<PAGE>
 
                      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   June 30, 1998  or
                                 -------------
 
 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act 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              (I.R.S. Employer Identification No.)
incorporation or organization)

3885 Holcomb Bridge Road, Norcross, Georgia           30092
____________________________________________________________
(Address of principal executive offices)          (Zip Code)

Registrant's telephone number, including area code (770) 449-7800
                                                   ----------------------------
_______________________________________________________________________________
  (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 
     -------  --------

                                       1
<PAGE>
 
                                   Form 10-Q
                                   ---------

                        Wells Real Estate Fund III, L.P.
                        --------------------------------

                                     INDEX
                                     -----
                                        

                                                                       Page No.

PART I.  FINANCIAL INFORMATION
 
         Item 1.  Financial Statements
 
            Balance Sheets - June 30, 1998
             and December 31, 1997........................................... 3

            Statements of Income for the Six Months
             Ended June 30, 1998 and 1997.................................... 4

            Statement of Partner's Capital for the
             Six Months Ended June 30, 1998
             and the Year Ended December 31, 1997............................ 5

            Statements of Cash Flows for the Six
             Months Ended June 30, 1998 and 1997............................. 6

            Condensed Notes to Financial Statements.......................... 7

         Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations......................................................  8

PART II.    OTHER INFORMATION............................................... 16

                                       2
<PAGE>
 
                       WELLS REAL ESTATE FUND III, L.P.
                    (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                                BALANCE SHEETS

Assets                                       June 30, 1998  December  31, 1997
------                                       -------------  ------------------
 
Real estate, at cost:
 Land                                          $   576,350         $   576,350
 Building and improvements, less accumulated   
 depreciation of $811,098 in 1998 and $771,521 
 in 1997                                         2,714,927           2,794,080
 Construction in progress                           34,615                   0
                                               -----------         -----------
                                               
  Total real estate                              3,325,892           3,370,430
                                               -----------         -----------
                                               
Cash and cash equivalents                          122,431             216,961
Investment in joint ventures (Note 2)           12,489,655          12,807,576
Due from affiliates                                332,363             316,089
Accounts receivable                                 52,997              62,621
Prepaid expenses and other assets                   30,306              17,990
                                               -----------         -----------
                                               
  Total assets                                 $16,353,644         $16,791,667
                                               ===========         ===========
                                               
          Liabilities and Partners' Capital    
          ---------------------------------    
                                               
Liabilities:                                   
 Accounts payable                              $    21,961         $     7,535
 Partnership distributions payable                 396,315             396,991
 Due to affiliates                                   8,313               3,436
                                               -----------         -----------
                                               
  Total liabilities                                426,589             407,962
                                               -----------         -----------
                                               
Partners' capital:                             
 General Partners                                        0                   0
 Limited Partners:                             
  Class A - 19,635,965 units outstanding        15,927,055          16,383,705
  Class B - 2,544,540 units outstanding                  0                   0
                                               -----------         -----------
                                               
     Total partners' capital                    15,927,055          16,383,705
                                               -----------         -----------
                                               
     Total liabilities and partners' capital   $16,353,644         $16,791,667
                                               ===========         ===========

            See accompanying condensed notes to financial statements

                                       3
<PAGE>
 
                        WELLS REAL ESTATE FUND III, L.P.
                     (A Georgia Public Limited Partnership)
                                        
                              STATEMENTS OF INCOME
<TABLE> 
<CAPTION> 
                                        
                                                    Three Months Ended                               Six Months Ended
                                         --------------------------------------             --------------------------------------
                                         June 30, 1998            June 30, 1997             June 30, 1998            June 30, 1997
                                         -------------            -------------             -------------            -------------
Revenues:
<S>                                            <C>                        <C>                      <C>                       <C>    

  Rental income (note 2)                     $139,893                 $147,935                  $277,658                 $295,612
  Equity in earnings of joint            
   ventures (Note 2)                          145,157                   46,007                   262,420                   90,880
  Interest income                                 390                    3,009                     1,019                   10,168
                                             --------                 --------                  --------                 --------
                                              285,440                  196,951                   541,097                  396,660
                                         
