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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark one)



| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006 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



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WELLS REAL ESTATE FUND III, L.P.

(Exact name of registrant as specified in
its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58-1800833                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|6200 The Corners 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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  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



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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, we consider, among others, statements concerning future operating results and cash flows, our ability to meet future
obligations, and the amount and timing of any 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 this
report is filed with the Securities and Exchange Commission. We make no representations or warranties (express or implied) about the accuracy of any such 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 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 dividends to
stockholders, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2005 for a discussion of some of the risks and
uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.



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WELLS REAL ESTATE FUND III, L.P.

TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                            |  |         
|-------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                            |  | Page No.
|         |  |                      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                           
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                       |  |         
|         |  |                       | 
|         |  |                       |  | Balance SheetsMarch 31, 2006 (unaudited) and December 31, 2005                                                            |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months Ended March 31, 2006 (unaudited) and 2005 (unaudited)                        |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2005 and the Three Months Ended March 31, 2006 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Three Months Ended March 31, 2006 (unaudited) and 2005 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                        |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                      |  | 15      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | 20      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                    |  | 20      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                           
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                          |  | 21      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                               |  | 21      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                |  | 21      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                            |  | 21      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                        |  | 21      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                          |  | 21      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                   |  | 21      



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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 accompanying 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, 2005. The Partnerships results of
operations for the three months ended March 31, 2006 are not necessarily indicative of the operating results expected for the full year.



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WELLS REAL ESTATE FUND III, L.P.



BALANCE SHEETS

ASSETS



|                             |  |                          |           |                  |   |          
|---------------------------- |  | ------------------------ | --------- | ---------------- | - | ---------
|                             |  | (Unaudited)March 31,2006 |           | December 31,2005
|Investment in joint ventures |  | $                        | 2,508,379 |                  | $ | 2,557,806
|Cash and cash equivalents    |  |                          | 1,115,543 |                  |   | 1,125,364
|Due from joint ventures      |  |                          | 90,073    |                  |   | 35,739   
|Other assets                 |  |                          | 4,104     |                  |   | 0        
|                             |  |                          |           |                  |   |          
|Total assets                 |  | $                        | 3,718,099 |                  | $ | 3,718,909
|                             |  |                          |           |                  |   |          

LIABILITIES AND PARTNERS CAPITAL



|                                                  |  |   |           |  |   |          
|------------------------------------------------- |  | - | --------- |  | - | ---------
|Liabilities:                                      |  |   |           |  |   |          
|Accounts payable and accrued expenses             |  | $ | 20,950    |  | $ | 9,328    
|Due to affiliates                                 |  |   | 6,555     |  |   | 9,187    
|                                                  |  |   |           |  |   |          
|Total liabilities                                 |  |   | 27,505    |  |   | 18,515   
|                                                  |  |  
|Partners capital:                                |  |   |           |  |   |          
|Limited partners:                                 |  |   |           |  |   |          
|Class A  19,635,965 units issued and outstanding |  |   | 3,690,594 |  |   | 3,700,394
|Class B  2,544,540 units issued and outstanding  |  |   | 0         |  |   | 0        
|General partners                                  |  |   | 0         |  |   | 0        
|                                                  |  |   |           |  |   |          
|Total partners capital                           |  |   | 3,690,594 |  |   | 3,700,394
|                                                  |  |   |           |  |   |          
|Total liabilities and partners capital           |  | $ | 3,718,099 |  | $ | 3,718,909
|                                                  |  |   |           |  |   |          

See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.



