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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)



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

For the quarterly period ended June 30, 2009

or



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

For the transition period from
 to

0-18407





WELLS REAL ESTATE FUND III, L.P.

(Exact name of registrant as specified in its charter)







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

N/A

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

Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [Not yet applicable to
registrant.]    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated
filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈                Accelerated filer   ̈

Non-accelerated filer  x (Do not check if a smaller reporting
company)                Smaller reporting company   ̈

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 or the Registrant) 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 and provide distributions to
partners may be significantly hindered. See Item 1A. in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2008 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  June 30, 2009 (unaudited) and December 31, 2008                                                        |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Six Months Ended June 30, 2009 (unaudited) and 2008 (unaudited)       |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2008 and the Six Months Ended June 30, 2009 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Six Months Ended June 30, 2009 (unaudited) and 2008 (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                                                              |  | 21      
|         |  |                       | 
|         |  | Item 4T.              |  | Controls and Procedures                                                                                                 |  | 21      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                        
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                       |  | 22      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                            |  | 22      
|         |  |                       | 
|         |  | Item  2.              |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 22      
|         |  |                       | 
|         |  | Item  3.              |  | Defaults Upon Senior Securities                                                                                         |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                     |  | 22      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                       |  | 22      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                |  | 22      



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|PART I. | FINANCIAL INFORMATION
|------- | ---------------------



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

The information furnished in the
Partnerships accompanying balance sheets and 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, 2008. The Partnerships results of operations for the three months and six months ended June 30, 2009 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)June 30,2009 |           | December 31,2008
|Investment in joint venture                       |  | $                       | 46,683    |                  | $ | 2,841,331
|Cash and cash equivalents                         |  |                         | 2,659,919 |                  |   | 213,370  
|Other assets                                      |  |                         | 86        |                  |   | 461      
|                                                  |  |                         |           |                  |   |          
|Total assets                                      |  | $                       | 2,706,688 |                  | $ | 3,055,162
|                                                  |  |                         |           |                  |   |          
|                                                 
|LIABILITIES AND PARTNERS CAPITAL                
|LIABILITIES:                                      |  |                         |           |                  |   |          
|Accounts payable and accrued expenses             |  | $                       | 9,804     |                  | $ | 14,539   
|Due to affiliates                                 |  |                         | 8,368     |                  |   | 20,731   
|                                                  |  |                         |           |                  |   |          
|Total liabilities                                 |  |                         | 18,172    |                  |   | 35,270   
|                                                  |  |                        
|PARTNERS CAPITAL:                                |  |                         |           |                  |   |          
|Limited partners:                                 |  |                         |           |                  |   |          
|Class A  19,635,965 units issued and outstanding |  |                         | 2,676,011 |                  |   | 3,019,892
|Class B  2,544,290 units issued and outstanding  |  |                         | 12,505    |                  |   | 0        
|General partners                                  |  |                         | 0         |                  |   | 0        
|                                                  |  |                         |           |                  |   |          
|Total partners capital                           |  |                         | 2,688,516 |                  |   | 3,019,892
|                                                  |  |                         |           |                  |   |          
|Total liabilities and partners capital           |  | $                       | 2,706,688 |                  | $ | 3,055,162
|                                                  |  |                         |           |                  |   |          

See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.



STATEMENTS OF OPERATIONS



|                                                 |  |                                       |         |   |                                     |   |         |      |  |   |          |   |  |   |          |  
|------------------------------------------------ |  | ------------------------------------- | ------- | - | ----------------------------------- | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                 |  | (Unaudited)Three Months EndedJune 30, |         |   | (Unaudited)Six Months EndedJune 30, |  
|                                                 |  | 2009                                  |         |   | 2008                                |   |         | 2009 |  |   | 2008     |  
|                                                 |  |                                       |         |  
|EQUITY IN INCOME (LOSS) OF JOINT VENTURE         |  | $                                     | 31,255  |   |                                     | $ | (57,118 | )    |  | $ | (245,530 | ) |  | $ | (51,525  | )
|                                                 |  |                                       |         |  
|INTEREST AND OTHER INCOME                        |  |                                       | 2,273   |   |                                     |   | 6,018   |      |  |   | 2,705    |   |  |   | 16,355   |  
|                                                 |  |                                       |         |  
|GENERAL AND ADMINISTRATIVE EXPENSES              |  |                                       | 40,150  |   |                                     |   | 45,877  |      |  |   | 88,551   |   |  |   | 99,330   |  
|                                                 |  |                                       |         |   |                                     |   |         |      |  |   |          |   |  |   |          |  
|NET LOSS                                         |  | $                                     | (6,622  | ) |                                     | $ | (96,977 | )    |  | $ | (331,376 | ) |  | $ | (134,500 | )
|                                                 |  |                                       |         |   |                                     |   |         |      |  |   |          |   |  |   |          |  
|                                                 |  |                                       |         |  
|NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS: |  |                                       |         |   |                                     |   |         |      |  |   |          |   |  |   |          |  
|CLASS A                                          |  | $                                     | (19,127 | ) |                                     | $ | (96,977 | )    |  | $ | (343,881 | ) |  | $ | (134,500 | )
|                                                 |  |                                       |         |   |                                     |   |         |      |  |   |          |   |  |   |          |  
|CLASS B                                          |  | $                                     | 12,505  |   |                                     | $ | 0       |      |  | $ | 12,505   |   |  | $ | 0        |  
|                                                 |  |                                       |         |   |                                     |   |         |      |  |   |          |   |  |   |          |  
|                                                 |  |                                       |         |  
|NET INCOME (LOSS) PER LIMITED PARTNER UNIT:      |  |                                       |         |   |                                     |   |         |      |  |   |          |   |  |   |          |  
|CLASS A                                          |  |                                       | $0.00   |   |                                     |   | $0.00   |      |  |   | $(0.02   | ) |  |   | $(0.01   | )
|                                                 |  |                                       |         |   |                                     |   |         |      |  |   |          |   |  |   |          |  
|CLASS B                                          |  |                                       | $0.00   |   |                                     |   | $0.00   |      |  |   | $ 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, 2008

