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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



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



For the quarterly period ended March 31, 2005 or



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



For the transition period from
 to



Commission file number 0-18407



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WELLS REAL ESTATE FUND III, L.P.

(Exact name of registrant as specified in
its charter)



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



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



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

Yes  x     No ̈



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

Yes ̈No  x



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



Certain statements contained in this Form 10-Q of Wells Real Estate Fund III, L.P. (the
Partnership) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in
particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated.
Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as may, will,
expect, intend, anticipate, estimate, believe, continue, or other similar words. Specifically, among others, we consider statements concerning projections of future operating
results and cash flows, our ability to meet future obligations, and the amount and timing of future distributions to limited partners to be forward-looking statements.



Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that this report is
filed with the Securities and Exchange Commission. Neither the Partnership nor the general partners make any representations or warranties (expressed or implied) about the accuracy of any such forward-looking statements. Actual results could differ
materially from any forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.



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



General economic risks



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



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



Enterprise risks



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



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



Real estate risks



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



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



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



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



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



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



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



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



Other operational risks



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



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



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



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



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WELLS REAL ESTATE FUND III, L.P.





TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                            |  |         
|-------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                            |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                           
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                       |  |         
|         |  |                       | 
|         |  |                       |  | Balance SheetsMarch 31, 2005 (unaudited) and December 31, 2004                                                            |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months Ended March 31, 2005 (unaudited) and 2004 (unaudited)                        |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2004 and the Three Months Ended March 31, 2005 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Three Months Ended March 31, 2005 (unaudited) and 2004 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                        |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                      |  | 13      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                    |  | 22      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                           
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                          |  | 23      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                |  | 23      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                            |  | 23      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                        |  | 23      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                          |  | 23      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                   |  | 24      



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WELLS REAL ESTATE FUND III, L.P.





BALANCE SHEETS



ASSETS



|                              |  |                          |           |                   |   |          
|----------------------------- |  | ------------------------ | --------- | ----------------- | - | ---------
|                              |  | March 31,2005(unaudited) |           | December 31, 2004
|Investments in joint ventures |  | $                        | 5,206,498 |                   | $ | 5,260,006
|Cash and cash equivalents     |  |                          | 2,198,090 |                   |   | 2,184,474
|Due from joint ventures       |  |                          | 240,754   |                   |   | 181,462  
|                              |  |                          |           |                   |   |          
|Total assets                  |  | $                        | 7,645,342 |                   | $ | 7,625,942
|                              |  |                          |           |                   |   |          



LIABILITIES AND
PARTNERS CAPITAL



|                                                |  |   |           |  |   |          
|----------------------------------------------- |  | - | --------- |  | - | ---------
|LIABILITIES:                                    |  |   |           |  |   |          
|Accounts payable and accrued expenses           |  | $ | 15,342    |  | $ | 16,033   
|Due to affiliates                               |  |   | 8,247     |  |   | 6,370    
|                                                |  |   |           |  |   |          
|Total liabilities                               |  |   | 23,589    |  |   | 22,403   
|                                                |  |  
|PARTNERS CAPITAL:                              |  |   |           |  |   |          
|Limited partners:                               |  |   |           |  |   |          
|Class A19,635,965 units issued and outstanding |  |   | 7,621,753 |  |   | 7,603,539
|Class B2,544,540 units issued and outstanding  |  |   | 0         |  |   | 0        
|General partners                                |  |   | 0         |  |   | 0        
|                                                |  |   |           |  |   |          
|Total partners capital                         |  |   | 7,621,753 |  |   | 7,603,539
|                                                |  |   |           |  |   |          
|Total liabilities and partners capital         |  | $ | 7,645,342 |  | $ | 7,625,942
|                                                |  |   |           |  |   |          



See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.





STATEMENTS OF OPERATIONS

(unaudited)



|                                          |  |                             |        |      |   |        
|----------------------------------------- |  | --------------------------- | ------ | ---- | - | -------
|                                          |  | Three Months EndedMarch 31,
|                                          |  | 2005                        |        | 2004
|EQUITY IN INCOME OF JOINT VENTURES        |  | $                           | 45,933 |      | $ | 149,478
|                                          |  |                            
|EXPENSES:                                 |  |                             |        |      |   |        
|Partnership administration                |  |                             | 29,726 |      |   | 22,029 
|Legal and accounting                      |  |                             | 11,524 |      |   | 10,024 
|Other general and administrative          |  |                             | 482    |      |   | 512    
|                                          |  |                             |        |      |   |        
|Total expenses                            |  |                             | 41,732 |      |   | 32,565 
|                                          |  |                            
|INTEREST AND OTHER INCOME                 |  |                             | 14,013 |      |   | 2,909  
|                                          |  |                             |        |      |   |        
|NET INCOME                                |  | $                           | 18,214 |      | $ | 119,822
|                                          |  |                             |        |      |   |        
|NET INCOME ALLOCATED TO LIMITED PARTNERS: |  |                             |        |      |   |        
|CLASS A                                   |  | $                           | 18,214 |      | $ | 31,008 
|                                          |  |                             |        |      |   |        
|CLASS B                                   |  | $                           | 0      |      | $ | 88,814 
|                                          |  |                             |        |      |   |        
|NET INCOME PER LIMITED PARTNER UNIT:      |  |                             |        |      |   |        
|CLASS A                                   |  | $                           | 0.00   |      | $ | 0.00   
|                                          |  |                             |        |      |   |        
|CLASS B                                   |  | $                           | 0.00   |      | $ | 0.03   
|                                          |  |                             |        |      |   |        



See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.