STATEMENTS OF OPERATIONS



|                                                 |  |                                         |        |   |      |   |       
|------------------------------------------------ |  | --------------------------------------- | ------ | - | ---- | - | ------
|                                                 |  | (Unaudited) Three Months EndedMarch 31,
|                                                 |  | 2006                                    |        |   | 2005
|                                                 |  |                                        
|EQUITY IN INCOME OF JOINT VENTURES               |  | $                                       | 29,307 |   |      | $ | 45,933
|                                                 |  |                                        
|EXPENSES:                                        |  |                                         |        |   |      |   |       
|Partnership administration                       |  |                                         | 32,013 |   |      |   | 30,208
|Legal and accounting                             |  |                                         | 18,536 |   |      |   | 11,524
|                                                 |  |                                         |        |   |      |   |       
|Total expenses                                   |  |                                         | 50,549 |   |      |   | 41,732
|                                                 |  |                                        
|INTEREST AND OTHER INCOME                        |  |                                         | 11,442 |   |      |   | 14,013
|                                                 |  |                                         |        |   |      |   |       
|NET INCOME (LOSS)                                |  | $                                       | (9,800 | ) |      | $ | 18,214
|                                                 |  |                                         |        |   |      |   |       
|                                                 |  |                                        
|NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS: |  |                                         |        |   |      |   |       
|CLASS A                                          |  | $                                       | (9,800 | ) |      | $ | 18,214
|                                                 |  |                                         |        |   |      |   |       
|CLASS B                                          |  | $                                       | 0      |   |      | $ | 0     
|                                                 |  |                                         |        |   |      |   |       
|                                                 |  |                                        
|NET INCOME (LOSS) PER LIMITED PARTNER UNIT:      |  |                                         |        |   |      |   |       
|CLASS A                                          |  | $                                       | 0.00   |   |      | $ | 0.00  
|                                                 |  |                                         |        |   |      |   |       
|CLASS B                                          |  | $                                       | 0.00   |   |      | $ | 0.00  
|                                                 |  |                                         |        |   |      |   |       

See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.



STATEMENTS OF PARTNERS CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2005

AND THE THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)



|                                                                                                     |  |                  |  |         |                 |   |                       |           |         |   |          |   |  |   |   |  |   |            |  
|---------------------------------------------------------------------------------------------------- |  | ---------------- |  | ------- | --------------- | - | --------------------- | --------- | ------- | - | -------- | - |  | - | - |  | - | ---------- | -
|                                                                                                     |  | Limited Partners |  |         | GeneralPartners |   | TotalPartnersCapital |          
|                                                                                                     |  | Class A          |  |         | Class B         |   |                       |          
|                                                                                                     |  | Units            |  | Capital |                 |   | Units                 |           | Capital |   |          |  
|                                                                                                     |  |                  |  |         |                 |  
|BALANCE, DECEMBER 31, 2004                                                                           |  | 19,635,965       |  | $       | 7,603,539       |   |                       | 2,544,540 |         | $ | 0        |   |  | $ | 0 |  | $ | 7,603,539  |  
|                                                                                                     |  |                  |  |         |                 |  
|Net income                                                                                           |  | 0                |  |         | 279,805         |   |                       | 0         |         |   | 542,049  |   |  |   | 0 |  |   | 821,854    |  
|Distributions of net sale proceeds ($0.21 and $0.21 per Class A Unit and Class B Unit, respectively) |  | 0                |  |         | (4,182,950      | ) |                       | 0         |         |   | (542,049 | ) |  |   | 0 |  |   | (4,724,999 | )
|                                                                                                     |  |                  |  |         |                 |   |                       |           |         |   |          |   |  |   |   |  |   |            |  
|BALANCE, DECEMBER 31, 2005                                                                           |  | 19,635,965       |  |         | 3,700,394       |   |                       | 2,544,540 |         |   | 0        |   |  |   | 0 |  |   | 3,700,394  |  
|                                                                                                     |  |                  |  |         |                 |  
|Net loss                                                                                             |  | 0                |  |         | (9,800          | ) |                       | 0         |         |   | 0        |   |  |   | 0 |  |   | (9,800     | )
|                                                                                                     |  |                  |  |         |                 |   |                       |           |         |   |          |   |  |   |   |  |   |            |  
|BALANCE, MARCH 31, 2006                                                                              |  | 19,635,965       |  | $       | 3,690,594       |   |                       | 2,544,540 |         | $ | 0        |   |  | $ | 0 |  | $ | 3,690,594  |  
|                                                                                                     |  |                  |  |         |                 |   |                       |           |         |   |          |   |  |   |   |  |   |            |  

See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.