AND THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)



|                                   |  |                  |  |                 |           |                       |       |           |   |         |   |        |  |    |  |   |           |  
|---------------------------------- |  | ---------------- |  | --------------- | --------- | --------------------- | ----- | --------- | - | ------- | - | ------ |  | -- |  | - | --------- | -
|                                   |  | Limited Partners |  | GeneralPartners |           | TotalPartnersCapital |      
|                                   |  | Class A          |  |                 | Class B   |                       |      
|                                   |  | Units            |  | Capital         |           |                       | Units |           |   | Capital |   |       
|BALANCE, December 31, 2007         |  | 19,635,965       |  | $               | 3,311,325 |                       |       | 2,544,540 |   |         | $ | 0      |  | $0 |  | $ | 3,311,325 |  
|                                   |  |                  |  |                 |           |                      
|Class B limited partner rescission |  | 0                |  |                 | 0         |                       |       | (250      | ) |         |   | 0      |  | 0  |  |   | 0         |  
|Net loss                           |  | 0                |  |                 | (291,433  | )                     |       | 0         |   |         |   | 0      |  | 0  |  |   | (291,433  | )
|                                   |  |                  |  |                 |           |                       |       |           |   |         |   |        |  |    |  |   |           |  
|BALANCE, December 31, 2008         |  | 19,635,965       |  |                 | 3,019,892 |                       |       | 2,544,290 |   |         |   | 0      |  | 0  |  |   | 3,019,892 |  
|                                   |  |                  |  |                 |           |                      
|Net loss                           |  | 0                |  |                 | (343,881  | )                     |       | 0         |   |         |   | 12,505 |  | 0  |  |   | (331,376  | )
|                                   |  |                  |  |                 |           |                       |       |           |   |         |   |        |  |    |  |   |           |  
|BALANCE, June 30, 2009             |  | 19,635,965       |  | $               | 2,676,011 |                       |       | 2,544,290 |   |         | $ | 12,505 |  | $0 |  | $ | 2,688,516 |  
|                                   |  |                  |  |                 |           |                       |       |           |   |         |   |        |  |    |  |   |           |  

See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.



STATEMENTS OF CASH FLOWS



|                                                                                          |  |                                     |           |   |      |   |           |  
|----------------------------------------------------------------------------------------- |  | ----------------------------------- | --------- | - | ---- | - | --------- | -
|                                                                                          |  | (Unaudited)Six Months EndedJune 30, |          
|                                                                                          |  | 2009                                |           |   | 2008 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |  |                                     |           |   |      |   |           |  
|Net loss                                                                                  |  | $                                   | (331,376  | ) |      | $ | (134,500  | )
|Operating distributions received from joint venture                                       |  |                                     | 0         |   |      |   | 83,353    |  
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                                     |           |   |      |   |           |  
|Equity in loss of joint venture                                                           |  |                                     | 245,530   |   |      |   | 51,525    |  
|Changes in assets and liabilities:                                                        |  |                                     |           |   |      |   |           |  
|Decrease in other assets                                                                  |  |                                     | 375       |   |      |   | 3,061     |  
|Decrease in accounts payable and accrued expenses                                         |  |                                     | (4,735    | ) |      |   | (2,579    | )
|(Decrease) increase in due to affiliates                                                  |  |                                     | (12,363   | ) |      |   | 978       |  
|                                                                                          |  |                                     |           |   |      |   |           |  
|Net cash (used in) provided by operating activities                                       |  |                                     | (102,569  | ) |      |   | 1,838     |  
|                                                                                          |  |                                    
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |  |                                     |           |   |      |   |           |  
|Investment in joint venture                                                               |  |                                     | (247,882  | ) |      |   | (144,960  | )
|Net sale proceeds received from joint ventures                                            |  |                                     | 2,797,000 |   |      |   | 0         |  
|                                                                                          |  |                                     |           |   |      |   |           |  
|Net cash provided by (used in) investing activities                                       |  |                                     | 2,549,118 |   |      |   | (144,960  | )
|                                                                                          |  |                                     |           |   |      |   |           |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      |  |                                     | 2,446,549 |   |      |   | (143,122  | )
|                                                                                          |  |                                    
|CASH AND CASH EQUIVALENTS, beginning of period                                            |  |                                     | 213,370   |   |      |   | 1,244,856 |  
|                                                                                          |  |                                     |           |   |      |   |           |  
|CASH AND CASH EQUIVALENTS, end of period                                                  |  | $                                   | 2,659,919 |   |      | $ | 1,101,734 |  
|                                                                                          |  |                                     |           |   |      |   |           |  

See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.