STATEMENTS OF PARTNERS CAPITAL



FOR THE YEAR ENDED DECEMBER 31, 2004

AND THE THREE MONTHS ENDED MARCH 31, 2005 (unaudited)



|                                                                                                     |  |                  |  |         |                  |   |                         |           |         |   |          |   |  |   |   |  |   |            |  
|---------------------------------------------------------------------------------------------------- |  | ---------------- |  | ------- | ---------------- | - | ----------------------- | --------- | ------- | - | -------- | - |  | - | - |  | - | ---------- | -
|                                                                                                     |  | Limited Partners |  |         | General Partners |   | Total Partners Capital |          
|                                                                                                     |  | Class A          |  |         | Class B          |   |                         |          
|                                                                                                     |  | Units            |  | Amounts |                  |   | Units                   |           | Amounts |   |          |  
|BALANCE, December 31, 2003                                                                           |  | 19,635,965       |  | $       | 12,431,705       |   |                         | 2,544,540 |         | $ | 0        |   |  | $ | 0 |  | $ | 12,431,705 |  
|                                                                                                     |  |                  |  |         |                  |  
|Net income                                                                                           |  | 0                |  |         | 2,289,224        |   |                         | 0         |         |   | 852,617  |   |  |   | 0 |  |   | 3,141,841  |  
|Distributions of net sale proceeds ($0.36 and $0.34 per Class A Unit and Class B Unit, respectively) |  | 0                |  |         | (7,117,390       | ) |                         | 0         |         |   | (852,617 | ) |  |   | 0 |  |   | (7,970,007 | )
|                                                                                                     |  |                  |  |         |                  |   |                         |           |         |   |          |   |  |   |   |  |   |            |  
|BALANCE, December 31, 2004                                                                           |  | 19,635,965       |  |         | 7,603,539        |   |                         | 2,544,540 |         |   | 0        |   |  |   | 0 |  |   | 7,603,539  |  
|                                                                                                     |  |                  |  |         |                  |  
|Net income                                                                                           |  | 0                |  |         | 18,214           |   |                         | 0         |         |   | 0        |   |  |   | 0 |  |   | 18,214     |  
|                                                                                                     |  |                  |  |         |                  |   |                         |           |         |   |          |   |  |   |   |  |   |            |  
|BALANCE, March 31, 2005                                                                              |  | 19,635,965       |  | $       | 7,621,753        |   |                         | 2,544,540 |         | $ | 0        |   |  | $ | 0 |  | $ | 7,621,753  |  
|                                                                                                     |  |                  |  |         |                  |   |                         |           |         |   |          |   |  |   |   |  |   |            |  



See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.





STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                              |           |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---- | - | ---------- | -
|                                                                                  |  | Three Months Ended March 31, |          
|                                                                                  |  | 2005                         |           |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                              |           |   |      |   |            |  
|Net income                                                                        |  | $                            | 18,214    |   |      | $ | 119,822    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |           |   |      |   |            |  
|Equity in income of joint ventures                                                |  |                              | (45,933   | ) |      |   | (149,478   | )
|Operating distributions received from joint ventures                              |  |                              | 40,149    |   |      |   | 200,239    |  
|Changes in assets and liabilities:                                                |  |                              |           |   |      |   |            |  
|Due to affiliates                                                                 |  |                              | 1,877     |   |      |   | 0          |  
|Accounts payable and accrued expenses                                             |  |                              | (691      | ) |      |   | 11,498     |  
|                                                                                  |  |                              |           |   |      |   |            |  
|Total adjustments                                                                 |  |                              | (4,598    | ) |      |   | 62,259     |  
|                                                                                  |  |                              |           |   |      |   |            |  
|Net cash provided by operating activities                                         |  |                              | 13,616    |   |      |   | 182,081    |  
|                                                                                  |  |                             
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                              |           |   |      |   |            |  
|Net sale proceeds distributions paid to limited partners                          |  |                              | 0         |   |      |   | (1,312,003 | )
|Operating distributions paid to limited partners                                  |  |                              | 0         |   |      |   | (220,904   | )
|                                                                                  |  |                              |           |   |      |   |            |  
|Net cash used in financing activities                                             |  |                              | 0         |   |      |   | (1,532,907 | )
|                                                                                  |  |                              |           |   |      |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                              | 13,616    |   |      |   | (1,350,826 | )
|                                                                                  |  |                             
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                              | 2,184,474 |   |      |   | 2,552,904  |  
|                                                                                  |  |                              |           |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                            | 2,198,090 |   |      | $ | 1,202,078  |  
|                                                                                  |  |                              |           |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:           |  |                              |           |   |      |   |            |  
|Partnership distribution payable                                                  |  | $                            | 0         |   |      | $ | 220,904    |  
|                                                                                  |  |                              |           |   |      |   |            |  



See accompanying notes.



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WELLS REAL ESTATE FUND III, L.P.