STATEMENTS OF CASH FLOWS



|                                                                                         |  |                                         |           |   |      |   |           |  
|---------------------------------------------------------------------------------------- |  | --------------------------------------- | --------- | - | ---- | - | --------- | -
|                                                                                         |  | (Unaudited) Three Months EndedMarch 31, |          
|                                                                                         |  | 2006                                    |           |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                                         |           |   |      |   |           |  
|Net income (loss)                                                                        |  | $                                       | (9,800    | ) |      | $ | 18,214    |  
|Operating distributions received from joint ventures                                     |  |                                         | 35,739    |   |      |   | 40,149    |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                         |           |   |      |   |           |  
|Equity in income of joint ventures                                                       |  |                                         | (29,307   | ) |      |   | (45,933   | )
|Operating changes in assets and liabilities:                                             |  |                                         |           |   |      |   |           |  
|Increase in other assets                                                                 |  |                                         | (4,104    | ) |      |   | 0         |  
|Increase (decrease) in accounts payable and accrued expenses                             |  |                                         | 11,622    |   |      |   | (691      | )
|(Decrease) increase in due to affiliates                                                 |  |                                         | (2,632    | ) |      |   | 1,877     |  
|                                                                                         |  |                                         |           |   |      |   |           |  
|Net cash provided by operating activities                                                |  |                                         | 1,518     |   |      |   | 13,616    |  
|                                                                                         |  |                                        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                                         |           |   |      |   |           |  
|Investment in joint ventures                                                             |  |                                         | (11,339   | ) |      |   | 0         |  
|                                                                                         |  |                                         |           |   |      |   |           |  
|Net cash used in investing activities                                                    |  |                                         | (11,339   | ) |      |   | 0         |  
|                                                                                         |  |                                         |           |   |      |   |           |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     |  |                                         | (9,821    | ) |      |   | 13,616    |  
|                                                                                         |  |                                        
|CASH AND CASH EQUIVALENTS, beginning of period                                           |  |                                         | 1,125,364 |   |      |   | 2,184,474 |  
|                                                                                         |  |                                         |           |   |      |   |           |  
|CASH AND CASH EQUIVALENTS, end of period                                                 |  | $                                       | 1,115,543 |   |      | $ | 2,198,090 |  
|                                                                                         |  |                                         |           |   |      |   |           |  

See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.



CONDENSED NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2006 (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 president, sole director, and 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
|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. |  | No properties owned during the periods presented.                             
|Fund III and Fund IV Associates (Fund III-IV Associates)            |  |   Wells Real Estate Fund III, L.P.   Wells Real Estate Fund IV, L.P.                           |  | 2. 4400 Cox Road(2) 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) | This property was sold in June 2005.
| | --- | ------------------------------------

Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund IV, L.P., Wells Real Estate Fund VI, L.P., and Wells Real Estate Fund VII,
L.P. are affiliated with the Partnership through one or more common general partners. Each of the properties described above was acquired on an all-cash basis. For further information regarding the Joint Ventures and foregoing properties, refer to
the Partnerships Form 10-K for the year ended December 31, 2005.

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 received net sale proceeds of approximately $3,609,000 and was allocated a gain
of approximately $830,000.



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|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, 2005.

Investment in Joint Ventures

The Partnership has evaluated the Joint Ventures and concluded that none are variable interest entities under the provisions of Financial Accounting Standards Board
Interpretation No. (FIN) 46(R), Consolidation of Variable Interest Entities, which supersedes FIN 46 and is an interpretation of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements.
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, upon applying the provisions of Statement of Financial Accounting Standard (SFAS) No. 94, Consolidation of All Majority-Owned
Subsidiaries, ARB No. 51, and Statement of Position No. 78-9, Accounting for Investments In Real Estate Ventures, the Partnership accounts for its investments in the Joint Ventures 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 generally distributed to the joint venture partners on a quarterly basis.

Other Assets

As of March 31,
2006, other assets is comprised primarily of interest income receivable.

Distribution 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, unless reserved, net sale proceeds are to 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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 (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.