CONDENSED NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2009 (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. (WREF). Leo F. Wells, III is the president and sole director of Wells Capital and the president, sole director, and sole owner of WREF. 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 sold approximately 19,635,965 Class A
Units and 2,544,540 Class B Units representing total limited partner capital contributions of $22,180,505, adjusted for the Partnership repurchase of 22,805 Class A Units and 3,000 Class B Units. Since the termination of the offering in 1990,
the total number of outstanding Class B Units has decreased to 2,544,290 due to the rescission of certain units.

The Partnership owned an indirect
interest in all of its real estate assets through a joint venture with other entities affiliated with the General Partners. During the periods presented, the Partnership owned an interest in the following joint venture (the Joint
Venture) and property:



|                                                                                  |  |                                                                  |  |                                                                               
|--------------------------------------------------------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------------------------------------------------
|Joint Venture                                                                     |  | Joint Venture Partners                                           |  | Property                                                                      
|Fund II and Fund III Associates (Fund II-III Associates or the Joint Venture) |  |   Fund II and Fund II-OW(1)   Wells Real Estate Fund III, L.P. |  | 2100Space Park Drive(2) A four-story office building located in Houston, Texas



| | (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 April 2009.
| | --- | -------------------------------------

Wells
Real Estate Fund II and Wells Real Estate Fund II-OW are affiliated with the Partnership through one or more common general partners. The property described above was acquired on an all-cash basis. For further information regarding the Joint Venture
and foregoing property, refer to the Partnerships Annual Report on Form 10-K for the year ended December 31, 2008.

On April 30, 2009, Fund
II-III Associates sold 2100 Space Park Drive to an unrelated third party for a gross sale price of $8,000,000. During the first quarter of 2009, Fund II-III Associates reduced the carrying value of 2100 Space Park Drive to its estimated fair
value, less estimated costs to sell, by recording an impairment loss of approximately $850,000. As a result of this sale, net proceeds of approximately $2,797,000 and a gain of approximately $21,000 were allocated to the Partnership in the second
quarter of 2009.



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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 (SEC), 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 Annual Report on Form 10-K for the year ended December 31, 2008. The Partnership has evaluated subsequent events occurring during the period from July 1, 2009 through August 12, 2009, the date of filing with
the SEC.

The Partnerships policy is to adopt the liquidation basis of accounting once the liquidation of the Partnership is imminent, which the
Partnership has defined as beginning on the first day of the quarter following the completion of the sale of all real estate assets. On April 30, 2009, the Partnership, through its investment in the Joint Venture, sold the remaining
property in the portfolio, 2100 Space Park Drive. Accordingly, the Partnership is planning to adopt the liquidation basis of accounting effective July 1, 2009. Under the liquidation basis of accounting, assets and liabilities will be stated at
their estimated net realizable values and net settlement amounts, respectively, and statements of operations and statements of cash flows will no longer be presented.

Investment in Joint Venture

The Partnership has evaluated the Joint Venture and concluded that it is not a variable
interest entity. The Partnership does not have control over the operations of the Joint Venture; 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 Venture, or its real property investments. Accordingly, the Partnership accounts for its investment in the Joint Venture 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 agreement, 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.

Evaluating the Recoverability of Real Estate Assets

The Partnership
continually monitored events and changes in circumstances that could have indicated that the carrying amounts of the real estate assets owned through the Partnerships investment in the Joint Venture were not recoverable. When indicators of
potential impairment were present which suggest that the carrying amounts of real estate assets may not be recoverable, management assessed the recoverability of the real estate assets by determining whether the respective carrying values would have
been recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition for assets held for use, or with the estimated fair values, less costs to sell, for assets held for
sale. In the event that the expected undiscounted future cash flows for assets held for use, or the estimated fair value, less costs to sell, for assets held for sale did not exceed the respective asset carrying value, management adjusted the real
estate assets to the respective estimated fair values, pursuant to the provisions of Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS
No. 144), and recognized an impairment loss. Estimated fair values were calculated based on the following information, in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market
prices for comparable properties, or (iii) the present value of future cash flows, including estimated salvage value.



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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 contribution, 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 Net 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Liquidating Distributions

Pursuant to the partnership agreement, after satisfying all debts and liabilities and
establishing reserves deemed reasonably necessary in the sole discretion of the General Partners, liquidating distributions will be allocated to the limited partners in accordance with their respective positive tax capital balances, as adjusted for
allocations of gain or loss on the sale of properties.

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, amortization, 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, such excess net income 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.



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Gain on the sale or exchange of the Partnerships properties will be allocated generally in the same manner that the
net proceeds from such sale are distributed to partners after the following allocations are made, if applicable: (a) allocations made pursuant to a qualified income offset provision in the partnership agreement; (b) allocations to partners
having negative accounts until all negative capital accounts have been restored to zero; and (c) allocations to Class B limited partners in amounts equal to deductions for depreciation and amortization previously allocated to them with
respect to the specific partnership property sold, but not in excess of the amount of gain on sale recognized by the Partnership with respect to the sale of such property.

