<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   Form 10-Q



(Mark one)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

For the quarterly period ended           June 30, 2001            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
                       ---------------------------------------------------------

                       WELLS REAL ESTATE FUND III, L.P.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


                       Georgia                                    58-1800833
------------------------------------------------------   ----------------------
           (State or other jurisdiction of                   (I.R.S. Employer
           incorporation or organization)                   Identification No.)

6200 The Corners Parkway, Suite 250  Norcross, Georgia            30092
------------------------------------------------------   ----------------------
      (Address of principal executive offices)                 (Zip Code)

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

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

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

     Yes     X        No
          -------         -------
<PAGE>

                                   Form 10-Q

                       Wells Real Estate Fund III, L.P.

                                     INDEX

<TABLE>
<CAPTION>

                                                                                    Page No.
                                                                                    --------
<S>                                                                                 <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Balance Sheets - June 30, 2001 and December 31, 2000                         3

         Statements of Income for the Three Months and Six Months
            Ended June 30, 2001 and 2000                                              4

         Statement of Partner's Capital for the Six Months Ended June 30, 2001
            and the Year Ended December 31, 2000                                      5

         Statements of Cash Flows for the Six Months Ended June 30, 2001
            and 2000                                                                  6

         Condensed Notes to Financial Statements                                      7

 Item 2. Management's Discussion and Analysis of Financial Condition and Results
            of Operations                                                             9

PART II. OTHER INFORMATION                                                           11
</TABLE>

                                       2
<PAGE>

                       WELLS REAL ESTATE FUND III, L.P.

                    (A Georgia Public Limited Partnership)

                                BALANCE SHEETS



<TABLE>
<CAPTION>
                                                               June 30,    December 31,
                                                                 2001          2000
                                                             -----------   ------------
<S>                                                          <C>           <C>
ASSETS:
 Real estate, at cost:
   Land                                                      $   576,350   $   576,350
 Building and improvements, less accumulated depreciation
   of $1,360,332 at June 30, 2001 and $1,267,475 at
   December 31, 2000                                           2,361,219     2,429,457
                                                             -----------   -----------
       Total real estate assets                                2,937,569     3,005,807
                                                             -----------   -----------
 Cash and cash equivalents                                       385,547       409,476
 Investment in joint ventures (Note 2)                        10,774,250    10,862,926
 Due from affiliates                                             326,277       231,630
 Accounts receivable                                               9,016         5,313
 Prepaid expenses and other assets                                22,876        16,948
                                                             -----------   -----------
       Total assets                                          $14,455,535   $14,532,100
                                                             ===========   ===========
LIABILITIES AND PARTNERS' CAPITAL:
 Liabilities:
   Accounts payable                                          $    21,165   $    13,169
   Partnership distributions payable                             300,233         6,769
                                                             -----------   -----------
       Total liabilities                                         321,398        19,938
                                                             -----------   -----------

Partners' capital:
 Limited partners:
   Class A - 19,635,965 units outstanding                     14,134,137    14,512,162
   Class B - 2,544,540 units outstanding                               0             0
                                                             -----------   -----------
       Total partners' capital                                14,134,137    14,512,162
                                                             -----------   -----------
       Total liabilities and partners' capital               $14,455,535   $14,532,100
                                                             ===========   ===========
</TABLE>



           See accompanying condensed notes to financial statements

                                       3
<PAGE>

                        WELLS REAL ESTATE FUND III, L.P.

                     (A Georgia Public Limited Partnership)

                              STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                                        Three Months Ended    Six Months Ended
                                                                       -------------------  --------------------
                                                                        June 30,  June 30,   June 30,  June 30,
                                                                         2001      2000       2001      2000
                                                                       ---------  --------  --------- ---------
<S>                                                                    <C>        <C>       <C>       <C>
Revenues:
   Rental income                                                       $ 56,764  $148,098   $174,419  $284,406
   Equity in earnings of joint ventures (Note 2)                        173,334    45,960    329,624   188,103
   Interest income                                                           30        30      2,469        78
                                                                       --------  --------   --------  --------
                                                                        230,128   194,088    506,512   472,587
                                                                       --------  --------   --------  --------
Expenses:
   Operating costs-rental properties, net of
     tenant reimbursements                                               54,453    32,332    103,664    67,883
   Depreciation                                                          47,799    42,763     92,857    85,526
   Partnership administration                                            23,632    20,538     33,441    31,162
   Management & leasing fees                                              7,294    21,813     22,098    38,472
   Legal & accounting                                                     2,665     2,200     13,315    14,200
   Computer costs                                                         5,507     2,226      5,507     4,093
                                                                       --------  --------   --------  --------
                                                                        141,350   121,872    270,882   241,336
                                                                       --------  --------   --------  --------
   Net income                                                          $ 88,778  $ 72,216   $235,630  $231,251
                                                                       ========  ========   ========  ========

