<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, 1997               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 Identification No.)
incorporation or organization)

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

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

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


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

Yes     X        No  
     -------         ---------
<PAGE>
 
                                   Form 10-Q
                                   ---------
                                        
                        Wells Real Estate Fund III, L.P.
                        --------------------------------
                                        
                                     INDEX
                                     -----


                                                                        Page No.

PART I.  FINANCIAL INFORMATION
 
         Item 1.  Financial Statements
 
                  Balance Sheets - June 30, 1997                          
                    and December 31, 1996................................... 3
                                                                          
                  Statements of Income for the Three Months and Six Months
                    Ended June 30, 1997 and 1996............................ 4
                                                                          
                  Statement of Partner's Capital for the                  
                    Six Months Ended June 30, 1997                          
                    and the Year Ended December 31, 1996.................... 5
                                                                          
                  Statements of Cash Flows for the Six                    
                    Months Ended June 30, 1997 and 1996..................... 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.................................................. 18

                                       2
<PAGE>
 
                        WELLS REAL ESTATE FUND III, L.P.
                     (A Georgia Public Limited Partnership)

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
 
 
Assets                                            June 30, 1997      December  31, 1996
------------------------------------------------  -------------      ------------------
<S>                                               <C>                <C>
 
Real estate, at cost:
 Land                                               $   576,350         $   576,350
 Building and improvements, less accumulated
 depreciation of $696,068 in 1997 and $613,213
 in 1996                                              2,882,533           2,965,388
                                                    -----------         -----------
 
  Total real estate                                   3,458,883           3,541,738
                                                    -----------         -----------
 
Cash and cash equivalents                                68,329             342,318
Investment in joint ventures (Note 2)                13,136,108          12,926,074
Due from affiliates                                     183,129             212,943
Accounts receivable                                      75,599              67,790
Prepaid expenses and other assets                        22,999              24,100
                                                    -----------         -----------
 
  Total assets                                      $16,945,047         $17,114,963
                                                    ===========         ===========
 
          Liabilities and Partners' Capital
          ---------------------------------
 
Liabilities:
 Accounts payable                                   $    40,233         $    35,941
 Partnership distributions payable                        3,734             324,495
 Due to affiliates                                       18,127              11,396
                                                    -----------         -----------
 
  Total liabilities                                      62,094             371,832
                                                    -----------         -----------
 
Partners' capital:
 General Partners                                             0                   0
 Limited Partners:
  Class A - 19,635,965 units outstanding             16,882,953          16,743,131
  Class B - 2,544,540 units outstanding                       0                   0
                                                    -----------         -----------
 
     Total partners' capital                         16,882,953          16,743,131
                                                    -----------         -----------
 
     Total liabilities and partners' capital        $16,945,047         $17,114,963
                                                    ===========         ===========
</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, 1997       June 30, 1996       June 30, 1997     June 30, 1996
                                    -------------       -------------       -------------     ------------- 
<S>                                 <C>                 <C>                   <C>               <C> 
Revenues:                                                                                        
  Rental income (note 2)              $147,935            $146,241            $295,612           $291,983
  Equity in earnings of joint                                                                    
   ventures (Note 2)                    46,007             180,081              90,880            383,683
  Interest income                        3,009               3,808              10,168              9,661
                                      --------            --------            --------           --------
                                       196,951             330,130             396,660            685,327
                                                                                                 
Expenses:                                                                                        
  Management & leasing fees             28,507              18,254              37,615             35,822
  Operating costs-rental property       25,917             (24,696)             81,111             14,569
  Depreciation                          41,428              39,577              82,855             79,154
  Legal & accounting                    11,057              20,801              22,674             22,344
  Computer costs                         1,651               1,390               4,957              2,717
  Partnership administration            12,974              17,066              27,626             37,847
                                      --------            --------            --------           --------
                                       121,534              72,392             256,838            192,453
                                      --------            --------            --------           --------
  Net income                          $ 75,417            $257,738            $139,822           $492,874
                                      ========            ========            ========           ========
                                                                                                 
Net income allocated to                                                                          
  General Partners                    $      0            $      0            $      0           $      0
                                                                                                 
Net income allocated to Class                                                                    
  A Limited Partners                  $ 75,417            $257,738            $139,822           $492,874
                                                                                                 
Net loss allocated to Class B                                                                    
  Limited Partners                    $      0            $      0            $      0           $      0
                                                                                                 
Net income per Class A Limited                                                                   
  Partner Unit                        $   0.00            $   0.01            $   0.01           $   0.03
                                                                                                 
Net loss per Class B                                                                             
  Limited Partner Unit                $  (0.00)           $  (0.00)           $  (0.00)          $  (0.00)
                                                                                                 