Recent Accounting Pronouncements

In May 2009, the Financial Accounting Standards Board (FASB) issued
SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 provides guidance on managements assessment of subsequent events. SFAS 165 clarifies U.S. auditing literature and states that management must evaluate, as of
each reporting period, events or transactions that occur after the balance sheet date through the date that the financial statements are issued or are available to be issued. SFAS 165 allows the assessment of subsequent events to
occur through the date on which the financial statements are available to be issued or the date they are issued; however, management must also disclose the date through which events or transactions have been evaluated. Management must
perform its assessment for both interim and annual financial reporting periods. SFAS 165 is effective prospectively for interim and annual periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on the
Partnerships financial statements or disclosures.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 requires that the FASB Accounting Standards Codification (the Codification) become the source of authoritative U.S. GAAP recognized by the
FASB to be applied by nongovernmental entities. Once the Codification is in effect, all of its content will carry the same level of authority, effectively superseding SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Partnership expects that the adoption of SFAS 168 will not have a significant impact on its financial
statements or disclosures.



|3. | INVESTMENT IN JOINT VENTURE
|-- | ---------------------------

Impairment of Real Estate Assets

In the first quarter of 2009, Fund II-III Associates recorded an impairment loss on 2100 Space Park Drive of approximately $850,000 (approximately
$308,000 of which was allocated to the Partnership) to reduce the carrying value of the property to a revised estimate of its fair value estimated based on an executed contract to sell the property for $8,000,000, less estimated selling costs.

Summary of Financial Information

Condensed financial
information for the Joint Venture in which the Partnership held a direct interest for the three months and six months ended June 30, 2009 and 2008, respectively, is presented below:



|                       |  |                            |  |                                |  |                                           |  |                            |  |         |  |            |  |         |  |           
|---------------------- |  | -------------------------- |  | ------------------------------ |  | ----------------------------------------- |  | -------------------------- |  | ------- |  | ---------- |  | ------- |  | ----------
|                       |  | Total Revenues             |  | Loss FromContinuing Operations |  | Income (Loss) FromDiscontinued Operations |  | Net Income (Loss)         
|                       |  | Three Months EndedJune 30, |  | Three Months EndedJune 30,     |  | Three Months EndedJune 30,                |  | Three Months EndedJune 30,
|                       |  | 2009                       |  | 2008                           |  | 2009                                      |  | 2008                       |  | 2009    |  | 2008       |  | 2009    |  | 2008      
|Fund II-III Associates |  | $0                         |  | $203                           |  | $(4,172)                                  |  | $(6,900)                   |  | $90,418 |  | $(150,987) |  | $86,246 |  | $(157,887)
|                       |  |                            |  |                                |  |                                           |  |                            |  |         |  |            |  |         |  |           



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|                       |  |                          |  |                                |  |                                  |  |                          |  |            |  |            |  |            |  |           
|---------------------- |  | ------------------------ |  | ------------------------------ |  | -------------------------------- |  | ------------------------ |  | ---------- |  | ---------- |  | ---------- |  | ----------
|                       |  | Total Revenues           |  | Loss FromContinuing Operations |  | Loss FromDiscontinued Operations |  | Net Loss                
|                       |  | Six Months EndedJune 30, |  | Six Months EndedJune 30,       |  | Six Months EndedJune 30,         |  | Six Months EndedJune 30,
|                       |  | 2009                     |  | 2008                           |  | 2009                             |  | 2008                     |  | 2009       |  | 2008       |  | 2009       |  | 2008      
|Fund II-III Associates |  | $25                      |  | $2,716                         |  | $(9,858)                         |  | $(9,902)                 |  | $(667,652) |  | $(132,588) |  | $(677,510) |  | $(142,490)
|                       |  |                          |  |                                |  |                                  |  |                          |  |            |  |            |  |            |  |           

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



|                       |  |                               |  |                               |  |             |  |            |  |               |  |                |  |             |  |           
|---------------------- |  | ----------------------------- |  | ----------------------------- |  | ----------- |  | ---------- |  | ------------- |  | -------------- |  | ----------- |  | ----------
|                       |  | Six Months EndedJune 30, 2009 |  | Six Months EndedJune 30, 2008
|                       |  | OperatingIncome               |  | ImpairmentLoss                |  | Gainon Sale |  | Total      |  | OperatingLoss |  | ImpairmentLoss |  | Gainon Sale |  | Total     
|Fund II-III Associates |  | $125,404                      |  | $(849,964)                    |  | $56,908     |  | $(667,652) |  | $(132,588)    |  | $0             |  | $0          |  | $(132,588)
|                       |  |                               |  |                               |  |             |  |            |  |               |  |                |  |             |  |           



|4. | RELATED-PARTY TRANSACTIONS
|-- | --------------------------

Management and Leasing Fees

In accordance with the property management and leasing agreement, Wells Management Company, Inc. (Wells Management), an affiliate of the
General Partners, receives compensation for the management and leasing of the Partnerships property owned through the Joint Venture equal to (a) 3% for management services and 3% for leasing services of the gross revenues collected
monthly (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, which is assessed periodically based on market studies, 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 Venture and, accordingly, are 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 and payable to Wells Management is ($1,848) and $165 for the three months ended June 30 2009 and 2008,
respectively, and $6,276 and $4,345 for the six months ended June 30, 2009 and 2008, respectively. Such fees were adjusted in the second quarter of 2009 to reflect a refund due to Fund II-III Associates for management and leasing fees
paid on rents received in advance for periods following the sale of 2100 Space Park Drive.

