |      | 127,276  |   |      |   | 195,783  |      | 
|Cash flows from financing activities:                                             |  |      |          |   |      |   |          |      | 
|Distributions to joint venture partners                                           |  |      | (239,324 | ) |      |   | (430,419 | )    | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Net increase (decrease) in cash and cash equivalents                              |  |      | 67,457   |   |      |   | (35,243  | )    | 
|Cash and cash equivalents, beginning of year                                      |  |      | 22,272   |   |      |   | 57,515   |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Cash and cash equivalents, end of year                                            |  | $    | 89,729   |   |      | $ | 22,272   |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Supplemental disclosure of noncash activities:                                    |  |      |          |   |      |   |          |      | 
|Distributions payable                                                             |  | $    | 106,452  |   |      | $ | 63,358   |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 





Fund II, III, VI, and VII Associates



On January 1, 1995, the Fund II and III AssociatesBrookwood Grill entered into a joint venture agreement with Fund VI and Fund VII to form Fund II,
III, VI, and VII Associates for the purpose of acquiring, developing, operating, and selling real properties. During 1995, Fund II and III AssociatesBrookwood Grill contributed a 4.3-acre tract of land from its 880 Holcomb Bridge property to
the Fund II, III, VI, and VII Associates joint venture. Development of two retail and office buildings containing a total of approximately 49,500 square feet was substantially complete in 1996



F-23



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Following is selected
financial information for Fund II, III, VI, and VII Associates:



Fund II, III, VI, and VII Associates

(A Georgia Joint Venture)

Balance Sheets

December 31, 2002 and 2001



|                                                                                                      |  | 2002 |           | 2001
|----------------------------------------------------------------------------------------------------- |  | ---- | --------- | ----
|Assets                                                                                                |  |      |           |     
|Real estate assets, at cost:                                                                          |  |      |           |     
|Land                                                                                                  |  | $    | 1,325,242 |     
|Building and improvements, less accumulated depreciation of $2,244,183 in 2002 and
$1,969,078 in 2001 |  |      | 3,473,976 |     
|                                                                                                      |  |      |           |     
|Total real estate assets                                                                              |  |      | 4,799,218 |     
|Cash and cash equivalents                                                                             |  |      | 80,625    |     
|Prepaid expenses and other assets, net                                                                |  |      | 67,027    |     
|Accounts receivable                                                                                   |  |      | 29,562    |     
|                                                                                                      |  |      |           |     
|Total assets                                                                                          |  | $    | 4,976,432 |     
|                                                                                                      |  |      |           |     
|Liabilities and Partners
Capital                                                                     |  |      |           |     
|Liabilities:                                                                                          |  |      |           |     
|Partnership distributions payable                                                                     |  | $    | 89,767    |     
|Accounts payable and accrued expenses                                                                 |  |      | 45,571    |     
|                                                                                                      |  |      |           |     
|                                                                                                      |  |      | 135,338   |     
|                                                                                                      |  |      |           |     
|Partners capital:                                                                                    |  |      |           |     
|Fund II and III AssociatesBrookwood Grill                                                            |  |      | 1,134,506 |     
|Wells Real Estate Fund VI                                                                             |  |      | 1,265,808 |     
|Wells Real Estate Fund VII                                                                            |  |      | 2,440,780 |     
|                                                                                                      |  |      |           |     
|Total partners capital                                                                               |  |      | 4,841,094 |     
|                                                                                                      |  |      |           |     
|Total liabilities and partners capital                                                               |  | $    | 4,976,432 |     
|                                                                                                      |  |      |           |     



F-24



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II,
III, VI, and VII Associates

(A Georgia Joint Venture)

Statements of Income

for the Years Ended
December 31, 2002, 2001 and 2000



|                                                                   |  | 2002 |         |   | 2001 |   |         | 2000 | 
|------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Revenues:                                                          |  |      |         |   |      |   |         |      | 
|Rental income                                                      |  | $    | 642,481 |   |      | $ | 845,597 |      | 
|Reimbursement income (1)                                           |  |      | 70,791  |   |      |   | 114,438 | (1)  | 
|Interest income                                                    |  |      | 1,358   |   |      |   | 2,566   |      | 
|                                                                   |  |      |         |   |      |   |         |      | 
|                                                                   |  |      | 714,630 |   |      |   | 962,601 |      | 
|                                                                   |  |      |         |   |      |   |         |      | 
|Expenses:                                                          |  |      |         |   |      |   |         |      | 
|Depreciation                                                       |  |      | 275,105 |   |      |   | 314,558 |      | 
|Operating costs                                                    |  |      | 176,993 |   |      |   | 191,792 |      | 
|Management and leasing fees                                        |  |      | 64,661  |   |      |   | 103,277 |      | 
|Partnership administration                                         |  |      | 35,982  |   |      |   | 21,691  |      | 
|Legal and accounting                                               |  |      | 6,825   |   |      |   | 12,389  |      | 
|Bad debt expense                                                   |  |      | (14,322 | ) |      |   | 55,802  |      | 
|                                                                   |  |      |         |   |      |   |         |      | 
|                                                                   |  |      | 545,244 |   |      |   | 699,509 |      | 
|                                                                   |  |      |         |   |      |   |         |      | 
|Net income                                                         |  | $    | 169,386 |   |      | $ | 263,092 |      | 
|                                                                   |  |      |         |   |      |   |         |      | 
|Net income allocated to Fund II and III AssociatesBrookwood Grill |  | $    | 40,771  |   |      | $ | 63,326  |      | 
|                                                                   |  |      |         |   |      |   |         |      | 
|Net income allocated to Wells Real Estate Fund VI                  |  | $    | 45,497  |   |      | $ | 70,667  |      | 
|                                                                   |  |      |         |   |      |   |         |      | 
|Net income allocated to Wells Real Estate Fund VII                 |  | $    | 83,118  |   |      | $ | 129,099 |      | 
|                                                                   |  |      |         |   |      |   |         |      | 



|(1) |  | Amounts have been restated to reflect tenant reimbursements of $114,438 in 2001 and $99,595 in 2000 as revenue and gross property operating costs as expenses as
disclosed in the Restatement Adjustments section of Note 1.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-25



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II,
III, VI, and VII Associates

(A Georgia Joint Venture)

Statements of Partners Capital

for the
Years Ended December 31, 2002, 2001 and 2000



|                           |  | Fund II and III Associates Brookwood Grill |           |   | Wells Real Estate Fund VI |   |           | Wells Real Estate Fund VII |  |   | Total Partners Capital |  
|-------------------------- |  | ------------------------------------------- | --------- | - | ------------------------- | - | --------- | -------------------------- |  | - | ----------------------- | -
|Balance, December 31, 1999 |  | $                                           | 1,406,591 |   |                           | $ | 1,569,430 |                            |  | $ | 2,995,463               |  
|Net income                 |  |                                             | 55,489    |   |                           |   | 61,921    |                            |  |   | 113,123                 |  
|Partnership distributions  |  |                                             | (156,763  | ) |                           |   | (174,934  | )                          |  |   | (319,583                | )
|                           |  |                                             |           |   |                           |   |           |                            |  |   |                         |  
|Balance, December 31, 2000 |  |                                             | 1,305,317 |   |                           |   | 1,456,417 |                            |  |   | 2,789,003               |  
|Net income                 |  |                                             | 63,326    |   |                           |   | 70,667    |                            |  |   | 129,099                 |  
|Partnership distributions  |  |                                             | (158,526  | ) |                           |   | (176,902  | )                          |  |   | (323,178                | )
|                           |  |                                             |           |   |                           |   |           |                            |  |   |                         |  
|Balance, December 31, 2001 |  |                                             | 1,210,117 |   |                           |   | 1,350,182 |                            |  |   | 2,594,924               |  
|Net income                 |  |                                             | 40,771    |   |                           |   | 45,497    |                            |  |   | 83,118                  |  
|Partnership distributions  |  |                                             | (116,382  | ) |                           |   | (129,871  | )                          |  |   | (237,262                | )
|                           |  |                                             |           |   |                           |   |           |                            |  |   |                         |  
|Balance, December 31, 2002 |  | $                                           | 1,134,506 |   |                           | $ | 1,265,808 |                            |  | $ | 2,440,780               |  
|                           |  |                                             |           |   |                           |   |           |                            |  |   |                         |  