Cash distribution per Class A                                                                    
  Limited Partner Unit                $   0.00            $   0.02            $   0.00           $   0.04
</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, 1996 AND THE SIX MONTHS ENDED
                                 JUNE 30, 1997
<TABLE>
<CAPTION>
 
 
                                                     LIMITED PARTNERS     
                               ------------------------------------------------------
                                         CLASS A                        CLASS B              TOTAL
                               ----------------------------     ---------------------       PARTNERS'
                                 UNITS            AMOUNTS         UNITS       AMOUNTS        CAPITAL
                               ----------      ------------     ---------     -------     ------------
<S>                            <C>             <C>              <C>           <C>         <C>
                                                                              
BALANCE, DECEMBER 31, 1995     19,635,965       $17,430,457      2,544,540       $0        $17,430,457
                                                                                          
  Net income                            0           731,244              0        0            731,244
  Partnership distributions             0        (1,418,570)             0        0         (1,418,570)
                               ----------       -----------      ---------      --        -----------
BALANCE, DECEMBER 31, 1996     19,635,965       $16,743,131      2,544,540       $0        $16,743,131
                                                                                          
  Net income                            0       $   139,822              0        0        $   139,822
                               ----------       -----------      ---------       --        -----------
BALANCE, JUNE 30, 1997         19,635,965       $16,882,953      2,544,540       $0        $16,882,953
                               ==========       ===========      =========       ==        ===========
 
</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>
 
                                                   June 30, 1997   June 30, 1996
                                                   --------------  --------------
<S>                                                <C>             <C>
 
Cash flows from operating activities:
 Net income                                         $ 139,822        $   492,874
  Adjustments to reconcile net earnings to                     
   net cash used by operating activities:                      
     Equity in income of joint ventures               (90,880)          (383,683)
     Depreciation                                      82,855             79,154
     Changes in assets and liabilities:                        
      Accounts receivable                              (7,809)             1,993
      Prepaids and other assets                         1,101              1,521
      Accounts payable                                  4,292             18,219
      Due to affiliates                                 6,731              3,745
                                                    ---------        -----------
       Net cash provided by                                    
         operating activities                         136,112            213,823
                                                    ---------        -----------
                                                               
  Cash flow from investing activities:                         
     Investment in joint ventures                    (532,855)                 0
     Distributions received from joint ventures       443,515            700,604
                                                    ---------        -----------
       Net cash (used in) provided by                          
         investing activities                         (89,340)           700,604
                                                               
  Cash flow from financing activities:                         
     Partnership distribution paid                   (320,761)        (1,006,350)
                                                    ---------        -----------
                                                               
Net decrease in cash and cash equivalents            (273,989)           (91,923)
                                                               
Cash and cash equivalents, beginning of year          342,318            500,327
                                                    ---------        -----------
                                                               
Cash and cash equivalents, end of period            $  68,329        $   408,404
                                                    =========        ===========
</TABLE>
            See accompanying condensed notes to financial statements

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

                    Condensed Notes to Financial Statements

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

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

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

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

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

     As of June 30, 1997, the Partnership owned interest in the following
     properties:  (i) the Greenville Property, an office building in Greenville,
     North Carolina, owned by Fund III,  (ii) the Atrium, 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 The
     Fund II - Fund III Joint Venture, (iv) the Stockbridge Village Shopping
     Center, a retail shopping center located in Stockbridge, Georgia, southeast
     of Atlanta, owned by Fund III - Fund IV Joint Venture, (v) the G.E. Office
     Building located in Richmond, Virginia, owned by Fund III - Fund IV Joint
     Venture, and (vi) an office/retail center in Roswell, Georgia, owned by
     Fund II, III, VI and VII Joint Venture.  All of the foregoing properties
     were acquired on an all cash basis.

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

     The financial statements of Wells Real Estate Fund III, L.P. (the
     "Partnership") 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

                                       7
<PAGE>
 
     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, 1996.

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

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

     Boeing at the Atrium/Fund II - Fund III Joint Venture
     -----------------------------------------------------

     On April 3, 1989, the Partnership formed a joint venture (the "Fund II -
     Fund III Joint Venture") with an existing joint venture (the "Fund II -
     Fund II-OW Joint Venture") previously formed between Wells Real Estate Fund
     II ("Wells Fund II") and Wells Real Estate Fund II-OW ("Wells Fund II-OW").
     Wells Fund II and Wells Fund II-OW are public limited partnerships
     affiliated with the Partnership through common general partners with
     investment objectives substantially identical to those of the Partnership.

