##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



---



(Mark One)



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



For the quarterly period ended September 30, 2005 or



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



For the transition period from
 to



Commission file number 0-18407



---



WELLS REAL ESTATE FUND III, L.P.

(Exact name of registrant as specified in
its charter)



---



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58-1800833                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|6200 The Corners Pkwy., Norcross, Georgia                      |  | 30092-3365                             
|(Address of principal executive offices)                       |  | (Zip Code)                             
|                                                               | 
|Registrants telephone number, including area code             |  | (770) 449-7800                         



N/A

---

(Former name, former address, and former fiscal year, if changed since last report)



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 ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ̈No  x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).

Yes ̈No  x



---



---

##### Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



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



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



General economic risks



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



| |  |  | Adverse economic conditions affecting the particular industry of one or more tenants in properties owned by our joint ventures;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



Enterprise risks



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



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



| |  |  | Our ability to liquidate and dissolve the Partnership in a timely manner, to fund related administrative costs, and to minimize such costs;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



Real estate risks



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



| |  |  | Supply of or demand for similar or competing rentable space, which may adversely impact retaining or obtaining new tenants upon lease expiration at acceptable rental amounts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Page 2



---

##### Table of Contents

| |  |  | Increases in property operating expenses, including property taxes, insurance, and other costs not recoverable from tenants;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | Our ability to fund foreseen and unforeseen capital expenditures, including those related to tenant build-out projects, tenant improvements, and lease-up costs, out of operating
cash flow or net property sale proceeds;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to sell a property when desirable at an acceptable return, including the ability of the purchaser to satisfy any and all closing conditions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



Other operational risks



| |  |  | Our reliance on Wells Management Company, Inc. (Wells Management) or third parties to manage our properties;
| | - |  | --------------------------------------------------------------------------------------------------------------



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



| |  |  | Our ability to comply with governmental, tax, real estate, environmental, and zoning laws or regulations and funding the related costs of compliance; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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



Page 3



---

##### Table of Contents

WELLS REAL ESTATE FUND III, L.P.





TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                               |  |         
|-------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                               |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                          |  |         
|         |  |                       | 
|         |  |                       |  | Balance SheetsSeptember 30, 2005 (unaudited) and December 31, 2004                                                           |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Nine Months Ended September 30, 2005 (unaudited) and 2004 (unaudited)       |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2004 and the Nine Months Ended September 30, 2005 (unaudited) |  | 8       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Nine Months Ended September 30, 2005 (unaudited) and 2004 (unaudited)                        |  | 9       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                           |  | 10      
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 15      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                    |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                       |  | 22      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                             |  | 23      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |  | 23      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                               |  | 23      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 23      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                             |  | 23      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                      |  | 23      



Page 4



---

##### Table of Contents

PART I.    FINANCIAL STATEMENTS



The information furnished in the Partnerships accompanying balance sheets and consolidated statements of operations, partners capital, and cash flows reflects all adjustments that are, in managements opinion, necessary for
a fair and consistent presentation of the aforementioned financial statements.



The financial statements should be read in conjunction with the notes to the Partnerships financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included both in this report
on Form 10-Q and in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2004. The Partnerships results of operations for the three months and nine months ended September 30, 2005 are not necessarily indicative of
the operating results expected for the full year.



Page 5



---

##### Table of Contents

WELLS REAL ESTATE FUND III, L.P.





BALANCE SHEETS



ASSETS



|                                                |  |                               |           |                   |   |          
|----------------------------------------------- |  | ----------------------------- | --------- | ----------------- | - | ---------
|                                                |  | September 30, 2005(unaudited) |           | December 31, 2004
|Investment in joint ventures                    |  | $                             | 2,563,455 |                   | $ | 5,260,006
|Cash and cash equivalents                       |  |                               | 5,021,703 |                   |   | 2,184,474
|Due from joint ventures                         |  |                               | 45,674    |                   |   | 181,462  
|                                                |  |                               |           |                   |   |          
|Total assets                                    |  | $                             | 7,630,832 |                   | $ | 7,625,942
|                                                |  |                               |           |                   |   |          
|                                               
|LIABILITIES AND PARTNERS CAPITAL              
|                                                |  |                              
|LIABILITIES:                                    |  |                               |           |                   |   |          
|Accounts payable and accrued expenses           |  | $                             | 9,122     |                   | $ | 16,033   
|Due to affiliates                               |  |                               | 6,735     |                   |   | 6,370    
|                                                |  |                               |           |                   |   |          
|Total liabilities                               |  |                               | 15,857    |                   |   | 22,403   
|                                                |  |                              
|PARTNERS CAPITAL:                              |  |                               |           |                   |   |          
|Limited partners:                               |  |                               |           |                   |   |          
|Class A19,635,965 units issued and outstanding |  |                               | 7,554,595 |                   |   | 7,603,539
|Class B2,544,540 units issued and outstanding  |  |                               | 60,380    |                   |   | 0        
|General partners                                |  |                               | 0         |                   |   | 0        
|                                                |  |                               |           |                   |   |          
|Total partners capital                         |  |                               | 7,614,975 |                   |   | 7,603,539
|                                                |  |                               |           |                   |   |          
|Total liabilities and partners capital         |  | $                             | 7,630,832 |                   | $ | 7,625,942
|                                                |  |                               |           |                   |   |          



See accompanying notes.



Page 6



---

##### Table of Contents

WELLS REAL ESTATE FUND III, L.P.





STATEMENTS OF OPERATIONS

(unaudited)