Net income allocated to Class A Limited
   Partners                                                            $ 88,778  $ 72,216   $235,630  $231,251
                                                                       ========  ========   ========  ========

Net loss allocated to Class B Limited Partners                         $      0  $      0   $      0  $      0
                                                                       ========  ========   ========  ========

Net income per Class A Limited Partner Unit                            $   0.01  $   0.00   $   0.01  $   0.01
                                                                       ========  ========   ========  ========

Net loss per Class B Limited Partner Unit                              $      0  $      0   $      0  $      0
                                                                       ========  ========   ========  ========

Cash distribution per Class A Limited Partner
   Unit                                                                $   0.02  $   0.00   $   0.03  $   0.02
                                                                       ========  ========   ========  ========

</TABLE>



            See accompanying condensed notes to financial statements

                                       4
<PAGE>

                       WELLS REAL ESTATE FUND III, L.P.

                    (A Georgia Public Limited Partnership)

                        STATEMENTS OF PARTNERS' CAPITAL

                     FOR THE YEAR ENDED DECEMBER 31, 2000

                    AND THE SIX MONTHS ENDED JUNE 30, 2001




<TABLE>
<CAPTION>
                                                     Limited Partners
                                    ----------------------------------------------
                                             Class A                Class B             Total
                                    -----------------------   --------------------    Partners'
                                       Units       Amounts      Units      Amounts     Capital
                                    ----------  -----------   ---------    -------   -----------
<S>                                 <C>         <C>           <C>          <C>       <C>
BALANCE, December 31, 1999          19,635,965  $14,521,435   2,544,540         $0   $14,521,435

 Net income                                  0      334,287           0          0       334,287
 Partnership distributions                   0     (343,560)          0          0      (343,560)
                                    ----------  -----------   ---------    -------   -----------
BALANCE, December 31, 2000          19,635,965   14,512,162   2,544,540          0    14,512,162

 Net income                                  0      235,630           0          0       235,630
 Partnership distributions                   0     (613,655)          0          0      (613,655)
                                    ----------  -----------   ---------    -------   -----------
BALANCE, June 30, 2001              19,635,965  $14,134,137   2,544,540         $0   $14,134,137
                                    ==========  ===========   =========    =======   ===========

</TABLE>



           See accompanying condensed notes to financial statements.

                                       5
<PAGE>

                       WELLS REAL ESTATE FUND III, L.P.

                    (A Georgia Public Limited Partnership)

                           STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                        ---------------------
                                                                         June 30,    June 30,
                                                                           2001        2000
                                                                        ---------   ---------
<S>                                                                     <C>         <C>
Cash flows from operating activities:
   Net income                                                           $ 235,630   $ 231,251
   Adjustments to reconcile net income to net cash provided by
     operating activities:
       Equity in income of joint ventures                                (329,624)   (188,103)
       Depreciation                                                        92,857      85,526
       Changes in assets and liabilities:
       Accounts receivable                                                 (3,703)     13,352
       Prepaids and other assets                                           (5,928)     (2,404)
       Accounts payable                                                     7,996      16,795
       Due from affiliates                                                  3,216           0
                                                                        ---------   ---------
         Total adjustments                                               (235,186)    (74,834)
                                                                        ---------   ---------
                                                                              444     156,417
                                                                        ---------   ---------

Cash flow from investing activities:
   Investment in real estate                                              (24,619)          0
   Investment in joint ventures                                          (241,543)          0
   Distributions received from joint ventures                             561,980     614,520
                                                                        ---------   ---------
         Net cash provided by investing activities                        295,818     614,520
                                                                        ---------   ---------
Cash flow from financing activities:
   Partnership distribution paid                                         (320,191)   (772,166)
                                                                        ---------   ---------
Net decrease in cash and cash equivalents                                 (23,929)     (1,229)

Cash and cash equivalents, beginning of year                              409,476     128,536
                                                                        ---------   ---------
Cash and cash equivalents, end of period                                $ 385,547   $ 127,307
                                                                        =========   =========

</TABLE>

           See accompanying condensed notes to financial statements.