     In April 1989, the Fund II-Fund III Joint Venture acquired a four-story
     office building located on a 5.6 acre tract of land adjacent to the Johnson
     Space Center in metropolitan Houston, in the City of Nassau Bay, Harris
     County, Texas, known as "The Atrium at Nassau Bay" (the "Atrium").

     The Atrium was first occupied in 1987 and contains approximately 119,000
     net leasable square feet.  On March 3, 1997 a lease was signed with The
     Boeing Company for the entire Atrium Building.  The lease is for a period
     of five years with an option to renew for an additional five year term.
     The rental rate for the first three years of the lease term is $12.25 per
     square foot and $12.50 per square foot for the final two years of initial
     lease term.  The rate for the optional five year term will be determined
     based upon the current market rates.   Upon 150 day prior written notice,
     Boeing has the right to cancel its lease in the event that NASA or another
     prime contractor were to cancel or substantially reduce its contract.  In
     addition, there is a no-cause cancellation provision at the end of the
     first three year period.  If this no-cause cancellation is exercised,
     Boeing would be required to pay unamortized, up-front tenant improvement
     costs.  The lease also provides that tenant will pay certain operating
     expenses in excess of $5.50 per square foot on an annual basis.

     Boeing began the move-in phase of its occupancy on April 15, 1997, and
     began paying rent on May 15, 1997.  The total cost of completing the
     required tenant improvements and outside broker commissions of
     approximately $1.4 million is being funded out of reserves and cash flows
     of the Partnership, Wells Fund II and Wells Fund II-OW.

                                       8
<PAGE>
 
     As of June 30, 1996, the Partnership had contributed approximately
     $532,855, Wells Fund II had contributed approximately $197,461, and Wells
     Fund II-OW had contributed approximately $11,073 to the tenant improvements
     and outside broker commissions required.  The ownership percentages in the
     Atrium have been adjusted as a result of these additional capital
     contributions, and as of June 30, 1997, the Fund II - Fund II-OW Joint
     Venture holds an equity interest of approximately 61%, and Wells Fund III
     holds an equity interest of approximately 39%.

     For a description of other joint ventures and properties owned by the
     Partnership, please refer to the Partnership's Form 10-K for the year ended
     December 31, 1996.

(3)  Legal Proceedings
     -----------------

     Litigation was instituted in the Superior Court of Gwinnett County, Georgia
     on January 13, 1997 against the Partnership, Wells Fund II, Wells Capital,
     Inc. and Leo F. Wells, III, who are the general partners of the Partnership
     and Wells Fund II, in connection with a request by a limited partner in the
     Partnership and Wells Fund II for a list of the names, addresses and
     ownership interests of the limited partners which to date the defendants
     have refused to furnish to the plaintiff.  The case was styled Gramercy
                                                                    --------
     Park Investments L.P. v. Wells Real Estate Fund II, Wells Real Estate Fund
     --------------------------------------------------------------------------
     III, L.P., Wells Capital, Inc. and Leo F. Wells, III.  The plaintiff, which
     -----------------------------------------------------                      
     is a limited partner in both the Partnership and Wells Fund II, alleged
     that it was entitled to copies of the limited partner lists under
     applicable provisions of Georgia partnership law and the partnership
     agreements of the Partnership and Wells Fund II so that plaintiff could
     make an offer to purchase up to 4.9% of the partnership units in each fund.
     The plaintiff sought an order directing the defendants to furnish to the
     plaintiff a current list of the names, addresses and ownership interests of
     the limited partners in the Partnership and Wells Fund II, as well as an
     award of certain damages, including its costs and attorneys' fees and such
     other relief as the court would deem just and proper.  On February 26,
     1997, the Court denied the plaintiff's request for an immediate order
     requiring defendants to furnish the lists to the plaintiff and instead
     ordered expedited discovery to be completed by March 31, 1997.  Ultimately,
     the Court secured an agreement between the plaintiff and defendant, which
     detailed the conditions and circumstances under which copies of limited
     partner lists would be made available for use by the plaintiff (via a
     third-party mailing service, as specified by the agreement) and conditions
     under which an offer would be made by the plaintiff to the limited
     partners.  The agreement detailed time deadlines for actions by both the
     defendant and the plaintiff.  The time deadline for the actual making of
     offers to the limited partners was not met by the plaintiff.  As a result,
     the agreement appears to have been violated and is null and void.  The list
     of investor names has been returned to the defendant by the third-party
     mailing service, and this legal attempt appears to be terminated at this
     time.