F-26



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund II,
III, VI, and VII Associates

(A Georgia Joint Venture)

Statements of Cash Flows

for the Years Ended
December 31, 2002, 2001 and 2000



|                                                                                  |  | 2002 |          |   | 2001 |   |          | 2000 | 
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- | 
|Cash flows from operating activities:                                             |  |      |          |   |      |   |          |      | 
|Net income                                                                        |  | $    | 169,386  |   |      | $ | 263,092  |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |      |          |   |      |   |          |      | 
|Depreciation                                                                      |  |      | 275,105  |   |      |   | 314,558  |      | 
|Amortization of deferred lease acquisition costs                                  |  |      | 12,324   |   |      |   | 27,816   |      | 
|Changes in assets and liabilities:                                                |  |      |          |   |      |   |          |      | 
|Accounts receivable                                                               |  |      | (2,171   | ) |      |   | 124,495  |      | 
|Prepaid expenses and other assets, net                                            |  |      | 8,699    |   |      |   | 48,951   |      | 
|Accounts payable and accrued expenses                                             |  |      | (2,034   | ) |      |   | (34,467  | )    | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Total adjustments                                                                 |  |      | 291,923  |   |      |   | 481,353  |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Net cash provided by operating activities                                         |  |      | 461,309  |   |      |   | 744,445  |      | 
|Cash flows from investing activities:                                             |  |      |          |   |      |   |          |      | 
|Investment in deferred lease acquisition costs                                    |  |      | (1,475   | ) |      |   | (4,470   | )    | 
|Cash flows from financing activities:                                             |  |      |          |   |      |   |          |      | 
|Distributions to joint venture partners                                           |  |      | (530,318 | ) |      |   | (676,910 | )    | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Net (decrease) increase in cash and cash equivalents                              |  |      | (70,484  | ) |      |   | 63,065   |      | 
|Cash and cash equivalents, beginning of year                                      |  |      | 151,109  |   |      |   | 88,044   |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Cash and cash equivalents, end of year                                            |  | $    | 80,625   |   |      | $ | 151,109  |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 
|Supplemental disclosures of noncash activities:                                   |  |      |          |   |      |   |          |      | 
|Partnership distributions payable                                                 |  | $    | 89,767   |   |      | $ | 136,570  |      | 
|                                                                                  |  |      |          |   |      |   |          |      | 





Fund III and IV Associates



On March 27, 1991, the Partnership entered into a joint venture with Wells Real Estate Fund IV, L.P. The joint venture, Fund III and IV Associates, was
formed for the purpose of developing, constructing, and operating the Stockbridge Village Shopping Center in Stockbridge, Georgia. In addition, in July 1992, Fund III and IV Associates purchased the Reciprocal Group Building (formerly G.E. Lighting
National Customer Center) in Richmond, Virginia.



F-27



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Following is selected
financial information for Fund III and IV Associates:



Fund III and IV Associates

(A Georgia Joint Venture)

Balance Sheets

December 31, 2002 and 2001



|                                                                                                      |  | 2002 |            | 2001
|----------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ----
|Assets                                                                                                |  |      |            |     
|Real estate assets, at cost:                                                                          |  |      |            |     
|Land                                                                                                  |  | $    | 3,331,775  |     
|Building and improvements, less accumulated depreciation of $5,261,361 in 2002 and
$4,597,821 in 2001 |  |      | 8,044,556  |     
|                                                                                                      |  |      |            |     
|Total real estate assets                                                                              |  |      | 11,376,331 |     
|Cash and cash equivalents                                                                             |  |      | 361,251    |     
|Prepaid expenses and other assets, net                                                                |  |      | 290,534    |     
|Accounts receivable                                                                                   |  |      | 131,297    |     
|                                                                                                      |  |      |            |     
|Total assets                                                                                          |  | $    | 12,159,413 |     
|                                                                                                      |  |      |            |     
|Liabilities and Partners Capital                                                                     |  |      |            |     
|Liabilities:                                                                                          |  |      |            |     
|Partnership distributions payable                                                                     |  | $    | 351,517    |     
|Accounts payable                                                                                      |  |      | 52,618     |     
|Due to affiliates                                                                                     |  |      |           |     
|                                                                                                      |  |      |            |     
|Total liabilities                                                                                     |  |      | 404,135    |     
|                                                                                                      |  |      |            |     
|Partners capital:                                                                                    |  |      |            |     
|Wells Real Estate Fund III                                                                            |  |      | 6,725,376  |     
|Wells Real Estate Fund IV                                                                             |  |      | 5,029,902  |     
|                                                                                                      |  |      |            |     
|Total partners capital                                                                               |  |      | 11,755,278 |     
|                                                                                                      |  |      |            |     
|Total liabilities and partners capital                                                               |  | $    | 12,159,413 |     
|                                                                                                      |  |      |            |     





F-28



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)



Fund III and IV Associates

(A Georgia Joint Venture)

Statements of Income

for the Years Ended December 31, 2002, 2001 and 2000



|                                                   |  | 2002 |           | 2001 |   |           | 2000 | 
|-------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | ---- | 
|Revenues:                                          |  |      |           |      |   |           |      | 
|Rental income                                      |  | $    | 1,855,981 |      | $ | 1,864,868 |      | 
|Reimbursement income (1)                           |  |      | 223,261   |      |   | 255,016   | (1)  | 
|Interest income                                    |  |      | 4,138     |      |   | 450       |      | 
|Other income                                       |  |      |          |      |   | 22,917    |      | 
|                                                   |  |      |           |      |   |           |      | 
|                                                   |  |      | 2,083,380 |      |   | 2,143,251 |      | 
|                                                   |  |      |           |      |   |           |      | 
|Expenses:                                          |  |      |           |      |   |           |      | 
|Depreciation                                       |  |      | 663,540   |      |   | 616,956   |      | 
|Management and leasing fees                        |  |      | 165,362   |      |   | 168,643   |      | 
|Operating costs                                    |  |      | 300,791   |      |   | 282,947   |      | 
|Property administration                            |  |      | 47,570    |      |   | 35,541    |      | 
|Legal and accounting                               |  |      | 25,220    |      |   | 14,515    |      | 
|                                                   |  |      |           |      |   |           |      | 
|                                                   |  |      | 1,202,483 |      |   | 1,118,602 |      | 
|                                                   |  |      |           |      |   |           |      | 
|Net income                                         |  | $    | 880,897   |      | $ | 1,024,649 |      | 
|                                                   |  |      |           |      |   |           |      | 
|Net income allocated to Wells Real Estate Fund III |  | $    | 503,975   |      | $ | 586,219   |      | 
|                                                   |  |      |           |      |   |           |      | 
|Net income allocated to Wells Real Estate Fund IV  |  | $    | 376,922   |      | $ | 438,430   |      | 
|                                                   |  |      |           |      |   |           |      | 



|(1) |  | Amounts have been restated to reflect tenant reimbursements of $255,016 in 2001 and $223,686 in 2000 as revenue and gross property operating costs as expenses as
described in the Restatement section of Note 1.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-29