From October 2008 through March 2009, Wells
Management elected to defer the receipt of total management and leasing fees due from the Partnership through its interest in the Joint Venture totaling approximately $10,800, all of which was repaid in May 2009.

Administrative Reimbursements

Wells Capital, one of our General
Partners, 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 incurred administrative expenses of $19,956 and $21,046 payable to Wells Capital and Wells Management for the three months ended June 30, 2009 and 2008, respectively, and $44,588 and $42,994 for the six months
ended



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June 30, 2009 and 2008, respectively. In addition, Wells Capital and Wells Management pay for certain operating expenses of the Partnership
(bill-backs) directly and invoice the Partnership for the reimbursement thereof on a quarterly basis. As presented in the accompanying balance sheets, due to affiliates as of June 30, 2009 and December 31, 2008 represents
administrative reimbursements and bill-backs due to Wells Management and/or Wells Capital.

From October 2008 through March 2009, Wells
Management and Wells Capital elected to defer the receipt of administrative reimbursements due from the Partnership totaling approximately $46,700, all of which was repaid in May 2009.

Economic Dependency

The Partnership has engaged Wells Capital and Wells Management to provide certain essential
services, including supervision of the management and leasing of its remaining property, asset acquisition and disposition services, as well as other administrative responsibilities, including accounting services and investor communications and
relations. These agreements are terminable by either party upon 60 days written notice. As a result of these relationships, the Partnership is dependent upon Wells Capital and Wells Management.

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

Future net income generated by WREF will be largely dependent upon
the amount of fees earned by Wells Capital 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 well as anticipated dividend income earned from its holdings of common stock of Piedmont Office Realty Trust, Inc. (Piedmont REIT), which was acquired in connection with
the Piedmont REIT internalization transaction (see Assertion of Legal Action Against Related-Parties below). In addition, WREF guarantees unsecured debt of another WREF-sponsored product which was in the amount of approximately $34.7 million as of
July 31, 2009. 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 other investments necessary to meet its current and future obligations as
they become due.

The Partnership is also dependent upon the ability of its current tenants to pay their contractual rent amounts as they become due. The
inability of a tenant to pay future rental amounts would be likely to have a negative impact on the Partnerships results of operations. The Partnership is not currently aware of any reason why its existing tenants will not be able to pay their
contractual rental amounts as they become due in all material respects. Situations preventing the tenants from paying contractual rents could result in a material adverse impact on the Partnerships results of operations.

Assertion of Legal Action Against Related-Parties

On March 12,
2007, a stockholder of Piedmont REIT, filed a putative class action and derivative complaint, presently styled In re Wells Real Estate Investment Trust, Inc. Securities Litigation, in the United States District Court for the
District of Maryland against, among others, Piedmont REIT; Leo F. Wells, III and Wells Capital, the Partnerships General Partners; Wells Management, the Partnerships property manager; certain affiliates of WREF; the
directors of Piedmont REIT; and certain individuals who formerly served as officers or directors of Piedmont REIT prior to the closing of the internalization transaction on April 16, 2007. The complaint alleges, among other things, violations
of the federal proxy rules and breaches of fiduciary duty arising from the Piedmont REIT internalization transaction and the related proxy statement filed



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##### Table of Contents

with the SEC on February 26, 2007, as amended. The complaint seeks, among other things, unspecified monetary damages and nullification of the Piedmont
REIT internalization transaction. On April 9, 2007, the District Court denied the plaintiffs motion for an order enjoining the internalization transaction. On April 17, 2007, the Court granted the defendants motion to transfer
venue to the United States District Court for the Northern District of Georgia, and the case was docketed in the Northern District of Georgia on April 24, 2007. On June 7, 2007, the Court granted a motion to designate the class lead
plaintiff and class co-lead counsel. On June 27, 2007, the plaintiff filed an amended complaint, which attempts to assert class action claims on behalf of those persons who received and were entitled to vote on the Piedmont REIT proxy statement
filed with the SEC on February 26, 2007, and derivative claims on behalf of Piedmont REIT. On July 9, 2007, the Court denied the plaintiffs motion for expedited discovery related to an anticipated motion for a preliminary injunction.
On August 13, 2007, the defendants filed a motion to dismiss the amended complaint. On March 31, 2008, the Court granted in part the defendants motion to dismiss the amended complaint. The Court dismissed five of the seven counts of
the amended complaint in their entirety. The Court dismissed the remaining two counts with the exception of allegations regarding the failure to disclose in the Piedmont REIT proxy statement details of certain expressions of interest in acquiring
Piedmont REIT. On April 21, 2008, the plaintiff filed a second amended complaint, which alleges violations of the federal proxy rules based upon allegations that the proxy statement to obtain approval for the Piedmont REIT internalization
transaction omitted details of certain expressions of interest in acquiring Piedmont REIT. The second amended complaint seeks, among other things, unspecified monetary damages, to nullify and rescind the internalization transaction, and to cancel
and rescind any stock issued to the defendants as consideration for the internalization transaction. On May 12, 2008, the defendants answered and raised certain defenses to the second amended complaint. On June 23, 2008, the plaintiff
filed a motion for class certification. The defendants responded to the plaintiffs motion for class certification on January 16, 2009. The plaintiff filed its reply in support of its motions for class certification on February 19,
2009. The motion for class certification is currently pending before the Court. The parties are presently engaged in discovery. On April 13, 2009, the plaintiff moved for leave to amend the second amended complaint to add additional defendants.
The defendants responded to the plaintiffs motion for leave to amend on April 30, 2009. The plaintiff filed its reply in support of its motion for leave to amend on May 18, 2009. The Court denied the plaintiffs motion for leave
to amend on June 23, 2009. Mr. Wells, Wells Capital, and Wells Management intend to vigorously defend this action. Any financial loss incurred by Wells Capital, Wells Management, or their affiliates could hinder their ability to
successfully manage our operations and our portfolio of investments.