|                                                |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|----------------------------------------------- |  | -------------------------------- | ------- | ------------------------------- | ---- | - | ------- |  | ---- | ------- |  | - | ---------
|                                                |  | Three Months Ended September 30, |         | Nine Months Ended September 30,
|                                                |  | 2005                             |         |                                 | 2004 |   | 2005    |  | 2004
|EQUITY IN INCOME (LOSS) OF JOINT VENTURES       |  | $                                | (28,481 | )                               |      | $ | 459,149 |  | $    | 905,159 |  | $ | 3,251,834
|                                                |  |                                  |         |                                
|EXPENSES:                                       |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|Partnership administration                      |  |                                  | 31,700  |                                 |      |   | 32,474  |  |      | 106,944 |  |   | 108,083  
|Legal and accounting                            |  |                                  | 24,412  |                                 |      |   | 15,899  |  |      | 48,011  |  |   | 36,064   
|                                                |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|Total expenses                                  |  |                                  | 56,112  |                                 |      |   | 48,373  |  |      | 154,955 |  |   | 144,147  
|                                                |  |                                  |         |                                
|INTEREST AND OTHER INCOME                       |  |                                  | 10,882  |                                 |      |   | 17,722  |  |      | 36,232  |  |   | 22,916   
|                                                |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|NET INCOME (LOSS)                               |  | $                                | (73,711 | )                               |      | $ | 428,498 |  | $    | 786,436 |  | $ | 3,130,603
|                                                |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|NET INCOME (LOSS) ALLOCATED TO LIMITEDPARTNERS: |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|CLASS A                                         |  | $                                | (4,777  | )                               |      | $ | 418,562 |  | $    | 637,148 |  | $ | 2,561,161
|                                                |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|CLASS B                                         |  | $                                | (68,934 | )                               |      | $ | 9,936   |  | $    | 149,288 |  | $ | 569,442  
|                                                |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|NET INCOME (LOSS) PER LIMITED PARTNER UNIT:     |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|CLASS A                                         |  | $                                | 0.00    |                                 |      | $ | 0.02    |  | $    | 0.03    |  | $ | 0.13     
|                                                |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          
|CLASS B                                         |  | $                                | (0.03   | )                               |      | $ | 0.00    |  | $    | 0.06    |  | $ | 0.22     
|                                                |  |                                  |         |                                 |      |   |         |  |      |         |  |   |          



See accompanying notes.



Page 7



---

##### Table of Contents

WELLS REAL ESTATE FUND III, L.P.





STATEMENTS OF PARTNERS CAPITAL



FOR THE YEAR ENDED DECEMBER 31, 2004

AND THE NINE MONTHS ENDED SEPTEMBER 30, 2005 (unaudited)



|                                                                                                     |  |                  |  |         |                  |   |                         |           |         |   |          |   |  |   |   |  |   |            |  
|---------------------------------------------------------------------------------------------------- |  | ---------------- |  | ------- | ---------------- | - | ----------------------- | --------- | ------- | - | -------- | - |  | - | - |  | - | ---------- | -
|                                                                                                     |  | Limited Partners |  |         | General Partners |   | Total Partners Capital |          
|                                                                                                     |  | Class A          |  |         | Class B          |   |                         |          
|                                                                                                     |  | Units            |  | Amounts |                  |   | Units                   |           | Amounts |   |          |  
|BALANCE, December 31, 2003                                                                           |  | 19,635,965       |  | $       | 12,431,705       |   |                         | 2,544,540 |         | $ | 0        |   |  | $ | 0 |  | $ | 12,431,705 |  
|                                                                                                     |  |                  |  |         |                  |  
|Net income                                                                                           |  | 0                |  |         | 2,289,224        |   |                         | 0         |         |   | 852,617  |   |  |   | 0 |  |   | 3,141,841  |  
|Distributions of net sale proceeds ($0.36 and $0.34 per Class A Unit and Class B Unit, respectively) |  | 0                |  |         | (7,117,390       | ) |                         | 0         |         |   | (852,617 | ) |  |   | 0 |  |   | (7,970,007 | )
|                                                                                                     |  |                  |  |         |                  |   |                         |           |         |   |          |   |  |   |   |  |   |            |  
|BALANCE, December 31,2004                                                                            |  | 19,635,965       |  |         | 7,603,539        |   |                         | 2,544,540 |         |   | 0        |   |  |   | 0 |  |   | 7,603,539  |  
|                                                                                                     |  |                  |  |         |                  |  
|Net income                                                                                           |  | 0                |  |         | 637,148          |   |                         | 0         |         |   | 149,288  |   |  |   | 0 |  |   | 786,436    |  
|Distributions of net saleproceeds ($0.03 and $0.03 perClass A Unit and Class B Unit,respectively)    |  | 0                |  |         | (686,092         | ) |                         | 0         |         |   | (88,908  | ) |  |   | 0 |  |   | (775,000   | )
|                                                                                                     |  |                  |  |         |                  |   |                         |           |         |   |          |   |  |   |   |  |   |            |  
|BALANCE, September 30,2005                                                                           |  | 19,635,965       |  | $       | 7,554,595        |   |                         | 2,544,540 |         | $ | 60,380   |   |  | $ | 0 |  | $ | 7,614,975  |  
|                                                                                                     |  |                  |  |         |                  |   |                         |           |         |   |          |   |  |   |   |  |   |            |  



See accompanying notes.



Page 8



---

##### Table of Contents

WELLS REAL ESTATE FUND III, L.P.





STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                                 |           |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | --------- | - | ---- | - | ---------- | -
|                                                                                  |  | Nine Months Ended September 30, |          
|                                                                                  |  | 2005                            |           |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                 |           |   |      |   |            |  
|Net income                                                                        |  | $                               | 786,436   |   |      | $ | 3,130,603  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |           |   |      |   |            |  
|Equity in income of joint ventures                                                |  |                                 | (905,159  | ) |      |   | (3,251,834 | )
|Operating changes in assets and liabilities:                                      |  |                                 |           |   |      |   |            |  
|Increase in due to affiliates                                                     |  |                                 | 365       |   |      |   | 0          |  
|(Decrease) increase in accounts payable and accrued expenses                      |  |                                 | (6,911    | ) |      |   | 19,844     |  
|                                                                                  |  |                                 |           |   |      |   |            |  
|Total adjustments                                                                 |  |                                 | (911,705  | ) |      |   | (3,231,990 | )
|Operating distributions received from joint ventures                              |  |                                 | 244,401   |   |      |   | 433,008    |  
|                                                                                  |  |                                 |           |   |      |   |            |  
|Net cash provided by operating activities                                         |  |                                 | 119,132   |   |      |   | 331,621    |  
|                                                                                  |  |                                
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                 |           |   |      |   |            |  
|Net sale proceeds received from joint ventures                                    |  |                                 | 3,607,520 |   |      |   | 8,359,652  |  
|Investment in joint venture                                                       |  |                                 | (114,423  | ) |      |   | (274,929   | )
|                                                                                  |  |                                 |           |   |      |   |            |  
|Net cash provided by investing activities                                         |  |                                 | 3,493,097 |   |      |   | 8,084,723  |  
|                                                                                  |  |                                
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                 |           |   |      |   |            |  
|Net sale proceeds distributions paid to limited partners                          |  |                                 | (775,000  | ) |      |   | (1,312,003 | )
|Operating distributions paid to limited partners                                  |  |                                 | 0         |   |      |   | (220,904   | )
|                                                                                  |  |                                 |           |   |      |   |            |  
|Net cash used in financing activities                                             |  |                                 | (775,000  | ) |      |   | (1,532,907 | )
|                                                                                  |  |                                 |           |   |      |   |            |  
|                                                                                  |  |                                
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                                 | 2,837,229 |   |      |   | 6,883,437  |  
|                                                                                  |  |                                
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                                 | 2,184,474 |   |      |   | 2,552,904  |  
|                                                                                  |  |                                 |           |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                               | 5,021,703 |   |      | $ | 9,436,341  |  
|                                                                                  |  |                                 |           |   |      |   |            |  



See accompanying notes.