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund III
and IV Associates

(A Georgia Joint Venture)

Statements of Partners Capital

for the
Years Ended December 31, 2002, 2001 and 2000



|                           |  | Wells Real Estate Fund III |           |   | Wells Real Estate Fund IV |   |           | Total Partners Capital | 
|-------------------------- |  | -------------------------- | --------- | - | ------------------------- | - | --------- | ----------------------- | 
|Balance, December 31, 1999 |  | $                          | 6,993,642 |   |                           | $ | 5,230,514 |                         | 
|Net income                 |  |                            | 289,542   |   |                           |   | 216,547   |                         | 
|Partnership contributions  |  |                            | 216,683   |   |                           |   | 162,058   |                         | 
|Partnership distributions  |  |                            | (589,377  | ) |                           |   | (440,790  | )                       | 
|                           |  |                            |           |   |                           |   |           |                         | 
|Balance, December 31, 2000 |  |                            | 6,910,490 |   |                           |   | 5,168,329 |                         | 
|Net income                 |  |                            | 586,219   |   |                           |   | 438,430   |                         | 
|Partnership contributions  |  |                            | 502,342   |   |                           |   | 375,720   |                         | 
|Partnership distributions  |  |                            | (919,618  | ) |                           |   | (687,778  | )                       | 
|                           |  |                            |           |   |                           |   |           |                         | 
|Balance, December 31, 2001 |  |                            | 7,079,433 |   |                           |   | 5,294,701 |                         | 
|Net income                 |  |                            | 503,975   |   |                           |   | 376,922   |                         | 
|Partnership distributions  |  |                            | (858,032  | ) |                           |   | (641,721  | )                       | 
|                           |  |                            |           |   |                           |   |           |                         | 
|Balance, December 31, 2002 |  | $                          | 6,725,376 |   |                           | $ | 5,029,902 |                         | 
|                           |  |                            |           |   |                           |   |           |                         | 



F-30



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)





Fund III
and IV Associates

(A Georgia Joint Venture)

Statements of Cash Flows

for the Years Ended
December 31, 2002, 2001 and 2000



|                                                                                  |  | 2002 |            |   | 2001 |   |            | 2000 | 
|--------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|Cash flows from operating activities:                                             |  |      |            |   |      |   |            |      | 
|Net income                                                                        |  | $    | 880,897    |   |      | $ | 1,024,649  |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |      |            |   |      |   |            |      | 
|Depreciation                                                                      |  |      | 663,540    |   |      |   | 616,956    |      | 
|Amortization of deferred lease acquisition costs                                  |  |      | 58,442     |   |      |   | 41,831     |      | 
|Changes in assets and liabilities:                                                |  |      |            |   |      |   |            |      | 
|Accounts receivable                                                               |  |      | 82,702     |   |      |   | (83,773    | )    | 
|Prepaid expenses and other assets, net                                            |  |      | (15,200    | ) |      |   | 517        |      | 
|Accounts payable                                                                  |  |      | 12,953     |   |      |   | (1,231     | )    | 
|Due to affiliates                                                                 |  |      | (3,406     | ) |      |   | 1,536      |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Total adjustments                                                                 |  |      | 799,031    |   |      |   | 575,836    |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Net cash provided by operating activities                                         |  |      | 1,679,928  |   |      |   | 1,600,485  |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Cash flows from investing activities:                                             |  |      |            |   |      |   |            |      | 
|Investment in deferred lease acquisition costs                                    |  |      | (12,245    | ) |      |   | (172,157   | )    | 
|Investment in real estate                                                         |  |      | (64,983    | ) |      |   | (719,893   | )    | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Net cash used in investing activities                                             |  |      | (77,228    | ) |      |   | (892,050   | )    | 
|Cash flows from financing activities:                                             |  |      |            |   |      |   |            |      | 
|Contributions from joint venture partners                                         |  |      |           |   |      |   | 878,062    |      | 
|Distributions to joint venture partners                                           |  |      | (1,556,774 | ) |      |   | (1,376,276 | )    | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Net cash used in financing activities                                             |  |      | (1,556,774 | ) |      |   | (498,214   | )    | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Net increase (decrease) in cash and cash equivalents                              |  |      | 45,926     |   |      |   | 210,221    |      | 
|Cash and cash equivalents, beginning of year                                      |  |      | 315,325    |   |      |   | 105,104    |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Cash and cash equivalents, end of year                                            |  | $    | 361,251    |   |      | $ | 315,325    |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Supplemental disclosures of noncash activities:                                   |  |      |            |   |      |   |            |      | 
|Partnership distributions payable                                                 |  | $    | 351,517    |   |      | $ | 408,538    |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 





F-31



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)



4.    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, 2002, 2001 and 2000:



|                                                                                                       |  | 2002      |   |  | 2001     |   |  | 2000     |  
|------------------------------------------------------------------------------------------------------ |  | --------- | - |  | -------- | - |  | -------- | -
|Financial statement net income                                                                         |  | $(435,555 | ) |  | $375,442 |   |  | $334,287 |  
|Increase (decrease) in net income resulting from:                                                      |  |           |   |  |          |   |  |          |  
|Meals & Entertainment                                                                                  |  | 516       |   |  |         |   |  |         |  
|Amortization expense for financial reporting purposes in excess of amounts for income
tax purposes     |  | 12,272    |   |  |         |   |  |         |  
|Loss on sale of property for income tax purposes in excess of amounts for financial
reporting purposes |  | (420,335  | ) |  |         |   |  |         |  
|Depreciation expense for financial reporting purposes in excess of amounts for income
tax purposes     |  | 348,404   |   |  | 389,512  |   |  | 352,963  |  
|Rental income recognized for income tax purposes in excess of amounts for financial
reporting purposes |  | (68,471   | ) |  | (19,017  | ) |  | 18,532   |  
|Expenses deductible when paid for income tax purposes, accrued for financial reporting
purposes        |  | (16,573   | ) |  | 15,742   |   |  | (4,326   | )
|Fixed asset retirement in excess of amounts for income tax purposes                                    |  |          |   |  |         |   |  |         |  
|Other                                                                                                  |  |          |   |  | 2,423    |   |  | 1,243    |  
|                                                                                                       |  |           |   |  |          |   |  |          |  
|Income tax basis net income                                                                            |  | $(579,742 | ) |  | $764,102 |   |  | $702,699 |  
|                                                                                                       |  |           |   |  |          |   |  |          |  



F-32



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)



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, 2002, 2001 and 2000:



|                                                                                                                                         |  | 2002 |            |   | 2001 |   |            | 2000 | 
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|Financial statement partners capital                                                                                                    |  | $    | 13,311,090 |   |      | $ | 13,979,446 |      | 
|Increase (decrease) in partners capital resulting from:                                                                                 |  |      |            |   |      |   |            |      | 
|Meals & Entertainment                                                                                                                    |  |      | 516        |   |      |   |           |      | 
|Amortization expense for financial reporting purposes in excess of amounts for income
tax purposes                                       |  |      | 12,272     |   |      |   |           |      | 
|Loss on sale of property for income tax purposes in excess of amounts for financial
reporting purposes                                   |  |      | (420,335   | ) |      |   |           |      | 
|Depreciation expense for financial reporting purposes in excess of amounts for income
tax purposes                                       |  |      | 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  |      | 
|Accumulated rental income accrued for financial reporting purposes in excess of amounts
for income tax purposes                          |  |      | (283,302   | ) |      |   | (214,832   | )    | 
|Accumulated expenses deductible when paid for income tax purposes, accrued for financial
reporting purposes                              |  |      | 106,301    |   |      |   | 122,874    |      | 
|Partnerships distribution payable                                                                                                       |  |      | 220,905    |   |      |   | 5,519      |      | 
|Other                                                                                                                                    |  |      | 2,934      |   |      |   | 2,934      |      | 
|                                                                                                                                         |  |      |            |   |      |   |            |      | 
|Income tax basis partners capital                                                                                                       |  | $    | 18,026,739 |   |      | $ | 18,623,895 |      | 
|                                                                                                                                         |  |      |            |   |      |   |            |      | 



