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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




Form 10-Q





(Mark One)





xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30, 2002





or





 ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE  ACT OF 1934





For the transition period from __________ to __________





Commission file number 0-18407





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WELLS REAL ESTATE FUND III, L.P.


(Exact name of registrant as specified in its charter)





Georgia

58-1800833(State of other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)6200 The Corners Parkway, Suite 250, Atlanta, Georgia

30092(Address of principal executive offices)

(Zip Code)Registrants telephone number, including area code (770) 449-7800(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.





Yes  x    No  ̈





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Form 10-Q


Wells Real Estate Fund III, L.P.


(A Georgia Public Limited Partnership)





INDEX





Page No.PART I.

FINANCIAL INFORMATIONItem 1.

Financial Statements

3Balance SheetsJune 30, 2002 (unaudited) and December 31, 2001

4Statements of (Loss) Income for the Three Months and Six Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)

5Statements of Partners Capital for the Six Months Ended June 30, 2002 (unaudited) and the Year Ended December 31, 2001

6Statements of Cash Flows for the Six Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)

7Condensed Notes to Financial Statements (unaudited)

8Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

13PART II.

OTHER INFORMATION

16Exhibits Index

17Exhibit 99.1Certification of Chief Executive OfficerExhibit 99.2Certification of Chief Financial Officer




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PART I.    
FINANCIAL INFORMATION





Effective July 3, 2002, Wells Real Estate Fund III, L.P. (the Partnership)
engaged Ernst & Young LLP (Ernst & Young) as its principal accountants to audit the Partnerships financial statements. In accordance with the relief granted to former auditing clients of Arthur Andersen LLP in SEC Release
No. 34-45589, Ernst & Young completed its review of the unaudited financial statements of the Partnership for the quarter ended March 31, 2002 pursuant to Rule 10-01(d) of Regulation S-X within the 60-day period allowed pursuant to the SEC
Release, and no material modifications to the previously reported financial information were required.




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WELLS REAL ESTATE FUND III, L.P.





(A Georgia Public Limited Partnership)





BALANCE SHEETS








(unaudited) June
30, 2002

December 31, 2001ASSETS:Real estate, at cost:Land

$
498,690

$
576,350Building and improvements, less accumulated depreciation of $1,524,151 at June 30, 2002 and $1,434,858 at December 31,
2001


1,901,310


2,286,693Total real estate


2,400,000


2,863,043Cash and cash equivalents


379,967


134,766Investment in joint ventures


10,800,682


10,655,517Due from affiliates


0


334,616Accounts receivable


7,049


0Prepaid expenses and other assets


20,394


20,515Total assets

$
13,608,092

$
14,008,457LIABILITIES AND PARTNERS CAPITAL:Liabilities:Accounts payable

$
32,389

$
23,492Due to affiliates


87,720


0Total liabilities


120,109


23,492Partners capital:Limited partners:Class A19,635,965 units


13,487,983


13,984,965Class B2,544,540 units


0


0Total partners capital


13,487,983


13,984,965Total liabilities and partners capital

$
13,608,092

$
14,008,457





The accompanying notes are an integral part of these balance sheets.




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WELLS REAL ESTATE FUND III, L.P.





(A Georgia Public Limited Partnership)





STATEMENTS OF (LOSS) INCOME





(unaudited) Three Months
Ended

(unaudited) Six Months
EndedJune 30, 2002


June 30, 2001

June 30, 2002


June 30, 2001REVENUES:Rental income

$
47,446


$
56,764

$
96,701


$
174,419Equity in (loss) income of joint ventures (Note 2)


(35,173
)


173,334


21,782



329,624Interest income


624



30


3,171



2,46912,897



230,128


121,654



506,512EXPENSES:Operating costs-rental properties, net of tenant reimbursements


57,667



54,453


101,208



103,664Depreciation


44,786



47,799


89,293



92,857Partnership administration


19,660



23,632


33,344



33,441Management and leasing fees


3,477



7,294


6,919



22,098Legal and accounting


3,126



2,665


9,748



13,315Computer costs


2,003



5,507


4,434



5,507Impairment loss


373,750



0


373,750



0504,469



141,350


618,636



270,882NET (LOSS) INCOME

$
(491,572
)