                                       6
<PAGE>

                       WELLS REAL ESTATE FUND III, L.P.

                    (A Georgia Public Limited Partnership)

                    Condensed Notes to Financial Statements


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   (a) General

   Wells Real Estate Fund III, L.P. (the "Partnership") is a Georgia public
   limited partnership with Leo F. Wells, III and Wells Capital, Inc., a Georgia
   corporation, serving as General Partners. The Partnership was formed on July
   31, 1988, for the purpose of acquiring, developing, constructing, owning,
   operating, improving, leasing and otherwise managing income-producing
   commercial properties for investment purposes. The Partnership has two
   classes of limited partnership interests, Class A and Class B units. Class B
   limited partners shall have a one-time right to elect to have all of their
   units treated as Class A units. Limited partners may vote to, among other
   things, (a) amend the partnership agreement, subject to certain limitations,
   (b) change the business purpose or investment or investment objectives of the
   Partnership, and (c) remove a general partner. A majority vote on any of the
   above described matters will bind the Partnership, without the concurrence of
   the general partners. Each limited partner unit has equal voting rights,
   regardless of class.

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

   The Partnership owns interests in properties directly and through ownership
   in the following joint ventures with other Wells Real Estate Funds: (i) Fund
   II and Fund III Associates, a joint venture between the Partnership and Wells
   Real Estate Fund II-Fund II-OW Joint Venture (the "Fund II - III Joint
   Venture"), (ii) Fund II, Fund III, Fund VI and Fund VII Associates, a joint
   venture between the Partnership, Wells Real Estate Fund II-Fund II-OW Joint
   Venture, Wells Real Estate Fund VI, L.P., and Wells Real Estate Fund VII,
   L.P. (the "Fund II-III-VI-VII Joint Venture"), and (iii) Fund III and Fund IV
   Associates, a joint venture between the Partnership and Wells Real Estate
   Fund IV, L.P. (the "Fund III -Fund IV Joint Venture").

   As of June 30, 2001, the Partnership owned interests in the following
   properties directly and through the foregoing joint ventures: (i) Greenville
   Center, an office building in Greenville, North Carolina, owned by the
   Partnership, (ii) Boeing at the Atrium ("Boeing"), an office building in
   Houston, Texas, owned by Fund II - Fund III Joint Venture, (iii) the
   Brookwood Grill, a restaurant located in Roswell, Georgia, owned by Fund II -
   Fund III Joint Venture, (iv) the Stockbridge Village Shopping Center, a
   retail shopping center located in Stockbridge, Georgia, southeast of Atlanta,
   owned by Fund III - Fund IV Joint Venture, (v) the Reciprocal Group Building
   located in Richmond, Virginia, owned by Fund III - Fund IV Joint Venture, and
   (vi) the Holcomb Bridge Property, an office/retail center in Roswell,
   Georgia, owned by Fund II, III, VI and VII Joint Venture. All of the
   foregoing properties were acquired on an all cash basis.

                                       7
<PAGE>

   (b) Basis of Presentation

   The financial statements of Wells Real Estate Fund III, L.P. have been
   prepared in accordance with instructions to Form 10-Q and do not include all
   of the information and footnotes required by generally accepted accounting
   principles for complete financial statements. These quarterly statements have
   not been examined by independent accountants, but in the opinion of the
   General Partners, the statements for the unaudited interim periods presented
   include all adjustments, which are of a normal and recurring nature,
   necessary to present a fair presentation of the results for such periods. For
   further information, refer to the financial statements and footnotes included
   in the Partnership's Form 10-K for the year ended December 31, 2000.

2. INVESTMENT IN JOINT VENTURES

   The Partnership owns interests in five properties through its investment in
   joint ventures. The Partnership does not have control over the operations of
   the joint ventures; however, it does exercise significant influence.
   Accordingly, investment in joint ventures is recorded on the equity method.
   For a description of the joint ventures and properties owned by the
   Partnership, please refer to the Partnership's Form 10-K for the year ended
   December 31, 2000.