Expenses:                                
  Management & leasing fees                    10,983                   28,507                    19,766                   37,615
  Operating costs-rental property              48,244                   25,917                    94,601                   81,111
  Depreciation                                 39,577                   41,428                    79,154                   82,855
  Legal & accounting                            9,148                   11,057                    13,919                   22,674
  Computer costs                                1,838                    1,651                     3,848                    4,957
  Partnership administration                   13,061                   12,974                    21,490                   27,626
                                             --------                 --------                  --------                 --------
                                              122,851                  121,534                   232,778                  256,838
                                             --------                 --------                  --------                 --------
  Net income                                 $162,589                 $ 75,417                  $308,319                 $139,822
                                             ========                 ========                  ========                 ========
                                         
Net income allocated to                  
  General Partners                           $      0                 $      0                  $      0                 $      0
                                         
Net income allocated to Class            
  A Limited Partners                         $162,589                 $ 75,417                  $308,319                 $139,822
                                         
Net loss allocated to Class B            
  Limited Partners                           $      0                 $      0                  $      0                 $      0
                                         
Net income per Class A Limited           
  Partner Unit                               $    .01                 $   0.00                  $   0.02                 $   0.01
                                         
Net loss per Class B                     
  Limited Partner Unit                       $  (0.00)                $  (0.00)                 $  (0.00)                $  (0.00)
                                         
Cash distribution per Class A            
  Limited Partner Unit                       $   0.02                 $   0.00                  $   0.04                 $   0.00

</TABLE> 

            See accompanying condensed notes to financial statements

                                       4
<PAGE>
 
                       WELLS REAL ESTATE FUND III, L.P.
                    (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                        STATEMENTS OF PARTNERS' CAPITAL
         FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE SIX MONTHS ENDED
                                 JUNE 30, 1998
<TABLE> 
<CAPTION> 
                                                   LIMITED PARTNERS                     TOTAL
                                     ---------------------------------------------
                                              CLASS A                CLASS B          PARTNERS'
                                     -------------------------  ------------------
                                       UNITS        AMOUNTS       UNITS    AMOUNTS     CAPITAL
                                     ----------  -------------  ---------  -------  -------------
<S>                                  <C>          <C>           <C>          <C>     <C> 
BALANCE, DECEMBER 31, 1996           19,635,965   $16,743,131   2,544,540       $0   $16,743,131
 Net income                                   0       385,224           0        0       385,224
 Partnership distributions                    0      (744,650)          0        0      (744,650)
                                     ----------   -----------   ---------       --   -----------
BALANCE, DECEMBER 31, 1997           19,635,965    16,383,705   2,544,540        0    16,383,705
 
 Net income                                   0       308,319           0        0       308,319
 Partnership distributions                    0      (764,969)          0        0      (764,969)
                                     ----------   -----------   ---------       --   -----------
BALANCE, JUNE 30, 1998               19,635,965   $15,927,055   2,544,540       $0   $15,927,055
                                     ==========   ===========   =========       ==   ===========
</TABLE> 
           See accompanying condensed notes to financial statements.

                                       5
<PAGE>
 
                        WELLS REAL ESTATE FUND III, L.P.
                     (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS

 <TABLE> 
 <CAPTION> 
                                                                                       Six Months Ended
                                                                          -------------------------------------------
                                                                           June 30, 1998                June 30, 1997
                                                                           -------------                -------------
<S>                                                                         <C>                         <C>  
Cash flows from operating activities:
 Net income                                                                    $ 308,319                    $ 139,822
 Adjustments to reconcile net income to net cash
  provided by operating activities:
   Equity in income of joint ventures                                           (262,420)                     (90,880)
   Depreciation                                                                   79,154                       82,855
   Changes in assets and liabilities:
     Accounts receivable                                                          13,927                       (7,809)
     Prepaids and other assets                                                   (12,316)                       1,101
     Accounts payable                                                             14,426                        4,292
     Due to affiliates                                                             4,877                        6,731
                                                                               ---------                    ---------
      Net cash provided by operating activities                                  145,967                      136,112
                                                                               ---------                    ---------
 