Page 9



---

##### Table of Contents

WELLS REAL ESTATE FUND III, L.P.





CONDENSED NOTES TO FINANCIAL STATEMENTS



SEPTEMBER 30, 2005 (unaudited)



1.
    ORGANIZATION AND BUSINESS



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



On October 24, 1988, the Partnership commenced an offering of up to $50,000,000 of Class A or
Class B limited partnership units ($1.00 per unit) pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The offering was terminated on October 23, 1990, at which time the Partnership had sold approximately
19,635,965 Class A and 2,544,540 Class B Units representing capital contributions of $22,206,310.



The Partnership owns indirect interests in all of its real estate assets through joint ventures with other entities affiliated with the General Partners. During the periods presented, the Partnership owned interests
in the following joint ventures (the Joint Ventures) and properties:



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



| | (1) | Fund II and Fund II-OW is a joint venture between Wells Real Estate Fund II and Wells Real Estate Fund II-OW.
| | --- | -------------------------------------------------------------------------------------------------------------

| | (2) | Properties were sold in July 2004.
| | --- | ----------------------------------

| | (3) | Property was sold in April 2004.
| | --- | --------------------------------

| | (4) | Property was sold in June 2005.
| | --- | -------------------------------



Page 10



---

##### Table of Contents

Each of the aforementioned properties was acquired on an all-cash basis. Approval by the Partnership as well as the other
Joint Venture partners is required for any major decision or any action that would materially affect the Joint Ventures, or their real property investments. For further information regarding the Joint Ventures and forgoing properties, refer to the
Partnerships Form 10-K for the year ended December 31, 2004.



On April
29, 2004, four Wells-affiliated Joint Ventures, including Fund III-IV Associates, sold five real properties, including Stockbridge Village Shopping Center, to an unrelated third party for a gross sale price of $23,750,000. As a result of the sale of
Stockbridge Village Shopping Center, the Partnership received net sale proceeds of approximately $6,880,000 and was allocated a gain of approximately $2,670,000.



On July 1, 2004, Fund II-III Associates and Fund II-III-VI-VII Associates, collectively, sold Brookwood Grill and the Holcomb Bridge
Property to an unrelated third party for a gross sale price of $9,500,000. As a result of the sale of Brookwood Grill, the Partnership received net sale proceeds of approximately $884,000 and was allocated a gain of approximately $290,000. As a
result of the sale of the Holcomb Bridge Property, the Partnership received net sale proceeds of approximately $608,000 and was allocated a gain of approximately $174,000.



On June 21, 2005, Fund III-IV Associates sold the 4400 Cox Road Building to ASI Partners, LLC, which is the sole owner of Apex Systems,
Inc., the majority tenant, for a gross sales price of $6,500,000. As a result of the sale, the Partnership was allocated net sale proceeds of approximately $3,600,000 and was allocated a gain of approximately $800,000.



2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation



The financial statements of the Partnership have been prepared in accordance with the rules and regulations of the Securities and Exchange
Commission, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and in accordance with such rules and regulations, do not include all of the information and footnotes required by U.S. generally accepted accounting principles
(GAAP) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly and
consistently present the results for such periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the financial statements and footnotes included in the Partnerships Form 10-K
for the year ended December 31, 2004.



Investment in Joint Ventures



The Partnership does not have control over the operations of the Joint
Ventures; however, it does exercise significant influence. Approval by the Partnership as well as the other joint venture partners is required for any major decision or any action that would materially affect the Joint Ventures, or their real
property investments. Accordingly, the Partnerships investments in the Joint Ventures are recorded using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for contributions,
distributions, and net income (loss) attributable to the Partnership. Pursuant to the terms of the joint venture agreements, all income (loss) and distributions are allocated to joint venture partners in accordance with their respective ownership
interests. Distributions of net cash from operations, if available, are distributed to the joint venture partners on a quarterly basis.



The Partnership adopted FIN 46(R) effective March 31, 2004. The Partnership owns interests in certain unconsolidated joint venture partnerships (see Note 4). The joint
venture partners of the Partnerships unconsolidated joint ventures in which the Partnership owns an interest have disproportionate voting rights for certain major decisions relative to their obligations to absorb expected losses and rights to
receive residual returns of such ventures. However, management has evaluated such joint ventures and has determined that they are not variable interest entities under the provisions of FIN 46(R) because not substantially all of the activities of



Page 11



---

##### Table of Contents

the joint ventures are conducted on behalf of a joint venture partner with disproportionately fewer voting rights. Management has also determined the joint
venture partners are not related parties, as defined in FIN 46(R) and SFAS No. 57. Accordingly, the adoption of FIN 46(R) did not result in the consolidation of any previously unconsolidated entities.



Distributions of Net Cash from Operations



Net cash from operations, if available, is generally distributed to limited partners
quarterly. In accordance with the partnership agreement, such distributions are paid first to limited partners holding Class A Units until each has received an 8% per annum return on his adjusted capital contribution, as defined. Net cash from
operations is then distributed to limited partners holding Class B Units until each has received an 8% per annum return on his adjusted capital contributions, as defined. If any net cash from operations remains, the General Partners receive an
amount equal to 10% of total net cash from operations distributed for such year. Thereafter, amounts are distributed 10% to the General Partners and 90% to the limited partners.



Distribution of Sale Proceeds



Upon the sale of properties, the net sale proceeds will be distributed in the following order:



| |  |  | In the event that the particular property sold is sold for a price that is less than the original property purchase price, to the limited partners holding Class A Units until each
has received an amount equal to the excess of the original property purchase price over the price for which the property was sold, limited to the amount of depreciation, amortization, and cost recovery deductions taken by the limited partners
holding Class B Units with respect to such property;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners until each limited partner has received 100% of his capital contributions, as defined;
| | - |  | ----------------------------------------------------------------------------------------------------------



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



| |  |  | To all limited partners until each limited partner has received a cumulative 12% per annum return on his adjusted capital contributions, as defined;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To the General Partners until they have received 100% of their respective capital contributions, as defined; and
| | - |  | ----------------------------------------------------------------------------------------------------------------



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



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



For the purpose of determining allocations per the partnership agreement, net income is defined as net income recognized by the Partnership, excluding deductions for
depreciation and amortization and cost recovery and the gain on the sale of assets. Net income, as defined, of the Partnership is generally allocated each year in the same proportions that net cash from operations is distributed to the partners
holding Class A Units and the General Partners. To the extent the Partnerships net income in any year exceeds net cash from operations, it will be allocated 99% to the limited partners and 1% to the General Partners.