Reclassifications

Certain prior year amounts have been
reclassified to conform with the current year financial statement presentation.

Recent Accounting Pronouncements

In June 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces
Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the method to account for and report changes in
accounting principles and corrections of errors. Previously, most voluntary changes in accounting principles required recognition as a cumulative effect adjustment to net income during the period in which the change was adopted. Conversely, in
circumstances where applicable accounting guidance does not include specific transition provisions, SFAS No. 154 requires retrospective application to prior periods financial statements unless it is impractical to determine either the
period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005; however, it does not change the transition provisions of any of the existing accounting
pronouncements. The adoption of this statement is not expected to have a material effect on the Partnerships financial statements.



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|3. | INVESTMENT IN JOINT VENTURES
|-- | ----------------------------

Summary of Financial Information

Condensed financial information for the joint ventures in which the Partnership held direct interests for the three months ended March 31, 2006
and 2005, respectively, is presented below:



|                       |  |                             |         |                                         |   |         |                                    |   |                             |   |  |      |         |      |  |      |       |  |      |        |  |   |        |   |  |   |        
|---------------------- |  | --------------------------- | ------- | --------------------------------------- | - | ------- | ---------------------------------- | - | --------------------------- | - |  | ---- | ------- | ---- |  | ---- | ----- |  | ---- | ------ |  | - | ------ | - |  | - | -------
|                       |  | Total Revenues              |         | Income (Loss) FromContinuing Operations |   |         | Income FromDiscontinued Operations |   | Net Income (Loss)          
|                       |  | Three Months EndedMarch 31, |         | Three Months EndedMarch 31,             |   |         | Three Months EndedMarch 31,        |   | Three Months EndedMarch 31,
|                       |  | 2006                        |         | 2005                                    |   | 2006    |                                    |   | 2005                        |   |  | 2006 |         | 2005 |  | 2006 |       |  | 2005
|Fund II-III Associates |  | $                           | 460,687 |                                         | $ | 456,928 |                                    | $ | 84,696                      |   |  | $    | 115,975 |      |  | $    | 1,553 |  | $    | 820    |  | $ | 86,249 |   |  | $ | 116,795
|Fund III-IV Associates |  |                             | 806     |                                         |   | 0       |                                    |   | (3,446                      | ) |  |      | (6,575  | )    |  |      | 0     |  |      | 12,917 |  |   | (3,446 | ) |  |   | 6,342  
|                       |  |                             |         |                                         |   |         |                                    |   |                             |   |  |      |         |      |  |      |       |  |      |        |  |   |        |   |  |   |        
|                       |  | $                           | 461,493 |                                         | $ | 456,928 |                                    | $ | 81,250                      |   |  | $    | 109,400 |      |  | $    | 1,553 |  | $    | 13,737 |  | $ | 82,803 |   |  | $ | 123,137
|                       |  |                             |         |                                         |   |         |                                    |   |                             |   |  |      |         |      |  |      |       |  |      |        |  |   |        |   |  |   |        

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 ended March 31, 2006 and 2005, respectively, is presented below:



|                              |  |                             |   |                                |   |      |                                    |      |                             |  |      |        |      |  |      |   |      |       |  |   |   |  |   |    
|----------------------------- |  | --------------------------- | - | ------------------------------ | - | ---- | ---------------------------------- | ---- | --------------------------- |  | ---- | ------ | ---- |  | ---- | - | ---- | ----- |  | - | - |  | - | ---
|                              |  | Total Revenues              |   | Loss FromContinuing Operations |   |      | Income FromDiscontinued Operations |      | Net Income                 
|                              |  | Three Months EndedMarch 31, |   | Three Months EndedMarch 31,    |   |      | Three Months EndedMarch 31,        |      | Three Months EndedMarch 31,
|                              |  | 2006                        |   | 2005                           |   | 2006 |                                    | 2005 |                             |  | 2006 |        | 2005 |  | 2006 |   | 2005
|Fund II-III-VI-VII Associates |  | $                           | 0 |                                | $ | 0    |                                    | $    | 0                           |  | $    | (6,042 | )    |  | $    | 0 |      | 6,353 |  | $ | 0 |  | $ | 311
|                              |  |                             |   |                                |   |      |                                    |      |                             |  |      |        |      |  |      |   |      |       |  |   |   |  |   |    