Cash flow from investing activities:
 Investment in joint ventures                                                    (79,491)                    (532,855)
 Distributions received from joint ventures                                      604,639                      433,515
                                                                               ---------                    ---------
      Net cash provided by investing activities                                  525,148                      (89,340)
 
Cash flow from financing activities:
 Partnership distribution paid                                                  (765,645)                    (320,761)
                                                                               ---------                    ---------
 
Net decrease in cash and cash equivalents                                        (94,530)                    (273,989)
 
Cash and cash equivalents, beginning of year                                     216,961                      342,318
                                                                               ---------                    ---------
 
Cash and cash equivalents, end of period                                       $ 122,431                    $  68,329
                                                                               =========                    =========
</TABLE> 
           See accompanying condensed notes to financial statements.

                                       6
<PAGE>
 
                       WELLS REAL ESTATE FUND III, L.P.
                    (A Georgia Public Limited Partnership)

                    Condensed Notes to Financial Statements

(1)  Summary of Significant Accounting Policies
     ------------------------------------------

     (a)  General
     ------------

     Wells Real Estate Fund III, L.P. (the "Partnership") is a Georgia public
     limited partnership having Leo F. Wells, III and Wells Capital, Inc., a
     Georgia corporation, as General Partners.  The Partnership was formed on
     July 31, 1988, for the purpose of acquiring, developing, constructing,
     owning, operating, improving, leasing and otherwise managing for investment
     purposes income-producing commercial properties.

     On October 24, 1988, the Partnership commenced a public offering of its
     limited partnership units pursuant to a Registration Statement filed on
     Form S-11 under the Securities Act of 1933.  The Partnership terminated its
     offering on October 23, 1990, and received gross proceeds of $22,206,319
     representing subscriptions from 2,700 Limited Partners, composed of two
     classes of limited partnership interests, Class A and Class B limited
     partnership units.

     The Partnership owns interests in properties through equity ownership in
     the following joint ventures:  (i) The Fund II - Fund III Joint Venture,
     (ii) The Fund II, III, VI and VII Associates Joint Venture and (iii) The
     Fund III - Fund IV Joint Venture.

     As of June 30, 1998, the Partnership owned interest in the following
     properties:  (i) the Greenville Property, an office building in Greenville,
     North Carolina, owned directly by the Partnership,  (ii) Boeing at the
     Atrium, an office building in Houston, Texas, owned directly by Fund II -
     Fund III Joint Venture, (iii) the Brookwood Grill, a restaurant located in
     Roswell, Georgia, owned by The Fund II - Fund III Joint Venture, (iv) the
     Stockbridge Village Shopping Center, a retail shopping center located in
     Stockbridge, Georgia, southeast of Atlanta, owned by Fund III - Fund IV
     Joint Venture, (v) the G.E. Office Building located in Richmond, Virginia,
     owned by Fund III - Fund IV Joint Venture, and (vi) the Holcomb Bridge Road
     Property, an office/retail center in Roswell, Georgia, owned by Fund II,
     III, VI and VII Joint Venture.  All of the foregoing properties were
     acquired on an all cash basis.

     (b)  Basis of Presentation
     --------------------------

     The financial statements of Wells Real Estate Fund III, L.P. have been
     prepared in accordance with instructions to Form 10-Q and do not include
     all of the information and footnotes required by generally accepted
     accounting principles for complete financial statements.  These quarterly
     statements have not been examined by independent accountants, but in the
     opinion of the General Partners, the statements for the unaudited interim
     periods presented include all adjustments, which are of a normal and

                                       7
<PAGE>
 
     recurring nature, necessary to present a fair presentation of the results
     for such periods. For further information, refer to the financial
     statements and footnotes included in the Partnership's Form 10-K for the
     year ended December 31, 1997.

(2)  Investment in Joint Ventures
     ----------------------------

     The Partnership does not have control over the operations of the joint
     ventures; however, it does exercise significant influence.  Accordingly,
     investment in joint ventures is recorded on the equity method.