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



Gains 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



Page 12



---

##### Table of Contents

(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.



3.RELATED-PARTY TRANSACTIONS



Management and Leasing Fees



Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners, receives compensation for the management and leasing of the
Partnerships properties owned through the Joint Ventures equal to (a) of the gross revenues collected monthly, 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 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. Management and leasing fees are
paid by the Joint Ventures and, accordingly, included in equity in income (loss) of joint venture in the accompanying statements of operations. The Partnerships share of management and leasing fees and lease acquisition costs incurred through
the Joint Ventures is $11,099 and $7,604 for the three months ended September 30, 2005 and 2004, respectively, and $34,842 and $51,156 for the nine months ended September 30, 2005 and 2004, respectively.



Administration Reimbursements



Wells Capital and Wells Management perform certain administrative services for the
Partnership, relating to accounting, property management, and other partnership administration, and incur the related expenses. Such expenses are allocated among various other entities affiliated with the General Partners based on estimates of the
amount of time spent dedicated to each fund by individual administrative personnel. In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The Partnership reimbursed Wells Capital and Wells Management
for administrative expenses of $21,554 and $26,633 for the three months ended September 30, 2005 and 2004, respectively, and $73,861 and $77,325 for the nine months ended September 30, 2005 and 2004, respectively. As of September 30, 2005 and
December 31, 2004, administrative reimbursements due to Wells Management and Wells Capital of $6,735 and $4,879 are included in due to affiliates in the accompanying balance sheet. In addition, Wells Capital pays for certain operating expenses of
the Partnership (bill-backs) directly and invoices the Partnership for the reimbursement thereof on a monthly basis. As of December 31, 2004, bill-backs due to Wells Capital of $1,491 are included in due to affiliates in the accompanying
balance sheet.



Page 13



---

##### Table of Contents

4.    INVESTMENT IN JOINT VENTURES



Summary of Operations



Condensed financial information for the Joint Ventures for the three months and nine months ended September 30, 2005 and 2004, respectively,
is presented below:



|                       |  |                                  |           |                                         |   |           |                                           |   |         |                                  |  |      |         |   |      |   |           |      |  |   |           |     |  |   |           |   |  |   |           |     
|---------------------- |  | -------------------------------- | --------- | --------------------------------------- | - | --------- | ----------------------------------------- | - | ------- | -------------------------------- |  | ---- | ------- | - | ---- | - | --------- | ---- |  | - | --------- | --- |  | - | --------- | - |  | - | --------- | ----
|                       |  | Total Revenues                   |           | Income (Loss) FromContinuing Operations |   |           | Income (Loss) FromDiscontinued Operations |   |         | Net Income (Loss)                | 
|                       |  | Three Months Ended September 30, |           | Three Months Ended September 30,        |   |           | Three Months Ended September 30,          |   |         | Three Months Ended September 30, | 
|                       |  | 2005                             |           | 2004                                    |   | 2005      |                                           |   | 2004    |                                  |  | 2005 |         |   | 2004 |   |           | 2005 |  |   | 2004      |    
|Fund II-III Associates |  | $                                | 429,291   |                                         | $ | 441,564   |                                           | $ | 49,990  |                                  |  | $    | 537,915 |   |      | $ | (8,981    | )    |  | $ | 769,099   |     |  | $ | 41,009    |   |  | $ | 1,307,014 | (1) 
|Fund III-IV Associates |  |                                  | 0         |                                         |   | 0         |                                           |   | (8,918  | )                                |  |      | (9,067  | ) |      |   | (66,625   | )    |  |   | (45,801   | )   |  |   | (75,543   | ) |  |   | (54,868   | )(1)
|                       |  |                                  |           |                                         |   |           |                                           |   |         |                                  |  |      |         |   |      |   |           |      |  |   |           |     |  |   |           |   |  |   |           |     
|                       |  | $                                | 429,291   |                                         | $ | 441,564   |                                           | $ | 41,072  |                                  |  | $    | 528,848 |   |      | $ | (75,606   | )    |  | $ | 723,298   |     |  | $ | (34,534   | ) |  | $ | 1,252,146 |     
|                       |  |                                  |           |                                         |   |           |                                           |   |         |                                  |  |      |         |   |      |   |           |      |  |   |           |     |  |   |           |   |  |   |           |     
|                       |  |                                  |           |                                        
|                       |  | Total Revenues                   |           | Income (Loss) FromContinuingOperations  |   |           | Income (Loss) FromDiscontinued Operations |   |         | Net Income                       | 
|                       |  | Nine Months Ended September 30,  |           | Nine Months Ended September 30,         |   |           | Nine Months Ended September 30,           |   |         | Nine Months Ended September 30,  | 
|                       |  | 2005                             |           | 2004                                    |   | 2005      |                                           |   | 2004    |                                  |  | 2005 |         |   | 2004 |   |           | 2005 |  |   | 2004      |    
|Fund II-III Associates |  | $                                | 1,376,588 |                                         | $ | 1,333,772 |                                           | $ | 317,786 |                                  |  | $    | 564,175 |   |      | $ | (6,698    | )    |  | $ | 904,880   | (2) |  | $ | 311,088   |   |  | $ | 1,469,055 | (1) 
|Fund III-IV Associates |  |                                  | 0         |                                         |   | 0         |                                           |   | (19,351 | )                                |  |      | (30,406 | ) |      |   | 1,404,182 | (3)  |  |   | 4,750,391 | (4) |  |   | 1,384,831 |   |  |   | 4,719,985 | (1) 
|                       |  |                                  |           |                                         |   |           |                                           |   |         |                                  |  |      |         |   |      |   |           |      |  |   |           |     |  |   |           |   |  |   |           |     
|                       |  | $                                | 1,376,588 |                                         | $ | 1,333,772 |                                           | $ | 298,435 |                                  |  | $    | 533,769 |   |      | $ | 1,397,484 |      |  | $ | 5,655,271 |     |  | $ | 1,695,919 |   |  | $ | 6,189,040 |     
|                       |  |                                  |           |                                         |   |           |                                           |   |         |                                  |  |      |         |   |      |   |           |      |  |   |           |     |  |   |           |   |  |   |           |     



| | (1) | Effective July 1, 2004, the Joint Ventures extended the weighted-average composite useful life for all building assets from 25 years to 40 years, which resulted
in an increase (decrease) to net income (loss) for the three months and nine months ended September 30, 2004 of $72,131 and $25,461 for Fund II-III Associates and Fund III-IV Associates, respectively.Management believes that this change more
appropriately reflects the estimated useful lives of real estate assets and is consistent with prevailing industry practice.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes a gain of approximately $771,000 recognized on the sale of Brookwood Grill, of which approximately $290,000 was attributable to the Partnership and has
been allocated to the Class A and Class B partners pursuant to the provisions of the partnership agreement(Note 2).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Includes a gain of approximately $1,451,000 recognized on the sale of 4400 Cox Road, of which approximately $830,000 was attributable to the Partnership and has
been allocated to the Class A and Class B partners pursuant to the provisions of the partnership agreement(Note 2).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Includes a gain of approximately $4,660,000 recognized on the sale of the Stockbridge Village Shopping Center, of which approximately $2,670,000 was attributable
to the Partnership and has been allocated to the Class A and Class B partners pursuant to the provisions of the partnership agreement(Note 2).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page 14