The Partnership allocates operating income (loss) and gain (loss) on sale of properties generated by the Joint
Ventures to its Class A and Class B limited partners pursuant to the respective partnership agreement provisions outlined in Note 2. The components of income (loss) from discontinued operations recognized by the Joint Ventures results are
provided below:



|                              |  |                       |       |                |   |       |  |                 |       |  |              |        |   |       |   |       |     |  |   |       
|----------------------------- |  | --------------------- | ----- | -------------- | - | ----- |  | --------------- | ----- |  | ------------ | ------ | - | ----- | - | ----- | --- |  | - | ------
|                              |  | March 31, 2006        |       | March 31, 2005
|                              |  | OperatingIncome(loss) |       | Gain on Sale   |   | Total |  | OperatingIncome |       |  | Gain on Sale |        |   | Total
|Fund II-III Associates        |  | $                     | 1,553 |                | $ | 0     |  | $               | 1,553 |  | $            | 820    |   |       | $ | 0     |     |  | $ | 820   
|Fund II-III-VI-VII Associates |  |                       | 0     |                |   | 0     |  |                 | 0     |  |              | (901   | ) |       |   | 7,254 | (1) |  |   | 6,353 
|Fund III-VI Associates        |  |                       | 0     |                |   | 0     |  |                 | 0     |  |              | 12,917 |   |       |   | 0     |     |  |   | 12,917
|                              |  |                       |       |                |   |       |  |                 |       |  |              |        |   |       |   |       |     |  |   |       
|                              |  | $                     | 1,553 |                | $ | 0     |  | $               | 1,553 |  | $            | 12,836 |   |       | $ | 7,254 |     |  | $ | 20,090
|                              |  |                       |       |                |   |       |  |                 |       |  |              |        |   |       |   |       |     |  |   |       



| | (1) | Represents additional gain recognized on the sale of the Holcomb
Bridge Property, which was deferred at closing related to a rental guarantee for certain space at the Holcomb Bridge Property.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due from Joint Ventures

As presented in the accompanying balance sheets, due from joint ventures as of March 31, 2006 and
December 31, 2005 represents operating cash flow generated by the Joint Ventures for the three months ended March 31, 2006 and December 31, 2005, respectively, which is attributable to the Partnership.



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|4. | 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 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 $10,400 and $11,482 for the three months ended March 31, 2006 and 2005, 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 $18,235 and
$26,114 for the three months ended March 31, 2006 and 2005, respectively. In addition, Wells Capital pays for certain operating expenses of the Partnership (bill-backs) directly and invoices the Partnership for the reimbursement
thereof. As of March 31, 2006 and December 31, 2005, due to affiliates is comprised of administrative reimbursements and bill-backs due to Wells Capital and/or Wells Management.

Economic Dependency

We have engaged Wells Capital and Wells
Management to provide certain essential services, including supervision of the management and leasing of our properties, asset acquisition and disposition services, as well as other administrative responsibilities for us including accounting
services, investor communications and relations. These agreements are terminable by either party upon 60 days written notice. As a result of these relationships, we are 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, we focus on the financial condition of WREF when assessing the financial condition of Wells Capital and Wells Management. In the event that WREF was to become unable to meet its
obligations as they become due, we 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 and Wells Management based on, among other things, the level of investor proceeds raised from the sale of common stock for certain WREF-sponsored programs and the volume of future acquisitions and
dispositions of real estate assets by WREF-sponsored programs. As of March 31, 2006, the General Partners believe that WREF 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.