     For a description of the joint ventures and properties owned by the
     Partnership, please refer to the Partnership's Form 10-K for the year ended
     December 31, 1997.

     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 of the Partnership and notes thereto.
     This Report contains forward-looking statements, with the meaning of
     Section 27A of the Securities Act of 1993 and 21E of the Securities
     Exchange Act of 1934, including discussion and analysis of the financial
     condition of the Partnership, anticipated capital expenditures required to
     complete certain projects, amounts of cash distributions anticipated to be
     distributed to Limited Partners in the future and certain other matters.
     Readers of this Report should be aware that there are various factors that
     could cause actual results to differ materially from any forward-looking
     statement made in the Report, which include construction costs which may
     exceed estimates, construction delays, lease-up risks, inability to obtain
     new tenants upon the expiration of existing leases, and the potential need
     to fund tenant improvements or other capital expenditures out of operating
     cash flow.

     Results in Operations and Changes in Financial Conditions
     ---------------------------------------------------------

     General
     -------

     As of June 30, 1998, the properties owned by the Partnership were 97.5%
     occupied.  Gross revenues of the Partnership were $541,097 for the six
     months ended June 30, 1998, as compared to $396,660 for the six months
     ended June 30, 1997.   The increase for 1998 over 1997 was due to increased
     income from joint ventures, primarily due to occupancy increases at Boeing
     at the Atrium and the 880 Holcomb Bridge Road Property in Roswell, Georgia.

                                       8
<PAGE>
 
     Expenses of the Partnership decreased from $256,838 for the six months
     ended June 30, 1997, to $232,778 for the six months ended June 30, 1998.
     The decrease in expenses was due primarily to decreased operating costs,
     legal and accounting expenses, and computer costs.

     Net cash provided by operating activities increased for the six months
     ended due primarily to an increase in accounts payable.

     Net cash provided by investing activities increased from $(89,340) in 1997
     to $525,148 in 1998, due to increased distribution from joint ventures.  As
     a result cash and cash equivalents increased for the six months ended June
     30, 1998, as compared to the same period of 1997.

     The Partnership's distributions paid and payable through the second quarter
     of 1998 have been paid from net cash from operations and from distributions
     received from its investments in joint ventures, and the Partnership
     anticipates that distributions will continue to be paid on a quarterly
     basis from such sources.  The Partnership expects to meet liquidity
     requirements and budget demands through cash flows.

     The Partnership is unaware of any know demands, commitments, events or
     capital expenditures other than that which is required for the normal
     operations of its properties or the properties in which it owns a joint
     venture interest that will result in the Partnership's liquidity increasing
     or decreasing in any material way.

     The General Partners have verified that all operational computer systems
     are year 2000 compliant.  This includes systems supporting accounting,
     property management and investor services.  Also, as part of this review,
     all building control systems have been verified as compliant.  The current
     line of business applications are based on compliant operating systems and
     database servers.  All of these products are scheduled for additional
     upgrades before the year 2000.  Therefore, it is not anticipated that the
     year 2000 will have significant impact on operations.

     RECENT ACCOUNTING PRONOUNCEMENTS
     --------------------------------

     Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
     Comprehensive Income", requires certain transactions (e.g., unrealized
     gains/losses on available for sale securities) that are not reflected in
     net income to be displayed as other comprehensive income.  The Statement
     also requires an entity to report total comprehensive income (i.e., net
     income plus other comprehensive income) for every period in which an income
     statement is presented.  SFAS No. 130 is effective for annual and interim
     periods beginning after December 15, 1997.  None of the transactions
     required to be reported in other comprehensive income pertain to the
     Partnership; consequently, adoption of this Statement had no impact on the
     partnership's disclosures.