---

##### Table of Contents

Condensed financial information for the joint venture in which the Partnership held an equity interest through its
ownership in Fund II-III Associates for the three months and nine months ended September 30, 2005 and 2004, respectively, is presented below:



|                              |  |                                  |   |                                  |   |      |                                     |   |        |                                  |  |      |         |      |  |   |        |  |      |           |     |  |   |        |  |   |          
|----------------------------- |  | -------------------------------- | - | -------------------------------- | - | ---- | ----------------------------------- | - | ------ | -------------------------------- |  | ---- | ------- | ---- |  | - | ------ |  | ---- | --------- | --- |  | - | ------ |  | - | ---------
|                              |  | Total Revenues                   |   | Loss From Continuing Operations  |   |      | Income From Discontinued Operations |   |        | Net Income                      
|                              |  | Three Months Ended September 30, |   | Three Months Ended September 30, |   |      | Three Months Ended September 30,    |   |        | Three Months Ended September 30,
|                              |  | 2005                             |   | 2004                             |   | 2005 |                                     |   | 2004   |                                  |  | 2005 |         | 2004 |  |   | 2005   |  | 2004
|Fund II-III-VI-VII Associates |  | $                                | 0 |                                  | $ | 0    |                                     | $ | (1,720 | )                                |  | $    | (10,708 | )    |  | $ | 3,668  |  | $    | 1,861,538 |     |  | $ | 1,948  |  | $ | 1,850,830
|                              |  |                                  |   |                                  |   |      |                                     |   |        |                                  |  |      |         |      |  |   |        |  |      |           |     |  |   |        |  |   |          
|                              |  |                                  |   |                                 
|                              |  | Total Revenues                   |   | Loss From Continuing Operations  |   |      | Income From Discontinued Operations |   |        | Net Income                      
|                              |  | Nine Months Ended September 30,  |   | Nine Months Ended September 30,  |   |      | Nine Months Ended September 30,     |   |        | Nine Months Ended September 30, 
|                              |  | 2005                             |   | 2004                             |   | 2005 |                                     |   | 2004   |                                  |  | 2005 |         | 2004 |  |   | 2005   |  | 2004
|Fund II-III-VI-VII Associates |  | $                                | 0 |                                  | $ | 0    |                                     | $ | (9,928 | )                                |  | $    | (18,865 | )    |  | $ | 93,697 |  | $    | 2,077,417 | (1) |  | $ | 83,769 |  | $ | 2,058,552
|                              |  |                                  |   |                                  |   |      |                                     |   |        |                                  |  |      |         |      |  |   |        |  |      |           |     |  |   |        |  |   |          



| | (1) | Includes a total gain of approximately $1,869,000 recognized on the sale of the Holcomb Bridge Property, of which approximately $165,000 was attributable to the
Partnership and has been allocated to the Class A and Class B partners pursuant to the provisions of the partnership agreement(Note 2).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



5.    SUBSEQUENT EVENT



The sales of the Holcomb Bridge Property, Brookwood Grill, and 4400 Cox Road generated total net sale proceeds to the Partnership of approximately $5,099,000, of which
approximately $221,000 has previously been distributed to the limited partners through September 30, 2005, and approximately $143,000 was utilized to fund re-leasing costs for 4400 Cox Road prior to the sale. Upon evaluating the capital needs of the
existing properties in which the Partnership holds an interest, our General Partners have determined to hold net sale proceeds of approximately $785,000. In accordance with the terms of the partnership agreement, the General Partners distributed the
residual net sale proceeds on November 1, 2005 of approximately $3,950,000 to the limited partners of record as of September 30, 2005, which under the terms of the partnership agreement does not include limited partners acquiring units after June
30, 2005.



ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion and analysis should be read in conjunction with the accompanying financial statements and notes thereto. See also Cautionary Note Regarding
Forward-Looking Statements preceding Part I, as well as the notes to our financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the
year ended December 31, 2004.



Overview



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



| |  |  | Fundraising phase
| | - |  | -----------------

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



Page 15



---

##### Table of Contents

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

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



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

The period during which real estate
assets are owned and operated by the Partnership during the initial lease terms of the tenants. Strategic dispositions could occur during this phase in order to capitalize on market conditions;



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

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



| |  |  | Disposition-and-liquidation phase
| | - |  | ---------------------------------

The period
during which the Partnership sells its real estate investments, distributes net sale proceeds to the partners, liquidates, and terminates the Partnership.



Portfolio Overview



We are currently in the disposition-and-liquidation phase of our life cycle. We have now sold five assets. Our focus on the remaining asset involves leasing and marketing efforts that we believe will result in the
best disposition pricing for our limited partners.



During 2005, we engaged in
several significant activities that further positioned us to dispose of and liquidate the properties in which we owned interests. Specifically, Apex Systems, Inc. signed an amendment to lease the remaining vacant space at 4400 Cox Road, which was
subsequently sold on June 21, 2005. We made a distribution of net sale proceeds to the limited partners in May 2005 totaling $775,000 from the sales of the Stockbridge Village Shopping Center, the Holcomb Bridge Property, and Brookwood Grill. On
November 1, 2005, we also paid net sale proceeds distribution to the limited partners of approximately $3,950,000 from the sales of the Holcomb Bridge Property, Brookwood Grill, and 4400 Cox Road (See Note 5).



Our General Partners are currently reserving operating distributions to limited partners and
a portion of net sale proceeds to fund re-leasing costs anticipated in connection with preparing Boeing at the Atrium, the only property remaining in the portfolio, for sale. We anticipate that operating distributions will continue to be reserved in
the near term, given there is only one asset remaining.