F-33



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



DECEMBER 31, 2002, 2001 AND 2000



NOTES TO FINANCIAL STATEMENTS (Continued)



5.    QUARTERLY RESULTS (UNAUDITED)



Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 2002 and 2001:



|                                                        |  | 2002 Quarters Ended |        
|------------------------------------------------------- |  | ------------------- | -------
|                                                        |  | March 31            |        
|Revenues (a)                                            |  | $                   | 59,160 
|Net income (loss) from continued operations (a)         |  |                     | 36,483 
|Net (loss) income from discontinued operations          |  |                     | (42,234
|Net (loss) income allocated to Class A limited partners |  |                     | (5,410 
|Net income (loss) per Class A limited partner unit      |  | $                   | 0.00   
|Distribution per Class A limited partner unit           |  | $                   | 0.00   
|                                                       
|                                                        |  | 2001 Quarters Ended |        
|                                                        |  | March 31            |        
|Revenues                                                |  | $                   | 158,728
|Net income from continued operations                    |  |                     | 138,269
|Net income from discontinued operations                 |  |                     | 8,583  
|Net income allocated to Class A limited partners        |  |                     | 146,852
|Net income per Class A limited partner unit             |  | $                   | 0.01   
|Distribution per Class A limited partner unit (b)       |  |                     | 0.02   



|(a) |  | 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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



F-34



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31, 2002



|                                  |  |           |   |  |              |  | Initial Cost |           |                            |   | Gross Amount at Which Carried at December 31, 2002 |  |      |            |                            |   |                          |  |      
|--------------------------------- |  | --------- | - |  | ------------ |  | ------------ | --------- | -------------------------- | - | -------------------------------------------------- |  | ---- | ---------- | -------------------------- | - | ------------------------ |  | -----
|Description                       |  | Ownership |   |  | Encumbrances |  | Land         |           | Buildings and Improvements |   | Costs Capitalized Subsequent to Acquisition        |  | Land |            | Buildings and Improvements |   | Construction in Progress |  | Total
|THE ATRIUM AT NASSAU BAY (a)      |  | 39        | % |  | None         |  | $            | 1,367,000 |                            | $ | 10,983,000                                         |  | $    | 3,706,398  |                            | $ | 1,504,743                |  | $    
|GREENVILLE PROPERTY (b)           |  | 100       |   |  | None         |  |              | 529,977   |                            |   |                                                   |  |      | 3,767,924  |                            |   |                         |  |      
|880 PROPERTY BROOKWOOD GRILL (c) |  | 38        |   |  | None         |  |              | 523,319   |                            |   |                                                   |  |      | 1,494,717  |                            |   | 745,223                  |  |      
|STOCKBRIDGE VILLAGE (d)           |  | 57        |   |  | None         |  |              | 2,551,645 |                            |   |                                                   |  |      | 8,003,084  |                            |   | 2,758,193                |  |      
|RECIPROCAL GROUP (e)              |  | 57        |   |  | None         |  |              | 529,546   |                            |   | 4,158,223                                          |  |      | 1,395,194  |                            |   | 573,582                  |  |      
|880 PROPERTY (f)                  |  | 9         |   |  | None         |  |              | 1,325,242 |                            |   |                                                   |  |      | 5,718,160  |                            |   | 1,325,242                |  |      
|                                  |  |           |   |  |              |  |              |           |                            |   |                                                    |  |      |            |                            |   |                          |  |      
|Total                             |  |           |   |  |              |  | $            | 6,826,729 |                            | $ | 15,141,223                                         |  | $    | 24,085,477 |                            | $ | 6,906,983                |  | $    
|                                  |  |           |   |  |              |  |              |           |                            |   |                                                    |  |      |            |                            |   |                          |  |      



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

|(b) |  | The Greenville Project is a two-story office building located in Greenville, North Carolina, owned entirely by the Partnership.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

|(c) |  | The 880 PropertyBrookwood Grill is a 7,440-square-foot restaurant located in Fulton County, Georgia. It is owned by Fund II and III Associates.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | Stockbridge Village is a 13.62-acre retail shopping center located in Stockbridge, Georgia. It is owned by Fund III and IV Associates.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

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

|(f) |  | The 880 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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-35



---

WELLS REAL ESTATE FUND III, L.P.



(A Georgia Public Limited Partnership)



SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31, 2002



|                             |  | Cost |            |   | Accumulated Depreciation |  
|---------------------------- |  | ---- | ---------- | - | ------------------------ | -
|BALANCE AT DECEMBER 31, 1999 |  | $    | 43,647,875 |   |                          | $
|2000 additions               |  |      | 432,593    |   |                          |  
|                             |  |      |            |   |                          |  
|BALANCE AT DECEMBER 31, 2000 |  |      | 44,080,468 |   |                          |  
|2001 additions               |  |      | 818,204    |   |                          |  
|2001 deletions               |  |      |           |   |                          |  
|                             |  |      |            |   |                          |  
|BALANCE AT DECEMBER 31, 2001 |  |      | 44,898,672 |   |                          |  
|2002 additions               |  |      | 1,157,545  |   |                          |  
|2002 deletions               |  |      | (4,300,689 | ) |                          |  
|                             |  |      |            |   |                          |  
|BALANCE AT DECEMBER 31, 2002 |  | $    | 41,755,528 |   |                          | $
|                             |  |      |            |   |                          |  



F-36



---



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, 2002 and 2001, and the related statements of income (loss), partners capital, and cash flows for
each of the three years in the period ended December 31, 2002. Our audit 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, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2002, 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

March 18, 2003





F-37



---



Fund II and
Fund III Associates



(A Georgia Joint
Venture)



Balance Sheets

December 31, 2002 and 2001





|                                                                                                      |  | 2002 |            | 2001
|----------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ----
|Assets                                                                                                |  |      |            |     
|Real estate assets, at cost:                                                                          |  |      |            |     
|Land                                                                                                  |  | $    | 2,249,966  |     
|Building and improvements, less accumulated depreciation of $9,082,028 in 2002 and
$8,379,922 in 2001 |  |      | 6,742,440  |     
|                                                                                                      |  |      |            |     
|Total real estate assets                                                                              |  |      | 8,992,406  |     
|Investment in joint venture                                                                           |  |      | 1,134,506  |     
|Cash and cash equivalents                                                                             |  |      | 593,655    |     
|Due from affiliate                                                                                    |  |      | 21,607     |     
|Accounts receivable, net                                                                              |  |      | 508,540    |     
|Prepaid expenses and other assets, net                                                                |  |      | 449,114    |     
|                                                                                                      |  |      |            |     
|Total assets                                                                                          |  | $    | 11,699,828 |     
|                                                                                                      |  |      |            |     
|Liabilities and Partners
Capital                                                                     |  |      |            |     
|Liabilities:                                                                                          |  |      |            |     
|Accounts payable and refundable security deposits                                                     |  | $    | 542,788    |     
|Deferred rent                                                                                         |  |      | 123,675    |     
|Partnership distributions payable                                                                     |  |      | 106,452    |     
|                                                                                                      |  |      |            |     
|Total liabilities                                                                                     |  |      | 772,915    |     
|                                                                                                      |  |      |            |     
|Partners capital:                                                                                    |  |      |            |     
|Fund II and Fund II-OW                                                                                |  |      | 6,929,986  |     
|Wells Fund III                                                                                        |  |      | 3,996,927  |     
|                                                                                                      |  |      |            |     
|Total partners capital                                                                               |  |      | 10,926,913 |     
|                                                                                                      |  |      |            |     
|Total liabilities and partners capital                                                               |  | $    | 11,699,828 |     
|                                                                                                      |  |      |            |     







See accompanying notes.