CONDENSED NOTES TO FINANCIAL STATEMENTS



MARCH 31, 2005 (unaudited)



|1. | ORGANIZATION AND BUSINESS
|-- | -------------------------



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



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



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



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



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

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

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



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



On April
29, 2004, four Wells-affiliated Joint Ventures, including Fund III-IV Associates, sold five real properties, including Stockbridge Village Shopping Center, to an unrelated third party for a gross sale price of $23,750,000. As a result of the sale of
Stockbridge Village Shopping Center, the Partnership received net sale proceeds of approximately $6,900,000 and was allocated a gain of approximately $2,700,000.



On July 1, 2004, Fund II-III Associates and Fund II-III-VI-VII Associates, collectively, sold Brookwood Grill and the Holcomb Bridge
Property to an unrelated third party for a gross sale price of $9,500,000. As a result of the sale of Brookwood Grill, the Partnership received net sale proceeds of approximately $884,000 and was allocated a gain of approximately $290,000. As a
result of the sale of the Holcomb Bridge Property, the Partnership received net sale proceeds of approximately $608,000 and was allocated a gain of approximately $178,000, of which approximately $14,000 was deferred. The deferred gain represents the
Partnerships pro-rata allocation of maximum exposure under an eighteen-month rental guarantee provided to the purchaser in connection with the sale. As of March 31, 2005, the Partnership recognized approximately $1,700 of the deferred gain.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Basis of Presentation



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



Distributions of Net Cash from Operations



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



Distribution of Sales Proceeds



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



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



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



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



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



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



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



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



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



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



Reclassifications



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



|3. | RELATED-PARTY TRANSACTIONS
|-- | --------------------------



Management and Leasing Fees



Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners, receives compensation for the management and leasing of the
Partnerships properties owned through the Joint Ventures equal to (a) of the gross revenues collected monthly, 3% of the gross revenues for management and 3% of the gross revenues for leasing (aggregate maximum of 6%) plus a separate fee for
the one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties or (b) in the case
of commercial properties which are leased on a long-term net basis (ten or more years), 1% of the gross revenues except for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term. Management and leasing
fees are paid by the Joint Ventures and, accordingly, included in equity in income of joint venture in the accompanying statements of operations. The Partnerships share of management and leasing fees and lease acquisition costs incurred
through the Joint Ventures is $11,482 and $13,595 for the three months ended March 31, 2005 and 2004, respectively.



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Administration Reimbursements



Wells Capital and Wells Management perform certain administrative services for the Partnership, relating to accounting, property management,
and other partnership administration, and incur the related expenses. Such expenses are allocated among various other entities affiliated with the General Partners based on estimates of the amount of time spent dedicated to each fund by individual
administrative personnel. In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The Partnership reimbursed Wells Capital and Wells Management for administrative expenses of $26,114 and $18,526 for the
three months ended March 31, 2005 and 2004, respectively. As of March 31, 2005, administrative reimbursements due to Wells Management and Wells Capital of $8,247 are included in due to affiliates in the accompanying balance sheet. As of December 31,
2004, administrative reimbursements of $4,879 are included in due to affiliates in the accompanying balance sheet. In addition, Wells Capital pays for certain operating expenses of the Partnership (bill-backs) directly and invoices the
Partnership for the reimbursement thereof on a monthly basis. As of December 31, 2004, bill-backs of $1,491 are included in due to affiliates in the accompanying balance sheet.



|4. | INVESTMENTS IN JOINT VENTURES
|-- | -----------------------------



Basis of Presentation



The Partnership owned interests in five properties during the periods presented through its ownership in the Joint Ventures. The Partnership does not have control over the operations of the Joint Ventures; however, it
does exercise significant influence. Approval by the Partnership, as well as the other Joint Venture partners, is required for any major decision or any action that would materially affect the Joint Ventures or their real property investments.
Accordingly, the Partnerships investments in the Joint Ventures are recorded using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for contributions, distributions, and net income
(loss) attributable to the Partnership. For further information regarding investments in the Joint Ventures, refer to the financial statements and footnotes included in the Partnerships Form 10-K for the year ended December 31, 2004.



Summary of Operations



Condensed financial information for the Joint Ventures for the three months ended March 31,
2005 and 2004, respectively, is presented below:



|                       |  |                              |         |                                          |   |         |                                     |      |                              |  |      |         |      |  |      |     |      |   |         |  |   |         |  |   |        
|---------------------- |  | ---------------------------- | ------- | ---------------------------------------- | - | ------- | ----------------------------------- | ---- | ---------------------------- |  | ---- | ------- | ---- |  | ---- | --- | ---- | - | ------- |  | - | ------- |  | - | -------
|                       |  | Total Revenues               |         | Income (Loss) From Continuing Operations |   |         | Income From Discontinued Operations |      | Net Income                  
|                       |  | Three Months Ended March 31, |         | Three Months Ended March 31,             |   |         | Three Months Ended March 31,        |      | Three Months Ended March 31,
|                       |  | 2005                         |         | 2004                                     |   | 2005    |                                     | 2004 |                              |  | 2005 |         | 2004 |  | 2005 |     | 2004
|Fund II-III Associates |  | $                            | 456,928 |                                          | $ | 446,104 |                                     | $    | 115,975                      |  | $    | 19,992  |      |  | $    | 820 |      | $ | 56,949  |  | $ | 116,795 |  | $ | 76,941 
|Fund III-IV Associates |  |                              | 168,437 |                                          |   | 0       |                                     |      | 6,342                        |  |      | (87,834 | )    |  |      | 0   |      |   | 298,474 |  |   | 6,342   |  |   | 210,640
|                       |  |                              |         |                                          |   |         |                                     |      |                              |  |      |         |      |  |      |     |      |   |         |  |   |         |  |   |        
|                       |  | $                            | 625,365 |                                          | $ | 446,104 |                                     | $    | 122,317                      |  | $    | (67,842 | )    |  | $    | 820 |      | $ | 355,423 |  | $ | 123,137 |  | $ | 287,581
|                       |  |                              |         |                                          |   |         |                                     |      |                              |  |      |         |      |  |      |     |      |   |         |  |   |         |  |   |        