   SUMMARY OF OPERATIONS

   The following information summarizes the operations of the unconsolidated
   joint ventures in which the Partnership had ownership interests as of June
   30, 2001 and 2000, respectively.

<TABLE>
<CAPTION>
                                                                                 Partnership's Share of
                                  Total Revenues             Net Income                Net Income
                             -----------------------   ----------------------    ----------------------
                                Three Months Ended       Three Months Ended        Three Months Ended
                             -----------------------   ----------------------    ----------------------
                               June 30,     June 30,    June 30,     June 30,     June 30,     June 30,
                                2001         2000        2001        2000          2001         2000
                             ----------   ----------   --------    ---------     --------     --------
<S>                          <C>          <C>          <C>         <C>           <C>           <C>
Fund II - Fund III
 Boeing                      $  368,822   $  366,176   $(43,965)   $ (68,983)    $(17,015)    $(26,696)
Fund II - Fund III
 Brookwood                       56,298       56,238     37,343       36,175       14,060       13,620
Fund II-III-IV-VII Joint
 Venture                        205,914      222,699     62,363       68,199        5,651        6,180
Fund III - Fund IV
 Joint Venture                  478,462      320,100    298,257       92,387      170,638       52,856
                             ----------   ----------   --------    ---------     --------     --------
                             $1,109,496   $  965,213   $353,998    $ 127,778     $173,334     $ 45,960
                             ==========   ==========   ========    =========     ========     ========


                                                                                 Partnership's Share of
                                  Total Revenues             Net Income                Net Income
                             -----------------------   ----------------------    ----------------------
                                 Six Months Ended         Six Months Ended          Six Months Ended
                             -----------------------   ----------------------    ----------------------
                               June 30,     June 30,    June 30,     June 30,     June 30,     June 30,
                                2001         2000        2001        2000          2001         2000
                             ----------   ----------   --------    ---------     --------     --------
Fund II - Fund III
 Boeing                      $  740,459   $  733,712   $(38,460)   $(113,619)    $(14,884)    $(43,970)
Fund II - Fund III
 Brookwood                      112,535      112,425     73,088       62,063       27,518       23,367
Fund II-III-IV-VII Joint
 Venture                        416,291      444,856     91,170      138,422        8,262       12,543
Fund III - Fund IV
 Joint Venture                  905,224      764,464    539,625      342,872      308,728      196,163
                             ----------   ----------   --------    ---------     --------     --------
                             $2,174,509   $2,055,457   $665,423    $ 429,738     $329,624     $188,103
                             ==========   ==========   ========    =========     ========     ========
</TABLE>

                                       8
<PAGE>

   SUMMARY OF OPERATIONS

   The following information summarizes the operations of the property, which is
   owned by one of the above joint ventures and is significant to the
   Partnership, for the quarters ended June 30, 2001 and June 30, 2000,
   respectively. Audited financial statements of this property is included in
   the Partnership's Annual Report on Form 10-K filed for the year ended
   December 31, 2000:

<TABLE>
<CAPTION>

                                                                                 Partnership's Share of
                                  Total Revenues             Net Income                Net Income
                             -----------------------   ----------------------    ----------------------
                               Three Months Ended        Three Months Ended        Three Months Ended
                             -----------------------   ----------------------    ----------------------
                               June 30,     June 30,    June 30,     June 30,     June 30,     June 30,
                                2001         2000        2001        2000          2001         2000
                             ----------   ----------   --------    ---------     --------     --------
<S>                          <C>          <C>          <C>         <C>           <C>           <C>
Boeing at the Atrium          $368,822     $366,176    $(43,965)   $ (68,983)    $(17,015)    $(26,696)
                              ========     ========    ========    =========     ========     ========


                                                                                 Partnership's Share of
                                  Total Revenues             Net Income                Net Income
                             -----------------------   ----------------------    ----------------------
                                 Six Months Ended         Six Months Ended          Six Months Ended
                             -----------------------   ----------------------    ----------------------
                               June 30,     June 30,    June 30,     June 30,     June 30,     June 30,
                                2001         2000        2001        2000          2001         2000
                             ----------   ----------   --------    ---------     --------     --------
Boeing at the Atrium          $740,459    $733,712     $(38,460)   $(113,619)    $(14,884)    $(43,970)
                              ========    ========     ========    =========     ========     ========


</TABLE>


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

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

1. RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS

   General

   As of June 30, 2001, the properties owned by the Partnership were 86.2%
   occupied as compared to 82.7% as of June 30, 2000. Occupancy increased due to
   the leasing of the Reciprocal Group Building in 2001.