                                       9
<PAGE>
 
PROPERTY OPERATIONS
-------------------

As of June 30, 1998, the Partnership owned interests in the following
properties:

The Greenville Property - Fund III
----------------------------------
<TABLE> 
<CAPTION> 
 
                                                     Three Months Ended                               Six Months Ended
                                          --------------------------------------             -----------------------------------
                                          June 30, 1998            June 30, 1997             June 30, 1998         June 30, 1997
                                          -------------           --------------            --------------         -------------
Revenues:
<S>                                       <C>                       <C>                      <C>                   <C> 
 Rental income                                 $139,893                 $147,935                  $277,658               $295,612
 
Expenses:
 Depreciation                                    39,577                   28,507                    79,154                 82,855
 Management & leasing expenses                   19,995                   41,428                    36,969                 37,615
 Other operating expenses                        39,232                   25,917                    77,398                 81,111
                                               --------                 --------                  --------               --------
                                                 98,804                   95,852                   193,521                201,581
                                               --------                 --------                  --------               --------
 
Net  income                                    $ 41,089                 $ 52,083                  $ 84,137               $ 94,031
                                               ========                 ========                  ========               ========
 
Occupied %                                         92.0%                   100.0%                     92.0%                 100.0%
 
Partnership Ownership %                           100.0%                   100.0%                    100.0%                 100.0%
 
Cash generated to the Partnership              $ 90,209                 $ 95,477                  $181,791               $180,940
 
Net income generated to the
 Partnership                                   $ 41,089                 $ 52,083                  $ 84,137               $ 94,031
 
</TABLE> 
Rental income and net income decreased from 1997 to 1998, due to the decline in
occupancy from 100% to 92%.

                                       10
<PAGE>
 
Boeing at the Atrium/Fund II and Fund III Joint Venture
-------------------------------------------------------
<TABLE> 
<CAPTION> 
 
                                                     Three Months Ended                               Six Months Ended
                                          --------------------------------------             -------------------------------------
                                           June 30, 1998            June 30, 1997             June 30, 1998          June 30, 1997
                                           -------------           --------------            --------------          -------------
Revenues:
<S>                                        <C>                      <C>                      <C>                    <C> 
 Rental income                                  $367,536                $ 189,696                 $ 735,072              $ 189,696
 Interest income                                  13,280                      100                    13,280                  2,617
                                                --------                ---------                 ---------              ---------
                                                 380,816                  189,796                   748,352                192,313
                                                --------                ---------                 ---------              ---------
Expenses:
 Depreciation                                    216,930                  168,643                   433,860                337,285
 Management & leasing expenses                    44,679                   29,010                    89,167                 29,010
 Other operating expenses                        183,393                  191,232                   341,824                289,199
                                                --------                ---------                 ---------              ---------
                                                 445,002                  388,885                   864,851                655,494
                                                --------                ---------                 ---------              ---------
 
Net  (loss)                                    $ (64,186)               $(199,089)                $(116,499)             $(463,181)
                                               =========                =========                 =========              =========
 
Occupied %                                         100.0%                   100.0%                    100.0%                 100.0%
 
Partnership Ownership %                             38.7%                    38.7%                     38.7%                  38.7%
 
Cash distributed to the Partnership             $ 66,712                $       0                 $ 138,019              $       0
 
Net loss allocated to the                       $(24,840)               $ (77,047)                $ (45,085)             $(167,895)
 Partnership
</TABLE> 

Rental income increased for the three months and six months ended June 30, 1998,
compared to the same period in 1997, due to the vacancy of the Atrium for the
first four and a half months of 1997.

Depreciation, management and leasing, and other expenses have increased in 1998
compared to 1997 with the occupancy of the building by Boeing.  Cash generated
to the Partnership increased, due primarily to the increase in rental revenues
and reimbursement of tenant improvements of approximately $12,000 received from
Boeing.