Condensed financial information for
the joint venture in which the Partnership held an equity interest through its ownership in Fund II-III Associates for the three months ended March 31, 2005 and 2004, respectively, is presented below:



|                              |  |                              |   |                                   |   |                                            |   |                              |  |      |   |  |      |      |      |  |      |        |  |   |     |  |   |       
|----------------------------- |  | ---------------------------- | - | --------------------------------- | - | ------------------------------------------ | - | ---------------------------- |  | ---- | - |  | ---- | ---- | ---- |  | ---- | ------ |  | - | --- |  | - | ------
|                              |  | Total Revenues               |   | Income From Continuing Operations |   | Income (Loss) From Discontinued Operations |   | Net Income                  
|                              |  | Three Months Ended March 31, |   | Three Months Ended March 31,      |   | Three Months Ended March 31,               |   | Three Months Ended March 31,
|                              |  | 2005                         |   | 2004                              |   | 2005                                       |   | 2004                         |  | 2005 |   |  | 2004 |      | 2005 |  | 2004
|Fund II-III-VI-VII Associates |  | $                            | 0 |                                   | 0 |                                            | $ | 1,212                        |  | $    | 0 |  | $    | (901 | )    |  | $    | 94,378 |  | $ | 311 |  | $ | 94,378
|                              |  |                              |   |                                   |   |                                            |   |                              |  |      |   |  |      |      |      |  |      |        |  |   |     |  |   |       



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



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



Overview



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



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

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



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

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



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

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



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

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



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

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



Portfolio Overview



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



After the close of the quarter,
Apex Systems, Inc. (Apex) signed a lease amendment at 4400 Cox Road to take the remaining vacant space in the building, bringing the overall occupancy to 100%. This property is now being marketed for sale, based on the strength of the
recent leasing accomplishments. We also announced the next net sale proceeds distribution to limited partners, scheduled for the second quarter 2005, totaling approximately $775,000 from the sales of Stockbridge Village Shopping Center, the Holcomb
Bridge Property, and Brookwood Grill. With four properties now sold and one on the market, the General Partners are currently reserving operating cash and a portion of net sale proceeds to fund expected re-leasing costs at 4400 Cox Road, as well as
anticipated capital expenditures at Boeing at the Atrium. We anticipate that operating distributions will continue to be reserved in the near term, given the re-leasing costs at 4400 Cox Road and the potential sale of this asset. Once the outcome of
the properties re-leasing and marketing efforts is known, the General Partners will evaluate if further distributions of net sale proceeds are appropriate.



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Property Summary



Information related to the properties owned by the Joint Ventures follows:



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



| |  |  | Brookwood Grill was sold on July 1, 2004, and the Partnership received approximately $884,000 in net sale proceeds. The General Partners have reviewed the remaining re-leasing costs
anticipated at 4400 Cox Road and determined that approximately $131,000 of these net sale proceeds can be distributed to the limited partners, which is scheduled for the second quarter 2005. The remaining proceeds will be reserved at this time.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Holcomb Bridge Property was sold on July 1, 2004. As a result of this sale, the Partnership received net sale proceeds of approximately $608,000. Approximately $143,000 of these
proceeds has been used for the Partnerships pro-rata share of the re-leasing costs at 4400 Cox Road. The General Partners have reviewed the remaining re-leasing costs anticipated at 4400 Cox Road and determined that approximately $90,000 of
these net sale proceeds can be distributed to the limited partners, which is scheduled for the second quarter 2005. The remaining proceeds will be reserved at this time.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Stockbridge Village Shopping Center was sold on April 29, 2004. As a result of this sale, the Partnership received net sale proceeds of approximately $6,879,000. Approximately
$626,000 of these proceeds has been used for the Partnerships pro-rata share of the re-leasing costs at 4400 Cox Road. Approximately $5,699,000 of the net sale proceeds was distributed in November 2004, and the remaining proceeds will be
distributed in the second quarter 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The 4400 Cox Road is now 100% leased. After the close of the quarter, Apex leased the remaining vacant space in the building, beginning in July 2005. Apex now leases approximately
26,974 square feet, and this lease extends through August 2015. New York Life Insurance Company leases the remainder of the building (approximately 14,740 square feet), and this lease extends through December 2014. We are currently marketing this
asset for sale.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Greenville Center was sold in 2002, and the Partnership received net sale proceeds of approximately $2,271,000. Approximately $1,312,000 of net sale proceeds was distributed to
limited partners in January 2004 and the remaining of approximately $959,000 was distributed to limited partners in November 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Industry Factors



Our results continue to be impacted by a number of factors influencing
the real estate industry.



General Economic and Real Estate
Market Commentary



Management reviews a number of economic
forecasts and market commentaries in order to evaluate general economic conditions and formulate a view of the current environments effect on the real estate markets in which we operate.