   Gross revenues of the Partnership were $506,512 for the six months June 30,
   2001, as compared to $472,587 for the six months ended June 30, 2000. The
   increase in gross revenues is primarily due to decreased rental income from
   Greenville Center, resulting from IBM's lease expiring February 28, 2001,
   offset by an increase in equity in income of joint ventures, resulting from

                                       9
<PAGE>

   leasing te Recoprocal Group Building in 2001 and the increase in Common Area
   Maintenance reimbursements in 2001 at Boeing. Expenses of the Partnership
   increased to $270,882 for the six months ended June 30, 2001, from $241,336
   for the six months ended June 30, 2000. The increase in expenses is primarily
   due to increased operating costs at Greenville Center and increased
   depreciation, resulting from roof repairs, additional advertising and other
   repair expenses to prepare the property for increased occupancy, offset by
   decreased management fee and leasing commissions. As a result, net income
   increased to $235,630 from $231,251 for the six months ended June 30, 2001
   and 2000, respectively.

   Net cash provided by operating activities decreased from $156,417 in 2000 to
   $444 in 2001, due to decreased income from Greenville Center. Cash flows
   provided by investing activities and used in financing activities decreased
   for the six months ended June 30, 2001, as compared to the six months ended
   June 30, 2000, as a result of investing in tenant improvements for the
   Reciprocal Group Building and reserving operating cash flows to fund such
   future improvements. Since the Partnership reserved distributions for second,
   third, and fourth quarters of 2000, cash and cash equivalents increased in
   2001 over 2000.

   The Partnership declared cash distributions to the Limited Partners holding
   Class A Units of $.03 per Class A Unit for the six months ended June 30,
   2001, as compared to distributions of $.02 per Class A Unit for the six
   months ended June 30, 2000. There were no cash distributions to the Limited
   Partners holding Class A Units for the second quarter of 2000. No cash
   distributions were made to Limited Partners holding Class B Units or the
   General Partners for the six months ended June 30, 2001 and 2000.
   Substantially all cash generated from the operations of properties owned by
   the Partnership was reserved in 2000 to fund the required tenant improvements
   and refurbishments at the Reciprocal Group Building.

   The Partnership's distributions paid and payable through the second quarter
   of 2001 have been paid from net cash from operations and from distributions
   received from its investments in joint ventures. The Partnership expects to
   continue to meets its short-term liquidity requirements generally through net
   cash provided by operations which the Partnership believes will continue to
   be adequate to meet both operating requirements and distributions to limited
   partners.

   General Electric elected not to renew its lease at the Reciprocal Group
   Building, which expired March 31, 2000. Management leased this building to
   the Reciprocal Group on October 4, 2000 for a term of eight years, with rent
   commencing in February 2001. At the current time, the estimated cost of
   refurbishments, tenant improvements and building maintenance is anticipated
   to be approximately $1,275,000. These costs have been funded out of cash from
   operations of the Partnership and Wells Fund IV, which caused a substantial
   reduction in distributions payable to Limited Partners in the year 2000. As
   of June 30, 2001, the Partnership has funded $575,290 and has reserved
   $268,363 for the remaining buildout.



                                       10
<PAGE>

                          PART II - OTHER INFORMATION

Item 6(b.)  No reports on Form 8-K were filed during the second quarter of 2001.

                                  SIGNATURES

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


                              WELLS REAL ESTATE FUND III, L.P.
                              (Registrant)

Dated:  August 10, 2001   By: /s/ Leo F. Wells, III
                              -----------------------------------------------
                              Leo F. Wells, III, as Individual
                              General Partner and as President and
                              Chief Financial Officer of Wells Capital, Inc.,
                              the General Partner of Wells Partners, L.P.

                                       11