Litigation against Related Parties

During early 2004, a putative class action complaint was filed against, among others, Leo. F. Wells, III, one of our General Partners, Wells Capital, the corporate
general partner of Wells Partners, our other general partner,



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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 the case 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). The second action alleges, among other things, that:
(i) Mr. Wells and Wells Capital breached their fiduciary duties to the limited partners of Wells Real Estate Fund I (Fund I), a previously syndicated real estate partnership having common general partners, in connection with
certain disclosures and prior actions relating to the distribution of net sale proceeds, (ii) the defendants breached an alleged contract arising out of a June 2000 consent solicitation to the limited partners of Fund I relating to an alleged
waiver of deferred management fees, and (iii) certain misrepresentations and omissions in an April 2002 consent solicitation to the limited partners of Fund I caused that consent solicitation to be materially misleading. The plaintiffs seek,
among other remedies, judgment against Mr. Wells and Wells Capital, jointly and severally, in an amount to be proven at trial; punitive damages; disgorgement of fees earned by the General Partners; enforcement of the alleged contract relating
to the alleged waiver of deferred management fees; and an award to the plaintiffs of their attorneys fees, costs, and expenses. 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 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. On February 15, 2006, the Court heard argument on the plaintiffs motion to vacate and to re-enter the judgments previously entered on July 1, 2005. Following the argument, the Court stated
orally from the bench that he would grant the motion, so the judgments could be re-entered to allow the plaintiffs thirty days within which to file a notice of appeal. The Court has not yet entered an order granting this motion.

On or about August 8, 2005, the defendants filed a motion for attorneys fees and expenses of litigation. On or about August 12, 2005, the plaintiffs
filed a motion for attorneys fees and expenses of litigation as to one defense asserted by the defendants. On April 20, 2006, the Court held a hearing addressing only the liability aspects of the defendants and the plaintiffs
motions for attorneys fees and expenses. The Court has not yet ruled on either partys motion.



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|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, 2005.

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;



| |  |  | 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 the
Partnership owns and operates its real estate assets during the initial lease terms of the tenants;



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

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

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 or remain low in the near term, given there is only one asset remaining.

Property Summary

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.



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Information relating to the properties owned, or previously owned, by the joint ventures is provided below:



| |  |  | 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Overview

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 generally considered available for distribution to the Class A limited partners and, unless reserved, 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 could be adversely affected.

Short-Term Liquidity

During the three months ended March 31, 2006, we generated net operating cash flows, including operating distributions received from the Joint Ventures, of
approximately $1,500, as compared to approximately $13,600 for the three months ended March 31, 2005. The 2006 decrease is primarily attributable to a corresponding decrease in operating distributions received from the Joint Ventures as a
result of the sale of 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.

We expect operating distributions to limited partners will remain low or be reserved in the near-term,
as we intend to fund our pro-rata share of re-leasing costs anticipated in connection with preparing Boeing at the Atrium for sale. To the extent of any future operating distributions paid 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 Fund II-III
Associates.

We believe that the cash on hand is sufficient to cover our working capital needs, including liabilities of approximately $28,000, as of
March 31, 2006. 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 2006.

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



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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.

Fund II-III Associates funds capital expenditures primarily related to building improvements for the purpose of maintaining the quality of our remaining property, and
tenant improvements for the purpose of readying our remaining property 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 Fund II-III Associates will be required to be funded by the Partnership and respective joint venture partners on a pro-rata basis.

Operating cash flows, if available, are generally distributed from the Joint Ventures to the Partnership approximately one month following calendar quarter-ends.
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 March 31, 2006, we had received, used, and held net sale proceeds allocated to the Partnership from
the sale of properties as presented below:



|                                                 |  |                  |            |                                      |       |         |                                              |   |                          |  |                                                             |         |                                                   |                                             |  |   |            |  |   |        
|------------------------------------------------ |  | ---------------- | ---------- | ------------------------------------ | ----- | ------- | -------------------------------------------- | - | ------------------------ |  | ----------------------------------------------------------- | ------- | ------------------------------------------------- | ------------------------------------------- |  | - | ---------- |  | - | -------
|Property Sold                                    |  | Net SaleProceeds |            | Partnerships ApproximateOwnership % |       |         | Net SaleProceeds Allocated to thePartnership |   | Use of Net Sale Proceeds |  | Net SaleProceeds Distributed toPartners as ofMarch 31, 2006 |         | UndistributedNet SaleProceeds as ofMarch 31, 2006
|                                                 |  |                  |            | Amount                               |       | Purpose |                                              |  
|                                                 |  |                  |            |                                      |       |         |                                             
|Greenville Center(sold in 2002)                  |  | $                | 2,271,187  |                                      | 100.0 | %       |                                              | $ | 2,271,187                |  | $                                                           | 0       |                                                   |                                            |  | $ | 2,271,187  |  | $ | 0      
|                                                 |  |                  |            |                                      |       |         |                                             
|Stockbridge VillageShopping 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 BridgeProperty(sold in 2004)             |  |                  | 6,889,379  |                                      | 8.8   | %       |                                              |   | 607,643                  |  |                                                             | 58,283  |                                                   |   Re-leasing 4400 Cox Road building (2004) |  |   | 549,360    |  |   | 0      
|                                                 |  |                  |            |                                      |       |         |                                             
|Brookwood Grill(sold in 2004)                    |  |                  | 2,318,115  |                                      | 37.7  | %       |                                              |   | 872,770                  |  |                                                             | 84,746  |                                                   |   Re-leasing 4400 Cox Road building (2004) |  |   | 788,024    |  |   | 0      
|                                                 |  |                  |            |                                      |       |         |                                             
|4400 Cox Road(sold in 2005)                      |  |                  | 6,308,796  |                                      | 57.2  | %       |                                              |   | 3,609,357                |  |                                                             | 0       |                                                   |                                            |  |   | 2,833,662  |  |   | 775,695
|                                                 |  |                  |            |                                      |       |         |                                              |   |                          |  |                                                             |         |                                                   |                                             |  |   |            |  |   |        
|                                                 |  |                  |            |                                      |       |         |                                             
|Total                                            |  |                  |            |                                      |       |         |                                              | $ | 14,240,195               |  | $                                                           | 769,495 |                                                   |                                             |  | $ | 12,695,005 |  | $ | 775,695
|                                                 |  |                  |            |                                      |       |         |                                              |   |                          |  |                                                             |         |                                                   |                                             |  |   |            |  |   |        



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Upon evaluating the capital needs of the remaining property in which we currently hold an interest, our General Partners
have estimated that substantially all of the undistributed net sale proceeds above will be required to fund the Partnerships share of anticipated re-leasing costs and capital improvements for Boeing at the Atrium.

Results of Operations

Equity in Income of Joint Ventures

Equity in income of Joint Ventures was $29,307 and $45,933 for the three months ended March 31, 2006 and 2005, respectively. The 2006 decrease is
primarily attributable to forgone operating income as a result of the sale of 4400 Cox Road in June 2005. We expect equity in income of Joint Ventures to remain at similar levels, given the remaining property in the portfolio is currently
stabilized.

Expenses

Our total expenses were $50,549
and $41,732 for the three months ended March 31, 2006 and 2005, respectively. The 2006 increase is primarily attributable to an increase in legal fees and printing costs associated with increased reporting and regulatory requirements. We
anticipate additional increases in our administrative expenses in future periods resulting from increased costs relating to compliance with reporting and regulatory requirements.

Interest and Other Income

Interest and other income were $11,442 and $14,013 for the three months ended
March 31, 2006 and 2005, respectively. The 2006 decrease is a result of a decrease in the average amount of net sale proceeds held during the respective periods primarily as a result of (i) net sales proceeds distributed in May 2005 and
November 2005, partially offset by (ii) the net sale proceeds received from the sale of 4400 Cox Road property in June 2005 and (iii) an increase in the daily interest yield. Future levels of interest income will be largely dependent upon
the timing of future dispositions and net sale proceeds distributions to the investors.

Inflation

We are exposed to inflation risk as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our
tenant leases that would protect us from the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per-square-foot basis, or in
some cases, annual reimbursement of operating expenses above a certain per-square-foot allowance. However, due to the long-term nature of our leases, the leases may not readjust their reimbursement rates frequently enough to cover inflation.

Application of Critical Accounting Policies

Summary

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.