|5. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------

From time to time, the Partnership
and its General Partners are party to legal proceedings which arise in the ordinary course of our business. The Partnership is not currently involved in any litigation for which the outcome would, in the judgment of the General Partners based on
information currently available, have a materially adverse impact on the results of operations or financial condition of the Partnership, nor is management aware of any such litigation threatened against us.



|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, 2008.



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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. With the completion
of the sale of 2100 Space Park Drive in April 2009, we have now sold all of the real estate assets in which we had owned interests. We have begun to take the steps necessary to liquidate and dissolve the Partnership. Having sold all of the real
estate assets within the portfolio, the General Partners are currently reserving operating cash and a portion of net sale proceeds to fund anticipated costs necessary to liquidate and dissolve the Partnership, which is expected to occur in the
fourth quarter of 2009.

Property Summary

We have now
sold all of the real estate assets in which we had owned interests following the sale of 2100 Space Park Drive in April 2009. We have begun to take the steps necessary to liquidate and dissolve the Partnership, which is expected to
occur in the fourth quarter of 2009.

Information relating to the properties owned, or previously owned, by the Partnership or its joint ventures is
presented 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.
| | - |  | -----------------------------------------------------



| |  |  | The 2100 Space Park Drive property was sold on April 30, 2009.
| | - |  | --------------------------------------------------------------



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##### Table of Contents

Liquidity and Capital Resources

Overview

Our operating strategy has entailed 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. Historically, any residual operating cash flows were generally considered available for distribution to the Class A limited partners and, unless reserved, were generally paid quarterly. To
the extent that operating cash flows were not sufficient to fund our recurring operations, net sale proceeds would have been utilized. The ongoing monitoring of our cash position has been critical to ensuring that adequate liquidity and capital
resources were available.

Short-Term Liquidity

During
the six months ended June 30, 2009, we generated net operating cash outflows of approximately $103,000, primarily as a result of (i) the payment of deferred administrative reimbursements and management and leasing fees due to Wells
Management and Wells Capital and (ii) a reduction in operating distributions due from the joint ventures as a result of funding our pro rata share of re-leasing costs and capital improvements at 2100 Space Park Drive. We expect future operating
distributions from the Joint Venture to cease as a result of selling the remaining property, 2100 Space Park Drive. During the six months ended June 30, 2009, we invested a combination of operating cash reserves and net proceeds from the
sale of properties of approximately $248,000 in Fund II-III Associates primarily to fund our pro rata share of re-leasing costs and capital improvements at 2100 Space Park Drive. We believe that the cash on hand, including net proceeds from the sale
of properties, will be sufficient to cover our working capital needs as we begin to wrap-up the Partnerships affairs and prepare for dissolution.

Long-Term Liquidity

We have sold all of the real estate assets in which we had owned interests and do not anticipate acquiring additional
properties. As a result of the sale of the remaining real estate assets in which the Partnership held interests in April 2009, we have begun to take the steps necessary to liquidate and dissolve the Partnership. We are in the process of
evaluating the amount of cash reserves needed to settle estimated liabilities of the Partnership at dissolution and intend to distribute the cash balances remaining at that time to the limited partners pursuant to the provisions of the partnership
agreement in the fourth quarter of 2009.



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##### Table of Contents

Capital Resources

As
of June 30, 2009, we had received, used, distributed, and held net sale proceeds allocated to the Partnership from the sale of properties as presented below:



|                                                  |  |                  |  |                                     |        |                                              |            |                         |   |                                                            |  |                                                                                                                      |  |   |            |  |   |          
|------------------------------------------------- |  | ---------------- |  | ----------------------------------- | ------ | -------------------------------------------- | ---------- | ----------------------- | - | ---------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | - | ---------- |  | - | ---------
|                                                  |  | Net SaleProceeds |  | PartnershipsApproximateOwnership % |        | Net Sale ProceedsAllocated to
thePartnership |            | Use ofNet Sale Proceeds |   | Net Sale ProceedsDistributed toPartners
as ofJune 30, 2009 |  | Undistributed NetSale Proceeds as ofJune 30, 2009                                                                   
|Property Sold                                     |  |                  |  |                                     | Amount |                                              | Purpose    |                         |  
|                                                  |  |                  |  |                                     |        |                                              |           
|Greenville Center(sold in 2002)                   |  | $2,271,187       |  | 100.0%                              |        | $                                            | 2,271,187  |                         | $ | 0                                                          |  |                                                                                                                     |  | $ | 2,271,187  |  | $ | 0        
|                                                  |  |                  |  |                                     |        |                                              |           
|Stockbridge Village Shopping Center(sold in 2004) |  | $12,024,223      |  | 57.2%                               |        |                                              | 6,879,238  |                         |   | 626,466                                                    |  |   Re-leasing of 4400 Cox Road (2004)                                                                                |  |   | 6,252,772  |  |   | 0        
|                                                  |  |                  |  |                                     |        |                                              |           
|Holcomb Bridge Property(sold in 2004)             |  | $6,889,379       |  | 8.8%                                |        |                                              | 607,643    |                         |   | 58,283                                                     |  |   Re-leasing of 4400 Cox Road (2004)                                                                                |  |   | 549,360    |  |   | 0        
|                                                  |  |                  |  |                                     |        |                                              |           
|Brookwood Grill(sold in 2004)                     |  | $2,318,115       |  | 37.7%                               |        |                                              | 872,770    |                         |   | 84,746                                                     |  |   Re-leasing of 4400 Cox Road (2004)                                                                                |  |   | 788,024    |  |   | 0        
|                                                  |  |                  |  |                                     |        |                                              |           
|4400 Cox Road(sold in 2005)                       |  | $6,308,796       |  | 57.2%                               |        |                                              | 3,609,357  |                         |   | 775,695                                                    |  |   Capital improvements for 2100 Space Park Drive(2008 and 2009)    Funding of Partnership operating
expenses(2009) |  |   | 2,833,662  |  |   | 0        
|                                                  |  |                  |  |                                     |        |                                              |           
|2100 Space Park Drive(sold in 2009)               |  | $7,717,991       |  | 36.2%                               |        |                                              | 2,797,000  |                         |   | 158,945                                                    |  |   Capital improvements for 2100 Space Park Drive(2009)    Funding of Partnership operating
expenses(2009)          |  |   | 0          |  |   | 2,638,055
|                                                  |  |                  |  |                                     |        |                                              |            |                         |   |                                                            |  |                                                                                                                      |  |   |            |  |   |          
|                                                  |  |                  |  |                                     |        |                                              |           
|Total                                             |  |                  |  |                                     |        | $                                            | 17,037,195 |                         | $ | 1,704,135                                                  |  |                                                                                                                      |  | $ | 12,695,005 |  | $ | 2,638,055
|                                                  |  |                  |  |                                     |        |                                              |            |                         |   |                                                            |  |                                                                                                                      |  |   |            |  |   |          

Upon evaluating the remaining obligations of the Partnership associated with its final dissolution,
our General Partners anticipate distributing net sale proceeds of approximately $2,200,000 in October 2009, as further described below. In addition, our General Partners intend to make a final liquidating distribution to the limited
partners of any proceeds that are not required to fund final dissolution costs for the Partnership in the fourth quarter of 2009.

Contractual
Obligations and Commitments

In August 2009, our General Partners approved a distribution of net sale proceeds from the sale of
2100 Space Park Drive of approximately $2,200,000 in October 2009. In addition, our General Partners intend to make a final liquidating distribution to the limited partners of any proceeds that are not required to fund final dissolution
costs for the Partnership and to dissolve the Partnership in the fourth quarter of 2009. These distributions will be made to limited partners effective as of October 1, 2009. In order to make this distribution in



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October, we must receive any transfers of unit ownership in good order no later than August 31, 2009. Furthermore, since these
will be the final distributions for the Partnership, the Partnership will not recognize transfers received after August 31, 2009.

These distributions
have not been formally declared by our General Partners. In accordance with the terms of the partnership agreement, our General Partners may elect to retain reserves deemed reasonably necessary in the sole discretion of our General Partners.
Thus, should a change in circumstances prior to the intended distribution dates require our General Partners to reevaluate our reserve requirements, it is possible that these distributions may not occur, or that such distributions could be made at
lower amounts.

Results of Operations

Equity in
Income (Loss) of Joint Venture

Equity in income (loss) of Joint Venture is $31,255 and $(57,118) for the three months ended June 30, 2009 and
2008, respectively. The increase in income is primarily attributable to the following activities at 2100 Space Park Drive: (i) an increase in rental and reimbursement income in the second quarter of 2009 as a result of an
increase in occupancy prior to disposition; (ii) the gain recognized on sale of the property in the second quarter of 2009, of which approximately $21,000 was allocated to the Partnership; and (iii) a decline in property operating costs,
depreciation and amortization as a result of the aforementioned disposition.

Equity in loss of Joint Venture is $245,530 and $51,525 for the six months
ended June 30, 2009 and 2008, respectively. The increase in loss is primarily attributable to the following activities at 2100 Space Park Drive: (i) an impairment loss recognized by Fund II-III Associates in the first quarter of 2009, of
which approximately $308,000 was allocated to the Partnership, partially offset by (ii) an increase in rental and reimbursement income in the second quarter of 2009 as a result of an increase in occupancy prior to disposition, and
(iii) the gain recognized on sale of the property in the second quarter of 2009, of which approximately $21,000 was allocated to the Partnership.

We
anticipate future equity in loss of the Joint Venture to be reflective of the Partnerships share of costs associated with wrapping up the affairs of the Joint Venture in the third and fourth quarters of 2009.

Interest and Other Income

Interest and other income was $2,273 and
$6,018 for the three months ended June 30, 2009 and 2008, respectively, and $2,705 and $16,355 for the six months ended June 30, 2009 and 2008, respectively. The decreases are primarily attributable to (i) investing in Fund II-III
Associates to fund our pro rata share of re-leasing costs and capital improvements at 2100 Space Park Drive, prior to disposition, and (ii) a decline in the daily interest yield, partially offset by (iii) the receipt of net sale
proceeds in the second quarter of 2009 from the sale of 2100 Space Park Drive.