$
88,778

$
(496,982
)

$
235,630NET (LOSS) INCOME ALLOCATED TO CLASS A LIMITED PARTNERS

$
(491,572
)

$
88,778

$
(496,982
)

$
235,630NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS

$
0


$
0

$
0


$
0NET (LOSS) INCOME PER CLASS A LIMITED PARTNER UNIT

$
(0.03
)

$
0.01

$
(0.03
)

$
0.01NET LOSS PER CLASS B LIMITED PARTNER UNIT

$
0.00


$
0.00

$
0.00


$
0.00CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT

$
0.00


$
0.02

$
0.00


$
0.03





The accompanying notes are an integral part of these statements.




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WELLS REAL ESTATE FUND III, L.P.





(A Georgia Public Limited Partnership)





STATEMENTS OF PARTNERS CAPITAL





FOR THE YEAR ENDED DECEMBER 31, 2001





AND THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)





Limited Partners

Total Partners CapitalClass A


Class BUnits

Amounts


Units

AmountsBALANCE, December 31, 2000

19,635,965

$
14,512,162


2,544,540

$
0

$
14,512,162Net income

0


375,442


0


0


375,442Partnership distributions

0


(902,639
)

0


0


(902,639
)BALANCE, December 31, 2001

19,635,965


13,984,965


2,544,540


0


13,984,965Net loss

0


(496,982
)

0


0


(496,982
)BALANCE, June 30, 2002 (unaudited)

19,635,965

$
13,487,983


2,544,540

$
0

$
13,487,983





The accompanying notes are an integral part of these statements.




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WELLS REAL ESTATE FUND III, L.P.





(A Georgia Public Limited Partnership)





STATEMENTS OF CASH FLOWS





(unaudited) Six Months
EndedJune 30, 2002


June 30, 2001CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income

$
(496,982
)

$
235,630Adjustments to reconcile net (loss) income to net cash provided by operating activities:Equity in income of joint ventures


(21,782
)


(329,624
)Depreciation


89,293



92,857Impairment loss


373,750Changes in assets and liabilities:Accounts receivable


(7,049
)


(3,703
)Prepaid expenses and other assets


121



(5,928
)Accounts payable


8,897



7,996Due from affiliates


0



3,216Due to affiliates


87,720



0Net cash provided by operating activities


33,968



444CASH FLOW FROM INVESTING ACTIVITIES:Investment in real estate


0



(24,619
)Investment in joint ventures


(254,800
)


(241,543
)Distributions received from joint ventures


466,033



561,980Net cash provided by investing activities


211,233



295,818CASH FLOW FROM FINANCING ACTIVITIES:Partnership distributions paid


0



(320,191
)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


245,201



(23,929
)CASH AND CASH EQUIVALENTS, beginning of year


134,766



409,476CASH AND CASH EQUIVALENTS, end of period

$
379,967


$
385,547





The accompanying notes are an integral part of these statements.




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WELLS REAL ESTATE FUND III, L.P.





(A Georgia Public Limited Partnership)





CONDENSED NOTES TO FINANCIAL STATEMENTS





JUNE 30, 2002 (UNAUDITED)





|1. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------




(a)    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., a Georgia corporation, serving as the General Partners. The Partnership was formed on July 31, 1988 for
the purpose of acquiring, developing, constructing, owning, operating, improving, leasing and otherwise managing income-producing commercial properties for investment purposes. The Partnership has two classes of limited partnership interests, Class
A and Class B units. The limited partners may vote to, among other things, (a) amend the partnership agreement, subject to certain limitations, (b) change the business purpose or investment objectives of the Partnership, and (c) add or remove a
general partner. A majority vote on any of the above described matters will bind the Partnership without the concurrence of the general partners. Each limited partner unit has equal voting rights regardless of class.