                                       11
<PAGE>
 
The Brookwood Grill Property/Fund II and Fund III Joint Venture
---------------------------------------------------------------

<TABLE>
<CAPTION>
                                                     Three Months Ended                               Six Months Ended
                                          --------------------------------------             -----------------------------------
                                           June 30, 1998            June 30, 1997             June 30, 1998         June 30, 1997
                                           -------------           --------------            --------------         -------------
Revenues:
<S>                                         <C>                        <C>                      <C>                 <C>
 Rental income                                  $ 56,037                  $56,187                  $112,375               $112,731
 Equity in income of joint venture                16,943                    7,498                    33,074                 18,355
                                                --------                  -------                  --------               --------
                                                  72,980                   63,685                   145,449                131,086
Expenses:                                  
 Depreciation                                     13,503                   13,503                    27,006                 27,006
 Management & leasing expenses                     6,492                    7,284                    13,525                 14,045
 Other operating expenses                        (23,721)                  13,872                   (18,492)                16,131
                                                --------                  -------                  --------               --------
                                                  (3,726)                  34,659                    22,039                 57,182
                                                --------                  -------                  --------               --------
                                           
Net income                                      $ 76,706                  $29,026                  $123,410               $ 73,904
                                                ========                  =======                  ========               ========
                                           
Occupied %                                         100.0%                   100.0%                    100.0%                 100.0%
                                           
Partnership Ownership %                             37.6%                    37.6%                     37.6%                  37.6%
                                           
Cash distributed to the Partnership             $ 46,112                  $26,215                  $ 80,925               $ 54,675
                                           
Net income allocated to the                
 Partnership                                    $ 28,880                  $10,928                  $ 46,464               $ 27,825
</TABLE>

Although rental income remained stable, total revenues increased for the three
and six month periods ended June 30, 1998, as compared to the same periods in
1997, due to the increased equity in income from the Fund II, III, VI, and VII
Joint Venture, as the Holcomb Bridge Property became 100% occupied.  Operating
expenses decreased for the three months ended June 30, 1998, as compared to the
same period in 1997, due primarily to the billing of reimbursements during the
second quarter in 1998, as compared to billing in the first quarter of 1997.
Year-to-date operating expenses decreased in 1998, as compared to 1997, due
primarily to a change in method of billing water reimbursements to the tenant
which will result in the tenant being charged for a greater share of the total
bill.

                                       12
<PAGE>
 
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
----------------------------------------------------------------

<TABLE>
<CAPTION>
                                                     Three Months Ended                               Six Months Ended
                                          --------------------------------------             -----------------------------------
                                          June 30, 1998            June 30, 1997             June 30, 1998          June 30, 1997
                                          -------------           --------------             -------------          -------------
Revenues:
<S>                                         <C>                        <C>                      <C>                 <C>
 Rental income                                 $208,645                 $135,912                  $421,880               $296,097
                                     
Expenses:                            
 Depreciation                                    94,129                   69,982                   188,033                136,112
 Management & leasing expenses                   29,888                   22,483                    59,252                 43,063
 Other operating expenses                        13,797                   13,633                    26,830                 43,940
                                               --------                 --------                  --------               --------
                                                137,814                  106,098                   284,115                223,115
                                               --------                 --------                  --------               --------
                                     
Net income                                     $ 70,831                 $ 29,814                  $137,765               $ 72,982
                                               ========                 ========                  ========               ========
                                     
Occupied %                                        100.0%                    72.7%                    100.0%                  72.7%
                                     
Partnership Ownership %                           11.57%                    9.50%                    11.57%                  9.50%
                                     
Cash distributed to the Fund II-     
 Fund III Joint Venture*                       $ 41,990                 $ 25,828                  $ 83,158               $ 53,324
                                     
Net income allocated to the          
 Fund II-Fund III Joint Venture*               $ 16,943                 $  7,498                  $ 33,074               $ 18,355
</TABLE>
*The Partnership holds a 37.65% ownership in the Fund II-Fund III Joint Venture.

In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road to the Fund II, III, VI,
VII Joint Venture.  Development has been completed on two buildings with a total
of approximately 49,500 square feet.

As of June 30, 1998, fourteen tenants are occupying approximately 49,500 square
feet of space in the retail and office building under leases of varying lengths.
Increases in revenues, expenses and net income for the quarter and six months
ended June 30, 1998, compared to the same quarter of 1997, are due to the
property being 100% occupied as of June 30, 1998, as compared to the same period
of 1997.