F-38



---



Fund II and
Fund III Associates



(A Georgia Joint
Venture)



Statements of Income (Loss)

For the Years Ended December 31, 2002, 2001 and 2000



|                                                     |  | 2002 |           |   | 2001 |   | 2000      | 
|---------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | 
|Revenues:                                            |  |      |           |   |      |   |           | 
|Rental income                                        |  | $    | 912,106   |   |      | $ | 1,704,954 | 
|Reimbursement Income                                 |  |      | 84,091    |   |      |   | 296,923   | 
|Equity in income of joint venture                    |  |      | 40,771    |   |      |   | 63,326    | 
|Other income                                         |  |      | 1,730     |   |      |   | 10,310    | 
|                                                     |  |      |           |   |      |   |           | 
|                                                     |  |      | 1,038,698 |   |      |   | 2,075,513 | 
|                                                     |  |      |           |   |      |   |           | 
|Expenses:                                            |  |      |           |   |      |   |           | 
|Depreciation                                         |  |      | 702,105   |   |      |   | 828,677   | 
|Bad debt expense                                     |  |      | (31,036   | ) |      |   | 31,036    | 
|Operating costs                                      |  |      | 646,988   |   |      |   | 885,680   | 
|Management and leasing fees                          |  |      | 167,621   |   |      |   | 219,651   | 
|Joint Venture administration                         |  |      | 106,966   |   |      |   | 51,916    | 
|Legal and accounting                                 |  |      | 37,794    |   |      |   | 12,512    | 
|                                                     |  |      |           |   |      |   |           | 
|                                                     |  |      | 1,630,438 |   |      |   | 2,029,472 | 
|                                                     |  |      |           |   |      |   |           | 
|Net income (loss)                                    |  | $    | (591,740  | ) |      | $ | 46,041    | 
|                                                     |  |      |           |   |      |   |           | 
|Net income (loss) allocated to Fund II andFund II-OW |  | $    | (361,015  | ) |      | $ | 30,115    | 
|                                                     |  |      |           |   |      |   |           | 
|Net income (loss) allocated to Wells Fund III        |  | $    | (230,725  | ) |      | $ | 15,926    | 
|                                                     |  |      |           |   |      |   |           | 







See accompanying notes.



F-39



---



Fund II and
Fund III Associates



(A Georgia Joint
Venture)



Statements of Partners
Capital

For the Years Ended December 31, 2002, 2001 and 2000



|                           |  | Fund II and Fund II-OW |           |   | Wells Fund III |   |           | Total Partners Capital | 
|-------------------------- |  | ---------------------- | --------- | - | -------------- | - | --------- | ----------------------- | 
|Balance, December 31, 1999 |  | $                      | 7,543,123 |   |                | $ | 4,375,948 |                         | 
|Net loss                   |  |                        | (85,546   | ) |                |   | (57,337   | )                       | 
|Partnership distributions  |  |                        | (590,297  | ) |                |   | (366,179  | )                       | 
|                           |  |                        |           |   |                |   |           |                         | 
|Balance, December 31, 2000 |  |                        | 6,867,280 |   |                |   | 3,952,432 |                         | 
|Net income                 |  |                        | 30,115    |   |                |   | 15,926    |                         | 
|Partnership distributions  |  |                        | (630,805  | ) |                |   | (392,274  | )                       | 
|                           |  |                        |           |   |                |   |           |                         | 
|Balance, December 31, 2001 |  |                        | 6,266,590 |   |                |   | 3,576,084 |                         | 
|Net loss                   |  |                        | (361,015  | ) |                |   | (230,725  | )                       | 
|Partnership contributions  |  |                        | 1,200,499 |   |                |   | 757,898   |                         | 
|Partnership distributions  |  |                        | (176,088  | ) |                |   | (106,330  | )                       | 
|                           |  |                        |           |   |                |   |           |                         | 
|Balance, December 31, 2002 |  | $                      | 6,929,986 |   |                | $ | 3,996,927 |                         | 
|                           |  |                        |           |   |                |   |           |                         | 







See accompanying notes.



F-40



---

Fund II and Fund III Associates



(A Georgia Joint Venture)



Statements of Cash Flows

For the Years Ended December 31, 2002, 2001 and 2000



|                                                                                         |  | 2002 |            |   | 2001 |   |            | 2000 | 
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|Cash flows from operating activities:                                                    |  |      |            |   |      |   |            |      | 
|Net (loss) income                                                                        |  | $    | (591,740   | ) |      | $ | 46,041     |      | 
|                                                                                         |  |      |            |   |      |   |            |      | 
|Adjustments to reconcile net (loss) income to net cash provided by operating
activities: |  |      |            |   |      |   |            |      | 
|Depreciation                                                                             |  |      | 702,105    |   |      |   | 828,677    |      | 
|Amortization of deferred lease acquisition costs                                         |  |      | 102,517    |   |      |   | 95,313     |      | 
|Equity in income of joint venture                                                        |  |      | (40,771    | ) |      |   | (63,326    | )    | 
|Changes in assets and liabilities:                                                       |  |      |            |   |      |   |            |      | 
|Accounts receivable, net                                                                 |  |      | (494,267   | ) |      |   | 47,643     |      | 
|Prepaid expenses and other assets, net                                                   |  |      | 46,713     |   |      |   | (47,712    | )    | 
|Accounts payable, refundable security deposits, and deferred rent                        |  |      | 563,545    |   |      |   | (5,983     | )    | 
|Due to affiliates                                                                        |  |      |           |   |      |   | (917       | )    | 
|                                                                                         |  |      |            |   |      |   |            |      | 
|Total adjustments                                                                        |  |      | 879,842    |   |      |   | 853,695    |      | 
|                                                                                         |  |      |            |   |      |   |            |      | 
|Net cash provided by operating activities                                                |  |      | 288,102    |   |      |   | 899,736    |      | 
|Cash flows from investing activities:                                                    |  |      |            |   |      |   |            |      | 
|Distributions received from joint venture                                                |  |      | 127,276    |   |      |   | 195,783    |      | 
|Expenditures for deferred lease acquisition costs                                        |  |      | (516,202   | ) |      |   |           |      | 
|Investment in real estate assets                                                         |  |      | (1,089,770 | ) |      |   | (73,696    | )    | 
|                                                                                         |  |      |            |   |      |   |            |      | 
|Net cash (used in) provided by investing activities                                      |  |      | (1,478,696 | ) |      |   | 122,087    |      | 
|Cash flows from financing activities:                                                    |  |      |            |   |      |   |            |      | 
|Contributions from joint venture partners                                                |  |      | 1,958,397  |   |      |   |           |      | 
|Distributions to joint venture partners                                                  |  |      | (408,374   | ) |      |   | (1,085,426 | )    | 
|                                                                                         |  |      |            |   |      |   |            |      | 
|Net cash provided by (used in) financing activities                                      |  |      | 1,550,023  |   |      |   | (1,085,426 | )    | 
|Net increase (decrease) in cash and cash equivalents                                     |  |      | 359,429    |   |      |   | (63,603    | )    | 
|Cash and cash equivalents, beginning of year                                             |  |      | 234,226    |   |      |   | 297,829    |      | 
|                                                                                         |  |      |            |   |      |   |            |      | 
|Cash and cash equivalents, end of year                                                   |  | $    | 593,655    |   |      | $ | 234,226    |      | 
|                                                                                         |  |      |            |   |      |   |            |      | 
|SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:                                          |  |      |            |   |      |   |            |      | 
|Partnership distributions payable                                                        |  | $    | 106,452    |   |      | $ | 232,408    |      | 
|                                                                                         |  |      |            |   |      |   |            |      | 
|Write-off of fully amortized deferred leasing costs                                      |  | $    | 54,351     |   |      | $ |           |      | 
|                                                                                         |  |      |            |   |      |   |            |      | 







See accompanying notes.