On October 24, 1988, the Partnership commenced a public offering of its limited partnership units pursuant to a Registration Statement
filed on Form S-11 under the Securities Act of 1933. The offering was terminated on October 23, 1990 upon receiving and accepting $22,206,310 in limited partner capital contributions for a total of 22,206,310 Class A and Class B limited partner
units at $1 per unit. From the original capital contributions, the Partnership has paid $1,554,442 in acquisition and advisory fees and acquisition expenses, paid $2,664,668 in selling commissions and organization and offering expenses, and invested
$17,983,843 in the properties described below. In 1990 and 1991, the Partnership repurchased 6,128 and 19,677 limited partnership units, respectively.





As of June 30, 2002, the Partnership owned a 100% interest in Greenville Center, an office building located in Greenville, North Carolina. On July 1, 2002, the Partnership entered into an agreement
(the Agreement) to sell Greenville Center to an unrelated third-party for a gross selling price of $2,400,000. A general decline in economic conditions in the Greenville, North Carolina area lead to a gradual decrease in occupancy at
Greenville Center during the past year. As a result, the Partnership reduced the carrying amount of Greenville Center to its fair market value, as estimated based on the gross selling price per the Agreement, and recognized an impairment loss of
$373,750 during the quarter ended June 30, 2002. Pursuant to the terms of the Agreement, this transaction is currently subject to a due diligence period not to exceed 90 days, during which the purchaser has the right to terminate the contract.
Accordingly, there are no assurances that this sale will close.





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BLANK)




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The Partnership owns interests in the remainder of its real estate assets through
joint ventures with other Wells Real Estate Funds. As of June 30, 2002, the Partnership owned interests in the following five properties through the affiliated joint ventures listed below:





Joint Venture

Joint Venture Partners

PropertiesFund II-III AssociatesAtrium

Fund II-IIOW Associates* Wells Real
Estate Fund III, L.P.

1.  Boeing at the Atrium A four story office
building located in Houston TexasFund II-III AssociatesBrookwood

Fund II-IIOW Associates* Wells Real Estate Fund III, L.P.


2.  Brookwood Grill A
restaurant located in Fulton County, GeorgiaFund II-III-VI-VII Associates

Fund II-III AssociatesBrookwood Wells Real Estate Fund VI,
L.P. Wells Real Estate Fund VII, L.P.

3.  Holcomb Bridge Property An office/retail
center located in     Roswell, GeorgiaFund III-IV Associates

Wells Real Estate Fund III, L.P. Wells Real Estate Fund IV,
L.P.

4.  Stockbridge Village Shopping Center A retail
shopping center located in Stockbridge, Georgia 5.  Reciprocal Group Building An office building located in Richmond, Virginia


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





Each of the above properties was acquired on an all cash basis. For further information
regarding the foregoing joint ventures and properties, refer to the report filed for the Partnership on Form 10-K for the year ended December 31, 2001.





In March 2002, Boeing/Shuttle Division (Boeing) entered into a lease for the top three floors of the four-story Boeing at the Atrium Building. The annual base rent payable for this space is
$1,483,697 ($15.75 per square foot). The Boeing lease will commence on September 1, 2002 and extends for a term of 73 months. Boeing also has an option to lease the remaining space available on the first floor of the Boeing at the Atrium exercisable
through October, 2002.





(b)    Basis of Presentation





The financial statements of the Partnership have been prepared in accordance with the instructions for Form 10-Q and do not include all of
the information and footnotes required by generally accepted accounting principles (GAAP) for complete financial statements. The quarterly statements included herein have not been examined by independent accountants. However, 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 present the results for those periods. For further information,
refer to the financial statements and footnotes included in the report filed for the Partnership on Form 10-K for the year ended December 31, 2001.