Management believes that the U.S. economy is continuing on the path of slow,
but steady recovery. Job growth is improving, with 2.2 million jobs created in 2004, and with another 2.4 to 2.8 million projected to



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be added in 2005. Gross Domestic Product growth and renewed business confidence are fueling the job growth. However, uncertainty still exists in the economy,
primarily due to high oil prices, the war in Iraq, the trade deficit, and other global issues.



The U.S. office real estate market has begun to show modest improvement. The strength of the overall economy is having a positive impact on office real
estate fundamentals. Positive absorption of office space combined with a decline in new construction has contributed to the increase in office occupancy rates for three consecutive quarters. Although occupancy rates have increased, management does
not expect that they will rise by more than 200 basis points annually. As a result, management anticipates that it could be a minimum of two to three years before vacancy rates reach the equilibrium level of ten to twelve percent. Average asking
rates stabilized in the second half of 2004. Management believes that renewed employment growth should benefit the office market; however, the uncertainty that still exists in the economy is causing many firms to continue to be more cautious with
their investment and hiring decisions. Importantly, management believes the pace and strength of the recovery for office real estate will vary by market. Market conditions vary widely by geographical region, metropolitan area, submarket, and
property.



The real estate capital transaction market
continues to be very active. Capitalization rates (cap rates) have continued to decline in spite of the fact that the Federal Reserve (the Fed) increased the Federal Funds Rate five times in 2004. Management believes that the
decline in cap rates is predominately driven by increased capital flows into real estate. The spread between average cap rates and 10-year U.S. Treasuries narrowed in 2004; however, this was primarily due to a drop in cap rates rather than a rise in
10-year U.S. Treasuries. In managements opinion, absent a significant move in interest rates or a significant decrease in the number of parties interested in acquiring real estate, cap rates are not expected to significantly increase from
their current levels in 2005.



Real Estate Funds with
Current Vacancy or Near-term Rollover Exposure



Real
estate funds, such as the Partnership, that own interests in properties with current vacancies or near-term tenant rollover may face a challenging leasing environment. The properties within these funds generally will face lower rents and higher
concession packages to the tenants in order to re-lease vacant space.



From a valuation standpoint, it is generally preferable to either renew an existing tenant lease or re-lease the property prior to marketing it for sale. Generally, buyers will heavily discount their offering prices to compensate for
existing or pending vacancies.



Results of Operations



Equity in Income of Joint Ventures



Equity in income of joint ventures was $45,933 and $149,478 for the three months ended March
31, 2005 and 2004, respectively. The 2005 decrease is primarily attributable to (i) foregone operating income for the first quarter of 2005 resulting from the April 2004 sale of the Stockbridge Village Shopping Center, and (ii) an increase in
depreciation expense as a result of placing tenant improvements into service at 4400 Cox Road in the fourth quarter of 2004, partially offset by (iii) a decline in depreciation expense for all buildings owned through the Joint Ventures due to
changing the estimated weighted-average composite useful life from 25 years to 40 years effective July 1, 2004.



We expect future equity in income of Joint Ventures to increase as a result of entering into a lease amendment with Apex for the remaining vacant space in 4400 Cox Road
in April 2005.



Expenses of the Partnership



Our total expenses were $41,732 and $32,565 for the three months ended March 31, 2005 and
2004, respectively. The 2005 increase is primarily attributable to increases in administrative salaries and accounting fees associated



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with increased reporting and regulatory requirements. We anticipate additional increases related to implementing and adhering to such reporting and
regulatory requirements going forward.



Liquidity and Capital
Resources



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



Short-Term Liquidity



During the three months ended March 31, 2005, we generated net operating cash flows, including operating distributions received from the
Joint Ventures, of approximately $13,600 as compared to approximately $182,000 for the three months ended March 31, 2004. The 2005 decrease is primarily attributable to a corresponding decrease in operating distributions received from the Joint
Ventures as a result of the sales of the Stockbridge Village Shopping Center in April 2004, Brookwood Grill in July 2004, and the Holcomb Bridge Property in July 2004. Operating distributions from the Joint Ventures are generally representative of
rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures. Such operating cash flows are generally used to pay operating distributions to limited partners;
however, we have reserved operating distributions in order to fund our pro-rata portion of the costs anticipated in connection with re-leasing 4400 Cox Road, and we anticipate continuing to reserve distributions until such costs are funded.



We believe that the cash on hand and distributions due from the Joint Ventures
are sufficient to cover our working capital needs, including liabilities of approximately $24,000 as of March 31, 2005. During the remainder of 2005, our General Partners anticipate that we will be able to fund our proportionate share costs
anticipated in connection with tenant improvements at 4400 Cox Road in connection with the April 2005 lease expansion for Apex. Upon signing of the lease expansion, 4400 Cox Road is fully leased.



Long-Term Liquidity



We expect that our future sources of capital will be primarily derived from operating cash flows generated from the Joint Ventures, and net
proceeds generated from the selective and strategic sale of properties. Our future long-term liquidity requirements will include, but not be limited to, tenant improvements, leasing commissions, renovations, and other significant capital
improvements necessary for properties owned through the Joint Ventures. We expect to continue to use substantially all future net cash flows from operations, including distributions received from the Joint Ventures, less expenses related to the
recurring operations of the properties and the portfolio and reserves for known capital expenditures.