F-41



---



Fund II and
Fund III Associates



(A Georgia Joint
Venture)



Notes to Financial Statements



December 31, 2002, 2001 and 2000



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 agreement 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 the Atrium property, a four-story office building located in Houston Texas. In
1991, Fund II and II-OW contributed its interest in a 5.8-acre of land known as 880 Holcomb Bridge located in Roswell, Georgia, to the Joint Venture. A restaurant was developed on 1.5 acres of 880 Holcomb Bridge and is currently operating as the
Brookwood Grill restaurant. During 1995, the remaining 4.3 acres of 880 Holcomb Bridge 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 VI). 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.





Basis of Presentation



The Joint Venture does not control the operations of Fund II, III, VI and VII
Associates. Accordingly, the Joint Ventures investment in Fund II, III, VI and VII Associates is 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, as further described in Note 4.





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.



F-42



---

Fund II and Fund III Associates



(A Georgia Joint Venture)



Notes to Financial Statements (Continued)



Allocation of Income and Distributions



Pursuant to the terms of the joint venture agreement, all income and
distributions are allocated to Wells Fund II, Wells Fund IIOW, and Wells Fund III in accordance with their respective ownership interests. 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.



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.





Prepaid Expenses and Other Assets, net



Prepaid expenses and other assets, net, as of December 31, 2002 and 2001 is
comprised of the following balances:



|                             |  | 2002 |         | 2001
|---------------------------- |  | ---- | ------- | ----
|Deferred leasing costs, net  |  | $    | 448,114 |     
|Prepaid expenses             |  |      |        |     
|Refundable security deposits |  |      | 1,000   |     
|                             |  |      |         |     
|Total                        |  | $    | 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 $516,810 and $468,644 as of
December 31, 2002 and 2001, 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.





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.



F-43



---

Fund II and Fund III Associates



(A Georgia Joint Venture)



Notes to Financial Statements (Continued)



Accounts Receivable, Net



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. Allowances of $0 and $31,036 have been recorded as of
December 31, 2002 and 2001, respectively.





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



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 $167,621, $219,651 and $210,355 for the years ended December 31, 2002, 2001 and 2000, respectively.



Wells Capital, Inc. and its affiliates perform certain administrative services for the various Wells Real Estate Funds and joint ventures, such as
accounting and other general administration, and incur the related expenses. Such expenses are allocated among these entities based on time spent on each entity by individual personnel. During 2002, 2001 and 2000, the Joint Venture reimbursed
$106,966, $51,916 and $28,860, respectively, to Wells Capital, Inc. and its affiliates for these services.



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.



F-44



---

Fund II and Fund III Associates



(A Georgia Joint Venture)



Notes to Financial Statements (Continued)



3.    RENTAL INCOME



The future minimum rental income due the Joint Venture under noncancelable
operating leases at December 31, 2002 is as follows:



|Year ending December 31: |  |             
|------------------------ |  | ------------
|2003                     |  | $  1,903,121
|2004                     |  | 1,908,653   
|2005                     |  | 1,914,329   
|2006                     |  | 1,920,137   
|2007                     |  | 1,926,101   
|Thereafter               |  | 1,506,672   
|                         |  |             
|                         |  | $11,079,013 
|                         |  |             



One tenant contributed
100% of rental income for the year ended December 31, 2002 and will contribute 100% of future minimum rental income.



4.    INVESTMENT IN UNCONSOLIDATED JOINT VENTURE



The following information summarizes the financial position of Fund II, III, VI and VII Associates as of December 31, 2002
and 2001, and the results of operations for the years ended December 31, 2002, 2001 and 2000:



|                                    |  | Total Assets |  | Total Liabilities |  | Total Equity |  | Joint Ventures Investment
|----------------------------------- |  | ------------ |  | ----------------- |  | ------------ |  | --------------------------
|                                    |  | 2002         |  | 2001              |  | 2002         |  | 2001                      
|Fund II, III, VI and VII Associates |  | $4,976,432   |  | $5,339,398        |  | $135,338     |  | $184,175                  
|                                    |  |              |  |                   |  |              |  |                           



|                                    |  | Total Revenues |         | Net Income |   | Joint Ventures Share of Net Income
|----------------------------------- |  | -------------- | ------- | ---------- | - | -----------------------------------
|                                    |  | 2002           |         | 2001       |   | 2000                               
|Fund II, III, VI and VII Associates |  | $              | 714,630 |            | $ | 962,601                            
|                                    |  |                |         |            |   |                                    



F-45



---



FUND II AND
FUND III ASSOCIATES



(A Georgia Joint
Venture)



SCHEDULE IIIREAL ESTATE AND
ACCUMULATED DEPRECIATION



DECEMBER 31, 2002



|                         |  |              |  | Initial Cost |           |                            |   | Gross Amount at Which Carried at December 31, 2002 |  |      |           |                            |   |                          |  |      
|------------------------ |  | ------------ |  | ------------ | --------- | -------------------------- | - | -------------------------------------------------- |  | ---- | --------- | -------------------------- | - | ------------------------ |  | -----
|Description              |  | Encumbrances |  | Land         |           | Buildings and Improvements |   | Costs Capitalized Subsequent To Acquisition        |  | Land |           | Buildings and Improvements |   | Construction in Progress |  | Total
|BROOKWOOD GRILL (a)      |  | None         |  | $            | 523,319   |                            | $ |                                                   |  | $    | 1,494,717 |                            | $ | 745,223                  |  | $    
|BOEING AT THE ATRIUM (b) |  | None         |  |              | 1,367,000 |                            |   | 10,983,000                                         |  |      | 3,706,398 |                            |   | 1,504,743                |  |      
|                         |  |              |  |              |           |                            |   |                                                    |  |      |           |                            |   |                          |  |      
|Total                    |  |              |  | $            | 1,890,319 |                            | $ | 10,983,000                                         |  | $    | 5,201,115 |                            | $ | 2,249,966                |  | $    
|                         |  |              |  |              |           |                            |   |                                                    |  |      |           |                            |   |                          |  |      



|(a) |  | Brookwood Grill is a 7,440-square-foot 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.
|--- |  | ---------------------------------------------------------------------------------------------------------------



F-46



---



FUND II AND
FUND III ASSOCIATES



(A Georgia Joint
Venture)



SCHEDULE IIIREAL ESTATE AND
ACCUMULATED DEPRECIATION



DECEMBER 31, 2002



|                             |  | Cost |            | Accumulated Depreciation
|---------------------------- |  | ---- | ---------- | ------------------------
|BALANCE AT DECEMBER 31, 1999 |  | $    | 16,852,768 |                         
|2000 additions               |  |      | 58,200     |                         
|                             |  |      |            |                         
|BALANCE AT DECEMBER 31, 2000 |  |      | 16,910,968 |                         
|2001 additions               |  |      | 73,696     |                         
|                             |  |      |            |                         
|BALANCE AT DECEMBER 31, 2001 |  |      | 16,984,664 |                         
|2002 additions               |  |      | 1,089,770  |                         
|                             |  |      |            |                         
|BALANCE AT DECEMBER 31, 2002 |  | $    | 18,074,434 |                         
|                             |  |      |            |                         