Future levels of interest income will be largely dependent upon the amount
of time necessary liquidate the partnership.

General and Administrative Expenses

General and administrative expenses were $40,150 and $45,877 for the three months ended June 30, 2009 and 2008, respectively. This decrease represents a temporary variance that corresponds with the timing of work
performed by our external accountants in the current year.

General and administrative expenses were $88,551 and $99,330 for the six months ended
June 30, 2009 and 2008, respectively. This decrease is attributable to (i) a temporary variance that corresponds with the timing of work performed by our external accountants in the current year and (ii) a decline in legal services in
2009.



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Absent temporary fluctuations throughout the course of the year, we anticipate that changes in the future levels of our
general and administrative expenses will vary primarily based on the amount of time necessary liquidate the Partnership and future changes in our reporting and regulatory requirements.

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.

Below is a discussion of the accounting policies used by the Partnership and the Joint Venture, 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 were required to make subjective assessments as to the useful lives of our depreciable assets. We considered the period of
future benefit of the assets to determine the appropriate useful lives. These assessments had a direct impact on net income. The estimated useful lives of the Joint Ventures assets were depreciated using the straight-line method over the
following useful lives:



|                      |  |                                       
|--------------------- |  | --------------------------------------
|                      | 
|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 utilized inappropriate useful lives or methods of depreciation, our net
income would be misstated.

Evaluating the Recoverability of Real Estate Assets

We continually monitored events and changes in circumstances that could have indicated that the carrying amounts of the real estate assets in which we had an ownership interest through investments in the Joint Venture
were not recoverable. When indicators of potential impairment were present which suggested that the carrying amounts of real estate assets may not be recoverable, we assessed the recoverability of the real estate assets by determining whether the
respective carrying values would be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition for assets held for use, or with the estimated fair values, less costs to
sell, for assets held for sale. In the event that such expected undiscounted future cash flows for assets held for use, or the estimated fair values, less costs to sell, for assets held for sale, did not exceed the respective assets carrying
values, we adjusted the real estate assets to the respective estimated fair values, pursuant to the provisions of SFAS No. 144, and recognized an impairment loss. Estimated fair values were calculated based on the following information, in
order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of future cash flows, including estimated salvage value. In the first
quarter of 2009, Fund II-III Associates



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recorded an impairment loss on 2100 Space Park Drive of approximately $850,000 (approximately $308,000 of which was allocated to the Partnership) to
reduce the carrying value of the property to a revised estimate of its fair value estimated based on an executed contract to sell the property for $8,000,000, less estimated selling costs.

Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of current lease agreements, property
operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount
rates, would have resulted in an incorrect assessment of the propertys future cash flows and fair value, and could have resulted in the misstatement of the carrying value of real estate assets held by the Joint Venture 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 remaining property; 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 the fees and expense reimbursements we have incurred.



|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 currency exchange rate fluctuations, or the other market risks contemplated
by Item 305 of Regulation S-K.



|ITEM 4T. | 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 the Principal Financial Officer of Wells Capital, of the effectiveness of the design and operation of
the Partnerships disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Exchange Act) as of the end of the quarterly period covered by this report. Based upon that evaluation,
the Principal Executive Officer and the Principal Financial Officer of Wells Capital 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 the reports we file or submit under the Exchange Act 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 the reports we file under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal
Financial Officer of Wells Capital, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial
Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2009 that have materially
affected, or are reasonably 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 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 June 30, 2009, requiring disclosure under Item 103 of Regulation S-K. For a description of
pending litigation involving certain related parties, see Assertion of Legal Action Against Related-Parties in Note 4 to our financial statements included in this report.



|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, 2008.



|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 June 30, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



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



|(c) | We did not redeem any securities during the quarter ended June 30, 2009.
|--- | ------------------------------------------------------------------------



|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 June 30, 2009.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



|(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 June 30, 2009.



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



|(a) | During the quarter ended June 30, 2009, 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 Second Quarter Form 10-Q attached hereto.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has 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)
|                |  | 
|August 12, 2009 |  |  |  | /s/ LEO F. WELLS, III                                                                             
|                |  |  |  | Leo F. Wells, III President, Principal Executive Officer, and Sole Director of Wells Capital, Inc.
|                |  | 
|August 12, 2009 |  |  |  | /s/ DOUGLAS P. WILLIAMS                                                                           
|                |  |  |  | Douglas P. Williams Principal Financial Officer of Wells Capital, Inc.                            



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EXHIBIT INDEX

TO SECOND QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND III, L.P.



|              |  |                                                                                                                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                            
|              | 
|*10.1         |  | Purchase and Sale Agreement for the sale of 2100 Space Park Drive (Exhibit 10.2 to the Form 10-Q of Wells Real Estate Fund II for the quarter ended March 31, 2009, Commission File No.
1-16518)                   
|              | 
|*10.2         |  | First Amendment to Purchase and Sale Agreement for the sale of 2100 Space Park Drive (Exhibit 10.3 to the Form 10-Q of Wells Real Estate Fund II for the quarter ended March 31,
2009, Commission File No. 1-16518)
|              | 
|31.1          |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                             
|              | 
|31.2          |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                             
|              | 
|32.1          |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                     

* previously filed and incorporated herein by reference