Capital Resources



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



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



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



As of March 31, 2005, we had received, used, and held net proceeds from the sale of properties as presented below:



|                                                   |  |              |            |                                     |       |         |                                            |   |                                  |  |                                 |         |                                                |                                              |  |   |           |  |   |          
|-------------------------------------------------- |  | ------------ | ---------- | ----------------------------------- | ----- | ------- | ------------------------------------------ | - | -------------------------------- |  | ------------------------------- | ------- | ---------------------------------------------- | -------------------------------------------- |  | - | --------- |  | - | ---------
|Property Sold                                      |  | Net Proceeds |            | PartnershipsApproximateOwnership % |       |         | Net ProceedsAttributable to thePartnership |   | Cumulative Net Proceeds Invested |  | Distributed to Partners to date |         | Undistributed NetProceeds as of March 31, 2005
|                                                   |  |              |            | Amount                              |       | Purpose |                                            |  
|Greenville Center (sold in 2002)                   |  | $            | 2,271,187  |                                     | 100.0 | %       |                                            | $ | 2,271,187                        |  | $                               | 0       |                                                |                                             |  | $ | 2,271,187 |  | $ | 0        
|                                                   |  |              |            |                                     |       |         |                                           
|Stockbridge Village Shopping Center (sold in 2004) |  |              | 12,024,223 |                                     | 57.2  | %       |                                            |   | 6,879,238                        |  |                                 | 626,466 |                                                |     Re-leasing4400 Cox Road building (2004) |  |   | 5,698,820 |  |   | 553,952  
|                                                   |  |              |            |                                     |       |         |                                           
|Holcomb Bridge Property (sold in 2004)             |  |              | 6,889,379  |                                     | 8.8   | %       |                                            |   | 607,643                          |  |                                 | 143,029 |                                                |     Re-leasing4400 Cox Roadbuilding (2004)  |  |   | 0         |  |   | 464,614  
|                                                   |  |              |            |                                     |       |         |                                           
|Brookwood Grill (sold in 2004)                     |  |              | 2,346,693  |                                     | 37.7  | %       |                                            |   | 883,530                          |  |                                 | 0       |                                                |                                              |  |   | 0         |  |   | 883,530  
|                                                   |  |              |            |                                     |       |         |                                            |   |                                  |  |                                 |         |                                                |                                              |  |   |           |  |   |          
|Total                                              |  |              |            |                                     |       |         |                                            | $ | 10,641,598                       |  | $                               | 769,495 |                                                |                                              |  | $ | 7,970,007 |  | $ | 1,902,096
|                                                   |  |              |            |                                     |       |         |                                            |   |                                  |  |                                 |         |                                                |                                              |  |   |           |  |   |          



Upon evaluating the capital needs of
the properties in which the Partnership currently holds an interest, our General Partners have determined that reserves of net sale proceeds of approximately $1,127,000 should be held to fund the costs anticipated in connection with re-leasing 4400
Cox Road and capital improvements for Boeing at the Atrium. Our General Partners anticipate distributing residual net sale proceeds of approximately $775,000 in the second quarter of 2005 as further described below.



Contractual Obligations and Commitments



Distribution of Net Sale Proceeds



In December 2004, the General Partners announced their intention to distribute net sale
proceeds of approximately $775,000 in the second quarter of 2005 to the limited partners of record as of March 31, 2005, which, under the terms of the partnership agreement, does not include limited partners acquiring units after December 31, 2004.
From total net sale proceeds of approximately $1,900,000, the General Partners intend to distribute approximately $775,000 to the limited partners in connection with the aforementioned distribution and retain the residual balance of approximately
$1,127,000 in reserve in order to fund future operating costs of the Partnership.



This distribution has not been formally declared by the General Partners. In accordance with the terms of the partnership agreement, the General Partners may elect to retain reserves deemed reasonably necessary for the



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Partnership at the sole discretion of the General Partners. Thus, should a change in circumstances prior to the intended distribution date require the
General Partners to reevaluate the Partnerships reserve requirements, it is possible that this distribution may not occur or that distributions may be made at a lower amount.



Related-Party Transactions



Related-Party Fees and Reimbursements



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



Economic Dependency



We have engaged Wells Capital, our corporate General Partner, and Wells Management, an affiliate of Wells Capital, to provide certain services that are essential to the
Partnership, including asset management services, supervision of the management and leasing of properties owned through the Joint Ventures, asset acquisition and disposition services, as well as other administrative responsibilities for the
Partnership including accounting services, shareholder communications, and investor relations. These agreements are terminable by either party on 60 days written notice. As a result of these relationships, the Partnership is dependent upon
Wells Capital and Wells Management.



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



WREFs net income was approximately $5.5 million for the three months
ended March 31, 2005. 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 of Wells Real Estate Investment Trust II, Inc., an affiliated real estate investment trust for which Wells Capital serves as the advisor, and the volume of future acquisitions and dispositions of real estate assets by Wells-sponsored programs.
As of March 31, 2005 and December 31, 2004, WREF held cash balances of approximately $16.2 million and $6.3 million, respectively. WREF believes that it has adequate liquidity available in the form of cash on hand and current receivables necessary
to meet its obligations as they become due.