F-47



---



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, 2002 and 2001, and the
related statements of income, partners capital, and cash flows for each of the three years in the period ended December 31, 2002. Our audit 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, 2002 and 2001, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2002, 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

March 18, 2003





F-48



---

Fund III and Fund IV Associates



(A Georgia Joint Venture)



Balance Sheets

December 31, 2002 and 2001



|                                                                                                      |  | 2002 |            | 2001
|----------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ----
|Assets                                                                                                |  |      |            |     
|Real estate assets, at cost:                                                                          |  |      |            |     
|Land                                                                                                  |  | $    | 3,331,775  |     
|Building and improvements, less accumulated depreciation of $5,261,362 in 2002 and
$4,597,822 in 2001 |  |      | 8,044,556  |     
|                                                                                                      |  |      |            |     
|Total real estate assets                                                                              |  |      | 11,376,331 |     
|Cash and cash equivalents                                                                             |  |      | 361,251    |     
|Other assets, net                                                                                     |  |      | 290,534    |     
|Accounts receivable                                                                                   |  |      | 131,297    |     
|                                                                                                      |  |      |            |     
|Total assets                                                                                          |  | $    | 12,159,413 |     
|                                                                                                      |  |      |            |     
|Liabilities and Partners
Capital                                                                     |  |      |            |     
|Liabilities:                                                                                          |  |      |            |     
|Partnership distributions payable                                                                     |  | $    | 351,517    |     
|Accounts payable and refundable security deposits                                                     |  |      | 52,618     |     
|Due to affiliates                                                                                     |  |      |           |     
|                                                                                                      |  |      |            |     
|Total liabilities                                                                                     |  |      | 404,135    |     
|                                                                                                      |  |      |            |     
|Partners capital:                                                                                    |  |      |            |     
|Wells Fund III                                                                                        |  |      | 6,725,376  |     
|Wells Fund IV                                                                                         |  |      | 5,029,902  |     
|                                                                                                      |  |      |            |     
|Total partners capital                                                                               |  |      | 11,755,278 |     
|                                                                                                      |  |      |            |     
|Total liabilities and partners capital                                                               |  | $    | 12,159,413 |     
|                                                                                                      |  |      |            |     







See accompanying notes



F-49



---

Fund III and Fund IV Associates



(A Georgia Joint Venture)



Statements of Income

For the Years Ended December 31, 2002, 2001 and 2000



|                                 |  | 2002 |           | 2001 |   | 2000     
|-------------------------------- |  | ---- | --------- | ---- | - | ---------
|Revenues:                        |  |      |           |      |   |          
|Rental income                    |  | $    | 1,855,981 |      | $ | 1,864,868
|Reimbursement income             |  |      | 223,261   |      |   | 255,016  
|Interest income                  |  |      | 4,138     |      |   | 450      
|Other income                     |  |      |          |      |   | 22,917   
|                                 |  |      |           |      |   |          
|                                 |  |      | 2,083,380 |      |   | 2,143,251
|                                 |  |      |           |      |   |          
|Expenses:                        |  |      |           |      |   |          
|Depreciation                     |  |      | 663,540   |      |   | 616,956  
|Management and leasing fees      |  |      | 165,362   |      |   | 168,643  
|Operating costs                  |  |      | 300,791   |      |   | 282,947  
|Joint Venture administration     |  |      | 47,570    |      |   | 35,541   
|Legal and accounting             |  |      | 25,220    |      |   | 14,515   
|                                 |  |      |           |      |   |          
|                                 |  |      | 1,202,483 |      |   | 1,118,602
|                                 |  |      |           |      |   |          
|Net income                       |  | $    | 880,897   |      | $ | 1,024,649
|                                 |  |      |           |      |   |          
|Net income allocated to Fund III |  | $    | 503,975   |      | $ | 586,219  
|                                 |  |      |           |      |   |          
|Net income allocated to Fund IV  |  | $    | 376,922   |      | $ | 438,430  
|                                 |  |      |           |      |   |          







See accompanying notes.



F-50



---



Fund III and
Fund IV Associates



(A Georgia Joint
Venture)



Statements of Partners
Capital

For the Years Ended December 31, 2002, 2001 and 2000



|                           |  | Fund III |           |   | Fund IV |   |           | Total Partners Capital | 
|-------------------------- |  | -------- | --------- | - | ------- | - | --------- | ----------------------- | 
|Balance, December 31, 1999 |  | $        | 6,993,642 |   |         | $ | 5,230,514 |                         | 
|Net income                 |  |          | 289,542   |   |         |   | 216,547   |                         | 
|Partnership contributions  |  |          | 216,683   |   |         |   | 162,058   |                         | 
|Partnership distributions  |  |          | (589,377  | ) |         |   | (440,790  | )                       | 
|                           |  |          |           |   |         |   |           |                         | 
|Balance, December 31, 2000 |  |          | 6,910,490 |   |         |   | 5,168,329 |                         | 
|Net income                 |  |          | 586,219   |   |         |   | 438,430   |                         | 
|Partnership contributions  |  |          | 502,342   |   |         |   | 375,720   |                         | 
|Partnership distributions  |  |          | (919,618  | ) |         |   | (687,778  | )                       | 
|                           |  |          |           |   |         |   |           |                         | 
|Balance, December 31, 2001 |  |          | 7,079,433 |   |         |   | 5,294,701 |                         | 
|Net income                 |  |          | 503,975   |   |         |   | 376,922   |                         | 
|Partnership distributions  |  |          | (858,032  | ) |         |   | (641,721  | )                       | 
|                           |  |          |           |   |         |   |           |                         | 
|Balance, December 31, 2002 |  | $        | 6,725,376 |   |         | $ | 5,029,902 |                         | 
|                           |  |          |           |   |         |   |           |                         | 



See
accompanying notes.





F-51



---



Fund III and
Fund IV Associates



(A Georgia Joint
Venture)



Statements of Cash Flows

For the Years Ended December 31, 2002, 2001 and 2000



|                                                                                  |  | 2002 |            |   | 2001 |   |            | 2000 | 
|--------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- | 
|Cash flows from operating activities:                                             |  |      |            |   |      |   |            |      | 
|Net income                                                                        |  | $    | 880,897    |   |      | $ | 1,024,649  |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |      |            |   |      |   |            |      | 
|Depreciation                                                                      |  |      | 663,540    |   |      |   | 616,956    |      | 
|Amortization of deferred lease acquisition costs                                  |  |      | 58,442     |   |      |   | 41,831     |      | 
|Changes in assets and liabilities:                                                |  |      |            |   |      |   |            |      | 
|Accounts receivable, net                                                          |  |      | 82,702     |   |      |   | (83,773    | )    | 
|Other assets, net                                                                 |  |      | (15,200    | ) |      |   | 517        |      | 
|Accounts payable and refundable security deposits                                 |  |      | 12,953     |   |      |   | (1,231     | )    | 
|Due to affiliates                                                                 |  |      | (3,406     | ) |      |   | 1,536      |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Total adjustments                                                                 |  |      | 799,031    |   |      |   | 575,836    |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Net cash provided by operating activities                                         |  |      | 1,679,928  |   |      |   | 1,600,485  |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Cash flows from investing activities:                                             |  |      |            |   |      |   |            |      | 
|Investment in deferred lease acquisition costs                                    |  |      | (12,245    | ) |      |   | (172,157   | )    | 
|Investment in real estate                                                         |  |      | (64,983    | ) |      |   | (719,893   | )    | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Net cash used in investing activities                                             |  |      | (77,228    | ) |      |   | (892,050   | )    | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Cash flows from financing activities:                                             |  |      |            |   |      |   |            |      | 
|Contributions from joint venture partners                                         |  |      |           |   |      |   | 878,062    |      | 
|Distributions to joint venture partners                                           |  |      | (1,556,774 | ) |      |   | (1,376,276 | )    | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Net cash used in financing activities                                             |  |      | (1,556,774 | ) |      |   | (498,214   | )    | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Net increase (decrease) in cash and cash equivalents                              |  |      | 45,926     |   |      |   | 210,221    |      | 
|Cash and cash equivalents, beginning of year                                      |  |      | 315,325    |   |      |   | 105,104    |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|Cash and cash equivalents, end of year                                            |  | $    | 361,251    |   |      | $ | 315,325    |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|                                                                                 
|SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:                                  |  |      |            |   |      |   |            |      | 
|                                                                                 
|Partnership distributions payable                                                 |  | $    | 351,517    |   |      | $ | 408,538    |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 
|                                                                                 
|Write-off of fully amortized deferred leasing costs                               |  | $    | 10,708     |   |      | $ | 36,947     |      | 
|                                                                                  |  |      |            |   |      |   |            |      | 