(c)    Distribution of Net Cash From Operations





As defined by the partnership agreement, cash available for distributions is distributed quarterly on a cumulative non-compounded basis to limited partners as follows:




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| |  |  | First, to the Class A limited partners until such limited partners have received an 8% per annum return on their respective adjusted capital contributions, as
defined.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Second, to the Class B limited partners until such limited partners have received an 8% per annum return on their respective adjusted capital contributions, as
defined.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Third, to the general partners until such partners have received distributions equal to 10% of the total net cash distributed from operations per annum.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Thereafter, to the limited partners and the General Partners allocated on a basis of 90% and 10%, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------




(d)    Impairment of Real Estate Assets





On January 1, 2002, the Partnership adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under the new guidance, management reviews each of
the properties in which it holds an interest for impairment when there is an event or change in circumstances that indicates the carrying amount of the asset may not be recoverable and the future undiscounted cash flows expected to be generated by
the asset are less than its carrying amount. If such assets are considered to be impaired, the Partnership records impairment losses and reduces the carrying amount of impaired assets to an amount that reflects the fair value of the assets at the
time impairment is evident. Management also reviews estimated selling prices of assets held for sale and records impairment losses to reduce the carrying amount of assets held for sale when the carrying amounts exceed the estimated selling prices
less costs to sell. Also, material long-lived assets held for sale are separately identified in the balance sheets and their related net operating income is segregated as income from discontinued operations in the statements of income. In addition,
depreciation of long-lived assets held for sale is not recorded. If an asset held for sale reverts to an asset used in operations, the asset will be measured at the lower of the original carrying cost, adjusted for the forgone depreciation, or the
fair value at the date of the decision to hold the asset.





|2. |  | INVESTMENT IN JOINT VENTURES
|-- |  | ----------------------------




(a)    Basis of Presentation





The
Partnership does not have control over the operations of the joint ventures described in Note 1; however, it does exercise significant influence. Accordingly, investments in joint ventures are recorded using the equity method of accounting. Interim
results for 2002 are not necessarily indicative of results for the year. For further information, refer to the report filed for the Partnership on Form 10-K for the year ended December 31, 2001.





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(b)    Summary of Operations





The following information summarizes the operations of the unconsolidated joint ventures in which the Partnership held ownership interests
for the three and six months ended June 30, 2002 and 2001:





Total Revenues


Net Income


Partnerships Share of
Net IncomeThree Months Ended


Three Months Ended


Three Months EndedJune 30, 2002


June 30, 2001


June 30, 2002


June 30, 2001


June 30, 2002


June 30, 2001Fund II-III AssociatesAtrium

$
(93,695
)

$
368,822


$
(444,614
)

$
(43,965
)

$
(172,066
)

$
(17,015
)Fund II-III AssociatesBrookwood


29,880
*


56,298
*


43,392



37,343



16,337



19,711Fund IIIIV Associates


461,813



478,462



210,718



298,257



120,556



170,638$
397,998


$
903,582


$
(190,504
)

$
291,635


$
(35,173
)

$
173,334Total Revenues


Net Income


Partnerships Share of
Net IncomeSix Months Ended


Six Months Ended


Six Months EndedJune 30, 2002


June 30, 2001


June 30, 2002


June 30, 2001


June 30, 2002


June 30, 2001Fund II-III AssociatesAtrium

$
(4,573
)

$
740,459


$
(713,575
)

$
(38,460
)

$
(276,153
)

$
(14,884
)Fund II-III Associates Brookwood


79,339
*


112,535
*


68,978



73,088



25,970



35,780Fund III-IV Associates


936,683



905,224



475,366



539,625



271,965



308,728$
1,011,449


$
1,758,218


$
(169,231
)

$
574,253


$
21,782


$
329,624Total Revenues


Net Income


Partnerships Share of
Net IncomeThree Months Ended


Three Months Ended


Three Months EndedJune 30, 2002


June 30, 2001


June 30, 2002


June 30, 2001


June 30, 2002


June 30, 2001Fund II-III-VI-VII Associates

$
179,692


$
205,914


$
59,368


$
62,363


$
5,379
*

$
5,651
*Total Revenues


Net Income


Partnerships Share of
Net IncomeSix Months Ended


Six Months Ended


Six Months EndedJune 30, 2002


June 30, 2001


June 30, 2002


June 30, 2001


June 30, 2002


June 30, 2001Fund II-III-VI-VII Associates

$
358,468


$
416,291


$
120,197


$
91,170


$
10,890
*

$
8,262
*





| | * |  | The Partnerships share of income earned from its investment in Fund II-III-VI-VII Associates is recorded by Fund II-III AssociatesBrookwood as
equity in income of joint ventures, which is classified as revenue.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following information summarizes the operations of the property, which is
owned by one of the above joint ventures and significant to the Partnership, for the three and six months ended June 30, 2002 and 2001. Audited financial statements of this property are included in the report filed for the Partnership on Form 10-K
for the year ended December 31, 2001:





Total Revenues

Net Income

Partnerships Share of
Net IncomeThree Months Ended

Three Months Ended

Three Months EndedJune 30, 2002

June 30, 2001

June 30, 2002

June 30, 2001

June 30, 2002

June 30, 2001Reciprocal Group Building

$
145,563

$
144,583

$
33,395

$
86,839

$
19,105

$
49,681Total Revenues

Net Income

Partnerships Share of
Net IncomeSix Months Ended

Six Months Ended

Six Months EndedJune 30, 2002

June 30, 2001

June 30, 2002

June 30, 2001

June 30, 2002

June 30, 2001Reciprocal Group Building

$
289,172

$
240,972

$
87,225

$
116,687

$
49,901

$
66,757





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





The following discussion and analysis should be read in conjunction with the Partnerships accompanying financial statements and notes thereto.





|(a) |  | Forward-Looking Statements
|--- |  | --------------------------




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





|(b) |  | Results of Operations
|--- |  | ---------------------




Revenues


Gross revenues decreased to $121,654 for the six months ended June 30, 2002, compared to $506,512 for the same period in 2001, due to a
reduction in occupancy at Greenville Center experienced during the preceding twelve months and decreased equity in income generated from joint ventures resulting from (i) a reduction in occupancy of Boeing at the Atrium beginning in December 2001,
(ii) reduced rental rates for Brookwood Grill, (iii) decreases in occupancy of the Holcomb Bridge Property experienced during the preceding twelve months, (iv) decreased operating cost reimbursement billings to tenants at the Reciprocal Group
Building, partially offset by (i) an increase in occupancy of the Reciprocal Group Building and (ii) receivables due from tenants at the Holcomb Bridge Property, which were written-off in 2001 and collected in 2002. Tenants are billed for operating
cost reimbursements at estimate amounts, which are reconciled as tenants are billed (credited) for the net annual under (over) billings in the following year.





|Expenses |  | 
|-------- |  | 

Expenses decreased to $618,636 for the six months ended June 30,
2002, compared to $270,882 for the same period in 2001, primarily due to recognizing an impairment loss of $373,750 in connection with reducing the carrying amount of Greenville Center to its fair market value, as further described above, decreases
in net operating costs, management and leasing fees related to the decrease in occupancy of Greenville Center and a decrease in legal and accounting fees, largely due to a change in the timing of services rendered during 2002 compared to 2001.





As a result, net (loss) income decreased to $(496,982) for the six months ended June 30, 2002 from $235,630 for the same period in 2001.





Distributions


Cash distributions to limited
partners holding Class A units were $0.03 per unit for the six months ended June 30, 2001. Cash distributions were reserved for the six months ended June 30, 2002 in order to fund tenant improvements for Boeing at the Atrium. Management anticipates
continuing to reserve funds otherwise distributable to Class A limited partners for at least the third quarter of 2002 in order to fund such costs. No cash distributions were made to Class B Limited Partners or the General Partners.




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##### Table of Contents

|(c) |  | Liquidity and Capital Resources
|--- |  | -------------------------------




Net cash flows provided from operating activities increased to $33,968 for the six months ended June 30, 2002, from $444 provided for the six months ended June 30, 2001, primarily due receiving cash from affiliated partners to be
invested in Boeing at the Atrium, as discussed further in the previous section. Net cash provided by investing activities decreased to $211,233 for 2002 compared to $295,818 for 2001 as a result of reserving distributions at the joint venture level
in order to fund tenant improvements for the Reciprocal Group Building in 2001, partially offset by an investment in Boeing at the Atrium for the purpose of funding tenant improvements related to re-leasing 76% of the building to Boeing. Net cash
used in financing activities decreased to $0 for 2002 compared to $320,191 for 2001 as a result of withholding funds otherwise distributable in order to fund tenant improvements for Boeing at the Atrium in 2002.