Property Summary



Information related to the properties owned, or previously owned, by the
Joint Ventures follows:



| |  |  | The Greenville Center property was sold on September 30, 2002.
| | - |  | --------------------------------------------------------------



| |  |  | Stockbridge Village Shopping Center was sold on April 29, 2004.
| | - |  | ---------------------------------------------------------------



| |  |  | Brookwood Grill was sold on July 1, 2004.
| | - |  | -----------------------------------------



| |  |  | The Holcomb Bridge Property was sold on July 1, 2004.
| | - |  | -----------------------------------------------------



| |  |  | The 4400 Cox Road property was sold on June 21, 2005.
| | - |  | -----------------------------------------------------



| |  |  | Boeing at the Atrium is currently 100% occupied by the Boeing/Shuttle Division of The Boeing Company. The existing lease extends through March 2008.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As of September 30, 2005, the property sales described above generated an aggregate of approximately $14,249,000 in net sale proceeds allocated to the Partnership,
of which approximately $769,000 has been utilized, approximately $8,745,000 has previously been distributed to the limited partners, and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Page 16



---

##### Table of Contents

| | approximately $785,000 is currently being reserved to fund the Partnerships pro-rata share of anticipated re-leasing costs and capital improvements at
Boeing at the Atrium. On November 1, 2005 approximately $3,950,000 of the net sale proceeds was distributed to the limited partners.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As we move further into the disposition-and-liquidation phase, we will continue to focus on re-leasing vacant space and space that may become vacant upon the expiration
of our current leases. In doing so, we seek to maximize returns to the limited partners by negotiating long-term leases at market rental rates while attempting to minimize down time, re-leasing expenditures, ongoing property level costs, and
portfolio costs. As the remaining property is positioned for sale, our attention will shift to locating suitable buyers and negotiating purchase-sale contracts that will attempt to maximize the total return to the limited partners and minimize
contingencies and our post-closing involvement with the buyer.



Results of
Operations



Equity in Income (Loss) of Joint Ventures



Equity in income (loss) of joint ventures was $(28,481) and $459,149 for the three months
ended September 30, 2005 and 2004, respectively, and $905,159 and $3,251,834 for the nine months ended September 30, 2005 and 2004, respectively. The 2005 decreases are primarily attributable to (i) recognizing a greater gain in 2004 from the sale
of Stockbridge Village Shopping Center in April 2004 and Brookwood Grill and Holcomb Bridge Property in July 2004 than the gain on the sale of 4400 Cox Road in June 2005, (ii) forgone operating income as a result of the sale of the Stockbridge
Village Shopping Center, Brookwood Grill, the Holcomb Bridge Property and 4400 Cox Road, partially offset by (iii) a decline in depreciation expense for all buildings owned through the Joint Ventures due to changing the estimated weighted-average
composite useful life from 25 years to 40 years effective July 1, 2004.



We
expect equity in income of Joint Ventures to decrease going forward as a result of the forgone operating income resulting from the sale of the aforementioned properties.



Expenses of the Partnership



Our total expenses were $56,112 and $48,373 for the three months ended September 30, 2005 and 2004, respectively, and $154,955 and $144,147 for the nine months ended
September 30, 2005 and 2004, respectively. The 2005 increases are primarily attributable to an increase in administrative salaries and accounting fees associated with increased reporting and regulatory requirements. We anticipate additional
increases in our administrative expenses in future periods related to compliance with reporting and regulatory requirements.



Liquidity and Capital Resources



Our operating strategy entails funding expenditures related to the recurring operations of the Joint Ventures properties and the portfolio with operating cash
flows, including current and prior period operating distributions received from the Joint Ventures, and assessing the amount of remaining cash flows that will be required to fund known future re-leasing costs and other capital improvements. Any
residual operating cash flows are considered available for distribution to the limited partners and are generally paid quarterly. To the extent that operating cash flows are insufficient to fund our recurring operations, net sale proceeds will be
utilized. As a result, the ongoing monitoring of our cash position is critical to ensuring that adequate liquidity and capital resources are available. Economic downturns in one or more of our core markets could adversely impact the ability of our
tenants to honor lease payments and our ability to re-lease space on favorable terms as leases expire or space otherwise becomes vacant. In the event of either situation, cash flows and, consequently, our ability to provide funding for capital needs
would be adversely affected.



Page 17



---

##### Table of Contents

Short-Term Liquidity



During the nine months ended September 30, 2005, we generated net operating cash flows, including operating distributions received from the Joint Ventures, of
approximately $119,000, as compared to approximately $332,000 for the nine months ended September 30, 2004. The 2005 decrease is primarily attributable to a corresponding decrease in operating distributions received from the Joint Ventures as a
result of the sales of the Stockbridge Village Shopping Center in April 2004, Brookwood Grill in July 2004, Holcomb Bridge Property in July 2004, and 4400 Cox Road in June 2005. Operating distributions from the Joint Ventures are generally
representative of rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures. In addition, we received net sale proceeds from Joint Ventures related to the
sales of 4400 Cox Road of approximately $3,600,000 during the nine months ended September 30, 2005.



We expect operating distributions from the Joint Ventures to remain low in the near term, as we intend to maintain operating cash flow otherwise distributable to the Partnership at the joint venture level in order to
fund our pro-rata share of re-leasing costs anticipated in connection with preparing Boeing at the Atrium for sale. Future operating distributions payable to limited partners will be largely dependent upon the amount of cash generated from Boeing at
the Atrium, our expectations of future cash flows, and determination of near-term cash needs for tenant re-leasing costs and other capital improvements for the remaining property owned by the Joint Ventures.



We believe that the cash on hand and distributions due from the Joint Ventures are sufficient
to cover our working capital needs, including liabilities of approximately $16,000, as of September 30, 2005. We anticipate that we will be able to fund our proportionate share of the anticipated capital expenditures noted above using cash on hand
and future operating cash flow during 2005.



Long-Term Liquidity



We expect that our future sources of capital will be primarily derived
from operating cash flows generated from Fund II-III Associates and net sale proceeds generated from the strategic sale of the remaining property. Our future long-term liquidity requirements will include, but not be limited to, funding tenant
improvements, renovations, expansions, and other significant capital improvements necessary for the remaining property owned through Fund II-III Associates. We expect to continue to use substantially all future net cash flows from operations to
provide funding for such requirements. Future cash flows from operating activities will be primarily affected by distributions received from Fund II-III Associates, which are dependent upon net operating income generated by the remaining property,
less reserves for known capital expenditures.



Capital Resources



The Partnership is an investment vehicle formed for the purpose of
acquiring, owning, and operating income-producing real properties and has invested all of the partners original capital contributions. Thus, it is unlikely that we will acquire interests in any additional properties. Historically, our
investment strategy has generally involved acquiring properties on an all-cash basis that are pre-leased to creditworthy tenants through the Joint Ventures with affiliated partnerships.