                                       13
<PAGE>
 
The G.E. Building/Richmond-Fund III-Fund IV Joint Venture
---------------------------------------------------------
 
<TABLE>
 <CAPTION> 
                                                     Three Months Ended                               Six Months Ended
                                          --------------------------------------             ------------------------------------
                                          June 30, 1998            June 30, 1997             June 30, 1998          June 30, 1997
                                          -------------           --------------            --------------          -------------
Revenues:
<S>                                         <C>                        <C>                      <C>                 <C>
 Rental income                                 $131,856                 $131,856                  $263,712               $263,712
                                       
Expenses:                              
 Depreciation                                    49,053                   49,056                    98,106                 98,112
 Management & leasing expenses                   10,095                    9,965                    20,109                 19,930
 Other operating expenses                            97                      289                    15,552                  3,692
                                               --------                 --------                  --------               --------
                                                 59,245                   59,310                   133,767                121,734
                                               --------                 --------                  --------               --------
                                       
Net income                                     $ 72,611                 $ 72,546                  $129,945               $141,978
                                               ========                 ========                  ========               ========
                                       
Occupied %                                        100.0%                   100.0%                    100.0%                 100.0%
                                       
Partnership Ownership %                            57.3%                    57.3%                     57.3%                  57.3%
                                       
Cash distributed to the Partnership            $ 73,494                 $ 71,941                  $136,743               $140,684
                                       
Net income allocated to the            
 Partnership                                   $ 41,618                 $ 41,581                  $ 74,480               $ 81,377
</TABLE>

Rental income remained constant for 1998 and 1997.  Net income and cash
distributions generated from the G.E. Building decreased for the six months
ended June 30, 1998, as compared to the same period in 1997, due to increased
expenses in the first quarter of 1998 for extraordinary roof repairs.

                                       14
<PAGE>
 
The Stockbridge Village Shopping Center Property/Fund III-Fund IV Joint Venture
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                     Three Months Ended                               Six Months Ended
                                          --------------------------------------             -----------------------------------
                                           June 30, 1998             June 30, 1997            June 30, 1998          June 30, 1997
                                           -------------            --------------           --------------          -------------
Revenues:
<S>                                         <C>                        <C>                      <C>                 <C>
 Rental income                                  $300,521                 $274,300                  $585,885               $548,037
 Interest income                                   1,965                    2,474                     3,930                  6,117
                                                --------                 --------                  --------               --------
                                                 302,486                  276,774                   589,815                554,154
                                                --------                 --------                  --------               --------
Expenses:                                  
 Depreciation                                     86,120                   84,747                   170,867                169,494
 Management & leasing expenses                    26,360                   25,101                    54,823                 55,437
 Other operating expenses                         16,925                   43,845                    38,633                 68,263
                                                --------                 --------                  --------               --------
                                                 129,405                  153,693                   264,323                293,194
                                                --------                 --------                  --------               --------
                                           
Net income                                      $173,081                 $123,081                  $325,492               $260,960
                                                ========                 ========                  ========               ========
                                           
Occupied %                                            97%                      93%                       97%                    93%
                                           
Partnership Ownership %                             57.3%                    57.3%                     57.3%                  57.3%
                                           
Cash distributed to the Partnership             $146,046                 $122,863                  $269,528               $256,230
                                           
Net income allocated to the                
 Partnership                                    $ 99,498                 $ 70,545                  $186,561               $149,573
 
</TABLE>

Rental income increased for the three and six months ended June 30, 1998, as
compared to the same periods in 1997, due to increased rental renewal rates and
increased occupancy.  Expenses of the property decreased from $293,194 in 1997
to $264,323 in 1998, due primarily to differences in the annual adjustment for
prior year common area maintenance billings to tenants.

                                       15
<PAGE>
 
                          PART  II - OTHER INFORMATION
                          ----------------------------

Item 6(b).  No reports on Form 8-K were filed during the second quarter of 1998.

                                   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)
Dated:  August 10, 1998                    By:  /s/Leo F. Wells, III
                                           --------------------------------
                                           Leo F. Wells, III, as Individual
                                           General Partner and as President
                                           and Chief Financial
                                           Officer of Wells Capital, Inc.

                                       16