As the Partnership was formed for the purpose of acquiring, owning and operating income-producing real properties and has invested all of its funds available for
investment the properties described above, it is unlikely that the Partnership will acquire interests in any additional properties. The Partnership expects to continue to meets its short-term liquidity requirements generally from net cash provided
by operations and received from joint ventures.





|(d) |  | Inflation
|--- |  | ---------




The real
estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. Most tenant leases contain provisions for common area maintenance, real estate tax and insurance reimbursements from
tenants either on a per square foot basis, or above a certain allowance per square foot annually, which should reduce the Partnerships exposure to increases in costs and other operating expenses resulting from the impact of inflation. In
addition, a number of the Partnerships leases are for remaining terms of less than five years, which may allow the Partnership to enter into new leases at higher base rental rates in the event that market rental rates rise above the existing
lease rates. There is no assurance, however, that the Partnership would be able to replace existing leases with new leases containing higher base rental rates.





|(e) |  | Critical Accounting Policies
|--- |  | ----------------------------




The Partnerships accounting policies have been established and conformed to in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in
conformity with GAAP requires management to use judgments in the application of accounting policies, including making estimates and assumptions. These judgments may affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the dates of the financial statements presented and the reported amounts of revenues and expenses during the respective reporting periods. If our 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 our financial statements.





The accounting policies that we consider to be critical, in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain, are
discussed below. For further information related to the Partnerships accounting policies, including the critical accounting policies described below, refer to the report filed for the Partnership on Form 10-K for the year ended December 31,
2001.




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Straight-Lined Rental Revenues


The Partnership recognizes rental income generated from all leases on real estate assets in which the Partnership has an ownership interest either directly or through its investments in joint ventures on a straight-line basis over
the terms of the respective leases. Should tenants encounter financial difficulties in future periods, the amounts recorded as receivables may not be fully realized.





Operating Cost Reimbursements


The Partnership generally bills tenants for operating cost reimbursements either
directly or through its investments in joint ventures on a monthly basis at amounts estimated largely based on actual prior period activity and the respective tenant lease terms. Such billings are generally adjusted on an annual basis to reflect
reimbursements owed to the landlord based on the actual costs incurred during the period and the respective tenant lease terms. Should tenants encounter financial difficulties in future periods, the amounts recorded as receivables may not be fully
realized.





Real Estate


Management
continually monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets in which the Partnership has ownership interests either directly or through its investments in joint ventures may not be
recoverable. When such events or changes in circumstances are present, management assesses the potential impairment by comparing the fair market value of the underlying assets, estimated at amounts equal to the future undiscounted operating cash
flows expected to be generated from tenants over the life of the assets and from their eventual disposition, to the carrying value of the assets. In the event that the carrying amount exceeds the estimated fair market value, the Partnership would
recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value.




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PART IIOTHER INFORMATION





ITEM
6(b)During the second quarter of 2002, the Registrant filed a Current Report on Form 8-K dated May 16, 2002 disclosing the dismissal of Arthur Andersen LLP as its independent public accountants.





SIGNATURES





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





WELLS REAL ESTATE FUND III, L.P. (Registrant)Date:    August 12, 2002



By:

/s/  LEO F. WELLS,
IIILeo F. Wells, III,as Individual General Partner and
as President of Wells Capital, Inc., the General Partner of Wells Partners,
L.P.





Date:    August 12, 2002



By:

/s/  DOUGLAS P.
WILLIAMSAs Chief Financial Officer




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EXHIBIT INDEX


TO


SECOND QUARTER FORM
10-Q


OF


WELLS REAL ESTATE FUND III, L.P.





Exhibit No.

Description99.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200299.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002










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