See
accompanying notes





F-52



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Fund III and
Fund IV Associates



(A Georgia Joint
Venture)



Notes to Financial Statements



December 31, 2002, 2001, and 2000



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, Inc. 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 Shopping Center, a 64,097 building
located on 13.62 acres of real property in Stockbridge, Georgia. In July 1992, the Joint Venture also acquired 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.



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.



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. 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



F-53



---



Fund III and
Fund IV Associates



(A Georgia Joint
Venture)



Notes to Financial Statements



December 31, 2002, 2001, and 2000
(Continued)



calculated using the straight-line method over
25 years. Tenant improvements are amortized over the life of the related lease or real estate asset.



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.



Other Assets, net



As of
December 31, 2002 and 2001, other assets, net is comprised of the following items:



|                             |  | 2002 |         | 2001
|---------------------------- |  | ---- | ------- | ----
|Deferred leasing costs, net  |  | $    | 251,052 |     
|Refundable security deposits |  |      | 39,482  |     
|                             |  |      |         |     
|Total                        |  | $    | 290,534 |     
|                             |  |      |         |     



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 are presented net of accumulated amortization of $322,581 and $285,554
as of December 31, 2002 and 2001, 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.



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.



Accounts Receivable, Net



Accounts receivable, net 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. Allowances of $0 and $13,444 are included in
accounts receivable, net, as of December 31, 2002 and 2001, respectively.



F-54



---

Fund III and Fund IV Associates



(A Georgia Joint Venture)



Notes to Financial Statements



December 31, 2002, 2001, and 2000 (Continued)



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.



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% 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 $165,362, $168,643
and $134,283 for the years ended December 31, 2002, 2001 and 2000, respectively.



Wells Capital, Inc. and its affiliates perform certain administrative services for the various Wells Real Estate Funds and joint ventures, such as accounting and other general administration, and incur the related expenses. Such
expenses are allocated among these entities based on time spent on each entity by individual personnel. During 2002, 2001 and 2000, the Joint Venture reimbursed $47,570, $35,541 and $39,875, 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.    RENTAL INCOME



The future minimum rental income due the Joint Venture under noncancelable operating leases at December 31, 2002 is as follows:



|Year ending December 31: |  |   |           
|------------------------ |  | - | ----------
|2003                     |  | $ | 1,724,002 
|2004                     |  |   | 1,665,332 
|2005                     |  |   | 1,586,752 
|2006                     |  |   | 1,542,813 
|2006                     |  |   | 1,392,424 
|Thereafter               |  |   | 2,696,460 
|                         |  |   |           
|                         |  | $ | 10,607,783
|                         |  |   |           





F-55



---

Fund III and Fund IV Associates



(A Georgia Joint Venture)



Notes to Financial Statements



December 31, 2002, 2001 and 2000 (Continued)





Two tenants contributed
approximately 29% and 27% of rental income for the year ended December 31, 2002. In addition, two tenants will contribute approximately 41% and 34% of future minimum rental income.





4.    SUBSEQUENT EVENT



On March 18, 2003, the Joint Venture, along with three
other 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 sales price of $23,750,000. Contemporaneously with the Purchasers execution and delivery of the Agreement to the Seller, the Purchaser paid a fully refundable earnest
money deposit of $250,000 to the designated escrow agent. This transaction is currently subject to a due diligence period of 60 days, during which the Purchaser has the right to terminate the Agreement. Accordingly, there are no assurances that this
sale will close.



|(Collectively, the Seller) The Joint Ventures |  | Joint Venture Partners                                                     |  | Sale Properties                                                                                                                                                                       
|----------------------------------------------- |  | -------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Fund III and Fund IV Associates                 |  |    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                                                                                                                    



F-56



---

FUND III AND FUND IV ASSOCIATES



(A Georgia Joint Venture)



SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31, 2002



|                               |  |              |  | Initial Cost |           |                            |   | Gross Amount at Which Carried at December 31, 2002 |  |      |           |                            |   |                          |  |      
|------------------------------ |  | ------------ |  | ------------ | --------- | -------------------------- | - | -------------------------------------------------- |  | ---- | --------- | -------------------------- | - | ------------------------ |  | -----
|                               |  |              |  |              |           |                            |   |                                                    |  |      |           |                            |   |                          |  |      
|Description                    |  | Encumbrances |  | Land         |           | Buildings and Improvements |   | Costs Capitalized Subsequent To Acquisition        |  | Land |           | Buildings and Improvements |   | Construction in Progress |  | Total
|STOCKBRIDGE VILLAGE CENTER (a) |  | None         |  | $            | 2,551,645 |                            | $ |                                                   |  | $    | 8,003,084 |                            | $ | 2,758,193                |  | $    
|RECIPROCAL GROUP BUILDING (b)  |  | None         |  |              | 529,546   |                            |   | 4,158,223                                          |  |      | 1,395,194 |                            |   | 573,582                  |  |      
|                               |  |              |  |              |           |                            |   |                                                    |  |      |           |                            |   |                          |  |      
|Total                          |  |              |  | $            | 3,081,191 |                            | $ | 4,158,223                                          |  | $    | 9,398,278 |                            | $ | 3,331,775                |  | $    
|                               |  |              |  |              |           |                            |   |                                                    |  |      |           |                            |   |                          |  |      



|(a) |  | A retail shopping center located in Stockbridge, Georgia
|--- |  | --------------------------------------------------------

|(b) |  | The A two-story office building located in Richmond, Virginia
|--- |  | -------------------------------------------------------------

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



F-57



---

FUND III AND FUND IV ASSOCIATES



(A Georgia Joint Venture)



SCHEDULE IIIREAL ESTATE AND ACCUMULATED DEPRECIATION



DECEMBER 31, 2002



|                             |  | Cost |            | Accumulated Depreciation
|---------------------------- |  | ---- | ---------- | ------------------------
|BALANCE AT DECEMBER 31, 1999 |  | $    | 15,547,290 |                         
|2000 additions               |  |      | 305,527    |                         
|                             |  |      |            |                         
|BALANCE AT DECEMBER 31, 2000 |  |      | 15,852,817 |                         
|2001 additions               |  |      | 719,893    |                         
|                             |  |      |            |                         
|BALANCE AT DECEMBER 31, 2001 |  |      | 16,572,710 |                         
|2002 additions               |  |      | 64,983     |                         
|                             |  |      |            |                         
|BALANCE AT DECEMBER 31, 2002 |  | $    | 16,637,693 |                         
|                             |  |      |            |                         



F-58