Litigation Against Related
Parties



During early 2004, a putative class action complaint was filed
against, among others, Leo. F. Wells, III, and Wells Capital, our General Partners, and Wells Management. The Court granted the plaintiffs motion to permit voluntary dismissal of this suit, and it was dismissed without prejudice. In November
2004, the same plaintiffs filed a second putative class action complaint against, among others, Mr. Wells, Wells Capital, and Wells Management. On January 28, 2005, the defendants filed motions to dismiss the plaintiffs claims. On March 31,
2005, the plaintiffs filed briefs in opposition to the defendants motions to dismiss. The Court has not yet ruled on these pending motions. The details of both complaints are outlined below.



As a matter of background, on or about March 12, 2004, a putative class action complaint (the
Original Complaint) was filed by four individuals (the plaintiffs) against Wells Real Estate Fund I, and Wells Capital, and Leo F. Wells, III (collectively, the General Partners of Wells Real Estate Fund I), as
well as



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Wells Management and Wells Investment Securities, Inc. (WIS) (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett
County, Georgia, Civil Action No. 04-A-2791 2). Wells Real Estate Fund I is a public limited partnership. The plaintiffs filed the Original Complaint purportedly on behalf of all limited partners holding B units of Wells Real Estate Fund I as of
January 15, 2003. The Original Complaint alleged, among other things, that (a) the General Partners of Wells Real Estate Fund I, WIS, and Wells Real Estate Fund I negligently and fraudulently made false statements and material omissions in
connection with the initial sale (September 6, 1984September 5, 1986) of the B units to investors of Wells Real Estate Fund I by making false statements and omissions in sales literature relating to the distribution of net sale proceeds to
holders of B units, among other things; (b) the General Partners of Wells Real Estate Fund I and Wells Real Estate Fund I negligently and fraudulently misrepresented and concealed disclosure of, among other things, alleged discrepancies between such
statements and provisions in the partnership agreement for a period of time in order to delay such investors from taking any legal, equitable, or other action to protect their investments in Wells Real Estate Fund I, among other reasons; (c) Mr.
Wells and Wells Management breached an alleged contract arising out of a June 2000 consent solicitation to the limited partners; and (d) the General Partners of Wells Real Estate Fund I and Wells Real Estate Fund I breached fiduciary duties to the
limited partners. On June 3, 2004, the Court granted the plaintiffs motion to permit voluntary dismissal, and the Original Complaint was dismissed without prejudice.



On or about November 24, 2004, the plaintiffs filed a second putative class action complaint (the Complaint) against Mr. Wells,
Wells Capital, Wells Management, and Wells Real Estate Fund I (Hendry et al. v Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04A-13051 6) (the Hendry Action). The plaintiffs filed the
Complaint purportedly on behalf of all limited partners holding B units of Wells Real Estate Fund I as of January 9, 2002. The Complaint alleges, among other things, that the General Partners of Wells Real Estate Fund I breached their fiduciary
duties to the limited partners by, among other things, (a) failing to timely disclose alleged inconsistencies between sales literature and the partnership agreement relating to the distribution of net sale proceeds; (b) engaging in a scheme to
fraudulently conceal alleged inconsistencies between sales literature and the partnership agreement relating to the distribution of net sale proceeds; and (c) not accepting a settlement offer proposed by a holder of A units and a holder of A and B
units in other litigation naming Wells Real Estate Fund I as a defendant, in which other litigation the court subsequently granted summary judgment in favor of Wells Real Estate Fund I. The Complaint also alleges that misrepresentations and
omissions in an April 2002 consent solicitation to the limited partners caused that consent solicitation to be materially misleading. In addition, the Complaint alleges, among other things, that the General Partners of Wells Real Estate Fund I and
Wells Management breached an alleged contract arising out of a June 2000 consent solicitation to the limited partners relating to an alleged waiver of deferred management fees.



The plaintiffs seek, among other remedies, the following: judgment against the General Partners of Wells Real Estate Fund I, jointly and
severally, in an amount to be proven at trial; punitive damages; disgorgement of fees earned by the General Partners directly or through their affiliates; a declaration that the consent obtained as a result of an April 2002 consent solicitation is
null and void; enforcement of an alleged contract arising out of the June 2000 consent solicitation to waive Wells Managements deferred management fees; and an award to plaintiffs of their attorneys fees, costs and expenses. The
Complaint states that Wells Real Estate Fund I is named only as a necessary party defendant and that the plaintiffs seek no money from or relief at the expense of Wells Real Estate Fund I. On January 28, 2005, the defendants filed motions to dismiss
the plaintiffs claims. On March 31, 2005, the plaintiffs filed briefs in opposition to the defendants motions to dismiss. The Court has not yet ruled on these pending motions. Due to the uncertainties inherent in the litigation process,
it is not possible to predict the ultimate outcome of this matter at this time. However, an adverse outcome could adversely affect the ability of Wells Capital, Wells Management, and Mr. Wells to fulfill their respective duties under the agreements
and relationships they have with us.



The Hendry Action states that Wells Real
Estate Fund I is named only as a necessary defendant and that the plaintiffs are seeking no money from or relief at the expense of Wells Real Estate Fund I. Since the partnership agreement of Wells Real Estate Fund I contains no provision for
advancing defense costs to the General Partners



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of Wells Real Estate Fund I in connection with litigation involving the partnership in instances where the plaintiffs are seeking no monetary relief from the
partnership, the General Partners of Wells Real Estate Fund I, currently Wells Capital, are funding the legal fees, costs, and expenses relating to this litigation. As of March 31, 2005, Wells Capital had incurred approximately $215,000 in legal
fees, costs, and expenses related to defending the Hendry Action. At this time, management is unable to determine whether the likelihood of an unfavorable outcome is either probable or remote.