The Joint Ventures fund capital expenditures primarily related to building improvements for the purpose of maintaining the quality of our
properties, and tenant improvements for the purpose of readying our properties for re-leasing. As leases expire, we typically attempt to re-lease space to an existing tenant or market the space to prospective new tenants. Generally, tenant
improvements funded in connection with lease renewals require less capital than those funded in connection with new leases. However, external conditions, such as the supply of and demand for comparable space available within a given market, drive
capital costs as well as rental rates. Any capital or other expenditures not provided for by the operations of the Joint Ventures will be funded by the Partnership and respective Joint Venture partners on a pro-rata basis.



Page 18



---

##### Table of Contents

Operating cash flows, if available, are generally distributed from the Joint Ventures to the Partnership during the
second month following each calendar quarter-end. However, the Joint Ventures will reserve operating distributions, or a portion thereof, as needed in order to fund known capital and other expenditures. Our cash management policy typically includes
first utilizing current period operating cash flow until depleted, at which point operating reserves are utilized to fund capital and other required expenditures. In the event that current and prior period accumulated operating cash flows are
insufficient to fund such costs, net property sale proceeds reserves would then be utilized.



As of September 30, 2005, we had received, used, and held net proceeds allocated to the Partnership from the sale of properties as presented below:



|                                                   |  |              |            |                                       |       |         |                                           |   |                     |  |                                                               |         |                                                     |                                               |  |   |           |  |   |          
|-------------------------------------------------- |  | ------------ | ---------- | ------------------------------------- | ----- | ------- | ----------------------------------------- | - | ------------------- |  | ------------------------------------------------------------- | ------- | --------------------------------------------------- | --------------------------------------------- |  | - | --------- |  | - | ---------
|Property Sold                                      |  | Net Proceeds |            | Partnerships Approximate Ownership % |       |         | Net Proceeds Allocated to the Partnership |   | Use of Net Proceeds |  | Net Proceeds Distributed to Partners as of September 30, 2005 |         | Undistributed Net Proceeds as of September 30, 2005
|                                                   |  |              |            | Amount                                |       | Purpose |                                           |  
|Greenville Center (sold in 2002)                   |  | $            | 2,271,187  |                                       | 100.0 | %       |                                           | $ | 2,271,187           |  | $                                                             | 0       |                                                     |                                              |  | $ | 2,271,187 |  | $ | 0        
|Stockbridge Village Shopping Center (sold in 2004) |  |              | 12,024,223 |                                       | 57.2  | %       |                                           |   | 6,879,238           |  |                                                               | 626,466 |                                                     |     Re-leasing 4400 Cox Road building (2004) |  |   | 6,252,772 |  |   | 0        
|Holcomb Bridge Property (sold in 2004)             |  |              | 6,889,379  |                                       | 8.8   | %       |                                           |   | 607,643             |  |                                                               | 58,283  |                                                     |     Re-leasing 4400 Cox Road building (2004) |  |   | 90,075    |  |   | 459,285  
|Brookwood Grill (sold in 2004)                     |  |              | 2,346,693  |                                       | 37.7  | %       |                                           |   | 883,530             |  |                                                               | 84,746  |                                                     |     Re-leasing 4400 Cox Road building (2004) |  |   | 130,972   |  |   | 667,812  
|4400 Cox Road (sold in 2005)                       |  |              | 6,305,585  |                                       | 57.21 | %       |                                           |   | 3,607,520           |  |                                                               | 0       |                                                     |                                              |  |   | 0         |  |   | 3,607,520
|                                                   |  |              |            |                                       |       |         |                                           |   |                     |  |                                                               |         |                                                     |                                               |  |   |           |  |   |          
|Total                                              |  |              |            |                                       |       |         |                                           | $ | 14,249,118          |  | $                                                             | 769,495 |                                                     |                                               |  | $ | 8,745,006 |  | $ | 4,734,617
|                                                   |  |              |            |                                       |       |         |                                           |   |                     |  |                                                               |         |                                                     |                                               |  |   |           |  |   |          



On May 17, 2005, we distributed
approximately $775,000 of net sale proceeds from the sales of the Stockbridge Village Shopping Center, Holcomb Bridge Property, and Brookwood Grill to the limited partners. Upon evaluating the capital needs of the properties in which we currently
hold an interest, our General Partners have determined that reserves of net sale proceeds of approximately $785,000 will be required to fund the Partnerships share of anticipated re-leasing costs and capital improvements for Boeing at the
Atrium. Accordingly, in November 2005, the remaining net sale proceeds of approximately $3,950,000 from the sale of the Holcomb Bridge Property, Brookwood Grill, and 4400 Cox Road was distributed to the limited partners of record as of September 20,
2005, which, under the terms of the partnership agreement, does not include limited partners acquiring units after June 30, 2005.



Related-Party Transactions



Related-Party Fees and Reimbursements



We have entered into agreements with Wells Capital, Wells Management, an affiliate of our General Partners, and their affiliates, whereby we pay certain fees and expense
reimbursements to Wells Capital, Wells Management, and their affiliates for asset management; the management and leasing of our properties; administrative services relating to accounting, property management, and other partnership administration;
and incur the related expenses. See Note 3 to our financial statements included in this report for a description of these fees and expense reimbursements we have incurred.



Economic Dependency



We have engaged Wells Capital, our corporate General Partner, and its affiliates, including Wells Management, to provide certain services that are essential to the
Partnership, including asset management services, the management and leasing of properties owned through the Joint Ventures, asset acquisition and disposition services, as well as other administrative responsibilities for the Partnership including
accounting services, shareholder communications,



Page 19



---

##### Table of Contents

and investor relations. These agreements are terminable by either party on 60 days written notice. As a result of these relationships, the Partnership
is dependent upon Wells Capital and Wells Management.



Wells Capital and Wells
Management are all owned and controlled by Wells Real Estate Funds, Inc. (WREF). The operations of Wells Capital and Wells Management represent substantially all of the business of WREF. Accordingly, the Partnership focuses on the
financial condition of WREF when assessing the financial condition of Wells Capital and Wells Management. In the event that WREF were to become unable to meet its obligations as they become due, the Partnership might be required to find alternative
service providers.



Future net income generated by WREF will be largely
dependent upon the amount of fees earned by Wells Capital, Wells Management, and Wells Investment Securities, Inc. based on, among other things, the level of investor proceeds raised from the sale of Wells Real Estate Investment Trust II,
Inc.s common stock and the volume of future acquisitions and dispositions of real estate assets by Wells-sponsored programs. As of September 30, 2005 and December 31, 2004, WREF believes that it generates adequate cash flow from operations and
has adequate liquidity available in the form of cash on hand and current receivables necessary to meet its current and future obligations as they become due.