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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 our depreciable assets. We will consider the period
of future benefit of the remaining property to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives for the remaining real estate assets owned through Fund II-III Associates by
class are as follows:



|                      |  |                                       
|--------------------- |  | --------------------------------------
|Buildings             |  | 40 years                              
|Building improvements |  | 5-25 years                            
|Land improvements     |  | 20 years                              
|Tenant improvements   |  | Shorter of lease term or economic life

In the event that Fund II-III Associates utilizes 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 amount of the remaining property in which we have an ownership interest, through investment in Fund II-III Associates, may not be recoverable.
When indicators of potential impairment are present which indicate that the carrying amount of real estate asset may not be recoverable, management assesses the recoverability of the real estate asset by determining whether the carrying value of the
real estate asset 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 asset to the fair value, as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and recognizes an impairment loss. Estimated fair value is calculated based on
the following information, dependent upon availability, in order of preference: (i) recently quoted market price, (ii) market prices for comparable properties, or (iii) the present value of undiscounted cash flows, including estimated
salvage value. We have determined that there has been no impairment in the carrying value of the remaining real estate asset held as of March 31, 2006.

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 the remaining real estate asset held by Fund II-III Associates and net income of the Partnership.

Related-Party Transactions

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 4 to our financial statements included in this report for a description of these fees and expense reimbursements we have
incurred.

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

The American Jobs Creation Act of 2004 added Section 470 to the Internal Revenue Code, which provides certain limitations on the utilization of losses by investors
that are allocable to leased property owned by a



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partnership having both taxable and tax-exempt partners such as the Partnership. In March 2005, the Internal Revenue Service (IRS)
issued IRS Notice 2005-29, which announced that the IRS would not apply Section 470 to partnerships for the taxable year 2004 based solely on the fact that a partnership had both taxable and tax-exempt partners. In December 2005, the IRS
issued IRS Notice 2006-2 extending the period for transitional relief through the 2005 tax year; however, it is important to note that IRS Notices 2005-29 and 2006-2 provide relief for partnerships only for tax years 2004 and 2005. Although the IRS
has indicated that it is continuing to study the application of Section 470 to partnerships, such as the Partnership, unless further legislation is enacted to address this issue, or some other form of relief from the provisions of
Section 470 of the American Jobs Creation Act of 2004 is granted, beginning in tax year 2006, 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.



|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 March 31, 2006 that have materially affected, or are
likely to materially affect, our internal control over financial reporting.



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PART II.    OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are from time to time a party to other legal
proceedings, which arise in the ordinary course of our business. We are not currently involved in any litigation the outcome of which would, in managements judgment based on information currently available, have a material adverse effect on
our results of operations or financial condition, nor is management aware of any such litigation threatened against us during the quarter ended March 31, 2006, requiring disclosure under Item 103 of Regulation S-K.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There have been no material changes from the risk
factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005.



|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 March 31, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



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



|(c) | We did not redeem any securities during the quarter ended March 31, 2006.
|--- | -------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------



|(a) | We were not subject to any indebtedness and, therefore, did not default with respect to any indebtedness during the quarter ended March 31, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



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



|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 March 31, 2006.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------



|(a) | During the quarter ended March 31, 2006, there was no information 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 First Quarter Form 10-Q attached hereto.



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SIGNATURES

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



|             |  |  |  |                                                                                                    |  |                                                
|------------ |  |  |  | -------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|             |  |  |  | WELLS REAL ESTATE FUND III, L.P. (Registrant)                                                     
|             |  |  | 
|             |  |  |  | By:                                                                                                |  | WELLS CAPITAL, INC. (Corporate General
Partner)
|             |  | 
|May 11, 2006 |  |  |  | /S/    LEO F. WELLS,
III                                                                          
|             |  |  |  | Leo F. Wells, III President, Principal
Executive Officer, and Sole Director of Wells Capital, Inc.
|             |  | 
|May 11, 2006 |  |  |  | /S/    DOUGLAS P.
WILLIAMS                                                                        
|             |  |  |  | Douglas P. Williams Principal Financial
Officer of Wells Capital, Inc.                            



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EXHIBIT INDEX

TO

FIRST 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