Conflicts of Interest



Our General Partners are also general partners of other affiliated public limited partnerships, (the Wells Real Estate Funds).
In addition, Wells Capital sponsors and advises two affiliated real estate investment trusts (the REITs) in which it retains residual interests. As such, there may exist conflicts of interest whereby the General Partners, in their
capacity as general partners of other Wells Real Estate Funds or as the advisor to the REITs, may be in competition with us with respect to, among other things, locating suitable replacement tenants or prospective acquirers for property
dispositions.



Inflation



The real estate market has not been affected significantly by inflation in the past three
years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases, which should protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through
charges, real estate tax and insurance reimbursements on a per-square-foot basis, or in some cases, annual reimbursement of operating expenses above a certain per-square-foot allowance. There is no assurance, however, that we would be able to
replace existing leases with new leases at higher base rental rates.



Application of Critical Accounting Policies



Our accounting
policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These
judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If
managements judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of
the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.



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



Investment in Real Estate Assets



We will be required to make subjective assessments as to the useful lives of its depreciable assets. We will consider the period of future benefit of the asset to
determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of the Partnerships assets by class are as follows:



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



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Effective July 1, 2004, the Joint Ventures extended the weighted-average composite useful life for all building assets
from 25 years to 40 years, which resulted in an increase to our net income for the three months ended March 31, 2005. We believe that this change more appropriately reflects the estimated useful lives of real estate assets and is consistent with
prevailing industry practice. In the event that the Joint Ventures utilize inappropriate useful lives or methods of depreciation, our net income would be misstated.



Valuation of Real Estate Assets



We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which we have an ownership interest,
either directly or through investments in the Joint Ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the
recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In
the event that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. We have determined that there has been no impairment in the
carrying value of real estate assets held as of March 31, 2005.



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



American Jobs Creation Act of 2004



The American Jobs Creation Act of 2004 (the Act) added Section 470 to the Internal Revenue Code, which provides certain limitations on the utilization of
losses allocable to leased property owned by a partnership having both taxable and tax-exempt partners such as the Partnership. Currently, it is unclear as to how the transition rules and effective dates set forth in the Act will apply to entities
such as the Partnership. However, on March 11, 2005, the Internal Revenue Service issued IRS Notice 2005-29 announcing that the IRS will not apply Section 470 to partnerships for taxable year 2004 based solely on the fact that a partnership had both
taxable and tax-exempt partners. It is important to note that IRS Notice 2005-29 provides relief for partnerships for taxable year 2004 only. Accordingly, unless Congress passes corrective legislation which addresses this issue or some other form of
relief from the provisions of Section 470 of the Act is granted, based on a strict reading of the Act, beginning in 2005 and thereafter, future passive losses allocable to Class B limited partners may only be used to offset passive income generated
from the same property or within the same fund.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



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



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



The Partnership carried out an evaluation, under the supervision and with the participation of management of Wells Capital, our corporate General Partner, including the
Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Partnerships disclosure controls and procedures as to the end of the period covered by this report pursuant to the Securities
Exchange Act of 1934. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Partnerships disclosure controls and procedures were effective.



There were no significant changes in the Partnerships internal control over financial
reporting during the quarter ended March 31, 2005 that have materially affected, or are likely to materially affect, the Partnerships internal control over financial reporting.



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PART II.    OTHER INFORMATION



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



We were not involved in any material legal proceedings during the quarter ended March 31, 2005 requiring disclosure under Item 103 of Regulation S-K.



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



|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended March 31, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



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



|(c) |  | We did not redeem any securities during the quarter ended March 31, 2005.
|--- |  | -------------------------------------------------------------------------



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



We were not subject to any indebtedness, and therefore, we did not default respect to any indebtedness during the quarter ended March 31, 2005.



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



No matters were submitted to a vote of our limited partners during the quarter ended March 31, 2005.



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



Not applicable.



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|ITEM 6. | EXHIBITS
|------- | --------



The Exhibits required to be filed with this report are set forth on the Exhibit Index to First Quarter Form 10-Q attached hereto.



SIGNATURES



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



|             |  |  |  |                                                                                                                            |  |  |  | 
|------------ |  |  |  | -------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|             |  |  |  | WELLS REAL ESTATE FUND III, L.P. (Registrant)                                                                             
|             |  | 
|             |  |  |  | By: WELLS CAPITAL, INC. (Corporate General Partner)                                                                       
|             |  | 
|May 13, 2005 |  |  |  | /s/    LEO F. WELLS, IIILeo F. Wells, III President, Principal Executive Officer, and Sole
Director of Wells Capital, Inc.
|May 13,
2005 |  |  |  | /s/    DOUGLAS P.
WILLIAMSDouglas P. Williams Principal Financial Officer of Wells Capital, Inc.                          



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EXHIBIT INDEX

TO FIRST QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND III, L.P.



|           |  |                                                                                                                               
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                   
|31.1       |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                        
|           | 
|31.2       |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                        
|           | 
|32.1       |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002