Dismissal of Litigation against Related Parties



During early 2004, a putative class action complaint was filed against, among others, Leo. F. Wells, III and Wells Capital, our General Partners, and Wells Management
(Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04-A-2791-2). The Court granted the plaintiffs motion to permit voluntary dismissal of this suit, and it was subsequently dismissed
without prejudice. In November 2004, the same plaintiffs filed a second putative class action complaint against, among others, Mr. Wells, Wells Capital, and Wells Management (Hendry et al. v. Leo F. Wells, III et al., Superior Court of
Gwinnett County, Georgia, Civil Action No. 04A-13051-6). On January 28, 2005, the defendants filed motions for summary judgment and motions to dismiss the plaintiffs claims. Pursuant to orders entered July 1, 2005, the Court granted the Wells
defendants motions to dismiss and for summary judgment on all counts in the complaint. Thus, this action has now been dismissed, subject to the plaintiffs right to file a notice of appeal within the required time period. On August 3,
2005, the plaintiffs filed a motion requesting the Court to vacate and re-enter the orders to give the plaintiffs an opportunity to file a motion for reconsideration or notice of appeal. Both the plaintiffs and the defendants have filed briefs
supporting their respective positions, and the plaintiffs motion is still pending before the Court.



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 should protect us 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. There is no assurance, however, that we would be able to replace existing leases with new leases at higher base rental rates.



Application of Critical Accounting Policies



Our 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 our results of operations to those of
companies in similar businesses.



Page 20



---

##### Table of Contents

Below is a discussion of the accounting policies used by the Partnership and the Joint Ventures, which are considered to
be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.



Investment in Real Estate Assets



We will be required to make subjective assessments as to the useful lives of its depreciable assets. We will consider 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:



|                      |  |            
|--------------------- |  | -----------
|Buildings             |  | 40 years   
|Building improvements |  | 10-25 years
|Land improvements     |  | 20 years   
|Tenant improvements   |  | Lease term 



Effective July 1, 2004, the Joint
Ventures extended the weighted-average composite useful life for all building assets from 25 years to 40 years. We believe that this change more appropriately reflects the estimated useful lives of real estate assets and is consistent with
prevailing industry practice. In the event that the Joint Ventures utilize inappropriate useful lives or methods of depreciation, our net income would be misstated.



Valuation of Real Estate Assets



We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which we have an ownership interest,
either directly or through investments in the 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. We have determined that there has been no impairment in the
carrying value of any of the real estate assets held as of September 30, 2005.



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



Potential Tax Impact on Limited Partners Holding Class B UnitsAmerican Jobs Creation Act of 2004



The American Jobs Creation Act of 2004 (the Act) added Section 470 to the
Internal Revenue Code, which provides certain limitations on the utilization of losses allocable to leased property owned by a partnership having both taxable and tax-exempt partners such as the Partnership. In March 2005, the Internal Revenue
Service issued IRS Notice 2005-29 announcing that the IRS would not be applying Section 470 to partnerships for taxable year 2004 based solely on the fact that a partnership had both taxable and tax-exempt partners; however, it is important to note
that IRS Notice 2005-29 provided relief for partnerships for taxable year 2004 only. Although the IRS has indicated that it is continuing to study the application of Section 470 to partnerships, such as the Partnership, unless Congress passes
legislation which addresses this issue or some other form of relief from the provisions of Section 470 of the Act is granted, beginning in taxable year 2005 and thereafter, passive losses allocable to limited partners holding Class B Units may only
be used to offset passive income generated from the same property or within the same fund.



Page 21



---

##### Table of Contents

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Since we do not borrow any money, make any foreign investments or invest in any market risk-sensitive instruments, we are not subject to risks relating to interest rates,
foreign current exchange rate fluctuations, or the other market risks contemplated by Item 305 of Regulation S-K.



ITEM 4.    CONTROLS AND PROCEDURES



We carried out an evaluation, under the supervision and with the participation of management of Wells Capital, our corporate General Partner, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures as defined in rule 13a-15(e) of the Securities Exchange Act of 1934 as to the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer
and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that information we are required to
disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of
assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.



There were no significant changes in our
internal control over financial reporting during the quarter ended September 30, 2005 that have materially affected, or are likely to materially affect, our internal control over financial reporting.



Page 22



---

##### Table of Contents

PART II.    OTHER INFORMATION



ITEM 1.    LEGAL PROCEEDINGS



We were not involved in any material legal proceedings during the quarter ended September 30, 2005 requiring disclosure under Item 103 of Regulation S-K.



ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended September 30, 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



|(c) | We did not redeem any securities during the quarter ended September 30, 2005.
|--- | -----------------------------------------------------------------------------



ITEM 3.    DEFAULTS UPON SENIOR SECURITIES



We were not subject to any indebtedness, and therefore, we did not default respect to any indebtedness during the quarter ended September 30, 2005.



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



No matters were submitted to a vote of our limited partners during the quarter ended September 30, 2005.



ITEM 5.    OTHER INFORMATION



|(a) | During the quarter ended September 30, 2005, there was no information which was required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



ITEM 6.    EXHIBITS



The
Exhibits to this report are set forth on Exhibit Index to Third Quarter Form 10-Q attached hereto.





Page 23



---

##### Table of Contents

SIGNATURES



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



|                  |  |  |  |                                                                                 
|----------------- |  |  |  | --------------------------------------------------------------------------------
|                  |  |  |  | WELLS REAL ESTATE FUND III, L.P.                                                
|                  |  |  |  | (Registrant)                                                                    
|                  |  | 
|                  |  |  |  | By: WELLS CAPITAL, INC.                                                         
|                  |  |  |  | (Corporate General Partner)                                                     
|                  |  | 
|November 14, 2005 |  |  |  | /s/    LEO F. WELLS, III                                                        
|                  |  |  |  | Leo F. Wells, III                                                               
|                  |  |  |  | President, Principal Executive Officer, and Sole Director of Wells Capital, Inc.
|                  |  | 
|November 14, 2005 |  |  |  | /s/    DOUGLAS P. WILLIAMS                                                      
|                  |  |  |  | Douglas P. Williams                                                             
|                  |  |  |  | Principal Financial Officer of Wells Capital, Inc.                              



Page 24



---

##### Table of Contents

EXHIBIT INDEX



TO THIRD QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND III, L.P.



|            |  |                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                   
|            | 
|31.1        |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                        
|            | 
|31.2        |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                        
|            | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



Page 25