                                       9
<PAGE>
 
     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     -----------------------------------------------------------------------
     RESULTS OF OPERATIONS.
     ----------------------

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

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

     General
     -------

     Gross revenues of the Partnership were $396,660 for the six months ended
     June 30, 1997, as compared to $685,327 for the six months ended June 30,
     1996.   The decrease for 1997 as compared to 1996 was due to decreased
     income from joint ventures, primarily due to the vacancy at The Atrium.

     Expenses of the Partnership increased for 1997 compared to 1996, from
     $192,453 for the six months ended June 30, 1996, to $256,838 for the six
     months ended June 30, 1997.  The increase in expenses was due primarily to
     increased operating costs during the second quarter of 1997 as compared to
     the same time period for 1996.  This increase was offset partially by
     savings in Partnership administration expenses.

     Net cash provided by operating activities decreased from $213,823  in 1996
     to $136,112 in 1997.  The decrease was due primarily to increased expenses
     as discussed above.  Cash and cash equivalents decreased from $(91,923) in
     1996 to $(273,989).  While the Partnership generally distributes cash
     available less reserves to the Limited Partners, as discussed previously,
     the total cost to complete the required tenant improvements and outside
     brokerage commissions relating to the new lease for The Atrium is estimated
     to be approximately $1,400,000, which is being funded out of cash which
     would otherwise be available for distribution to Limited Partners, along
     with reserves of the Partnership, Wells Fund II and Wells Fund II-OW.

                                       10
<PAGE>
 
     There were no cash distributions to Limited Partners holding Class A Units
     for the second quarter of 1997, as compared to distributions of $0.02 per
     Unit for the second quarter of 1996.  No cash distributions were made to
     Limited Partners holding Class B Units or the General Partners for the six
     months ended June 30, 1997 and 1996.  As set forth above, substantially all
     cash generated from the operations of properties owned by the Partnership
     in the first and second quarters of 1997 is being used to fund the required
     tenant improvements and outside brokerage commissions relating to the new
     lease at The Atrium. Limited Partners holding Class A Units should not
     expect cash distributions from the Partnership to commence again until at
     least the end of the third quarter ending September 30, 1997.

                                       11
<PAGE>
 
PROPERTY OPERATIONS
-------------------

As of June 30, 1997, the Partnership owned interests in the following
properties:

The Greenville Property- Fund III
---------------------------------
<TABLE>
<CAPTION>
 
                                           Three Months Ended                  Six Months Ended
                                       -----------------------------    ----------------------------
                                       June 30, 1997   June 30, 1996    June 30, 1997  June 30, 1996
                                       -------------   -------------    -------------  -------------
<S>                                    <C>              <C>             <C>            <C>             
Revenues:
   Rental income                          $147,935       $146,241          $295,612       $291,983
                                                                                        
Expenses:                                                                               
   Depreciation                             28,507         39,577            82,855         79,154
   Management & leasing expenses            41,428         18,254            37,615         35,822
   Other operating expenses                 25,917        (23,795)           81,111         16,010
                                          --------       --------          --------       --------
                                            95,852         34,036           201,581        130,986
                                          --------       --------          --------       --------
                                                                                        
Net  income                               $ 52,083       $112,205          $ 94,031       $160,997
                                          ========       ========          ========       ========
                                                                                        
Occupied %                                   100.0%          98.0%            100.0%          98.0%
                                                                                        
Partnership Ownership %                      100.0%         100.0%            100.0%         100.0%
                                                                                        
Cash generated to the Partnership         $ 95,477       $154,201          $180,940       $244,989
                                                                                        
Net income allocated to the Partnership   $ 52,083       $112,205          $ 94,031       $160,997
 
</TABLE>

Rental income remained relatively stable from 1996 to 1997.  Operating expenses
increased due to timing differences in the billing of the IBM tenant
reimbursement.  Prior year expenses were reimbursed in the second quarter of
1996, while IBM is making monthly estimated payments toward current year
expenses.

                                       12
<PAGE>
 
Boeing at the Atrium/Fund II and Fund III Joint Venture
-------------------------------------------------------
<TABLE>
<CAPTION>
                                           Three Months Ended                  Six Months Ended
                                       -----------------------------    ----------------------------
                                       June 30, 1997   June 30, 1996    June 30, 1997  June 30, 1996
                                       -------------   -------------    -------------  -------------
<S>                                    <C>              <C>             <C>            <C>             
 
Revenues:
   Rental income                         $ 189,696      $519,837          $ 189,696       $1,039,673
   Interest income                             100         7,632              2,617           15,318
                                         ---------      --------          ---------       ----------
                                           189,796       527,649            192,313        1,054,991
                                         ---------      --------          ---------       ----------
Expenses:                                                                             
   Depreciation                            168,643       168,619            337,285          337,097
   Management & leasing expenses            29,010        35,690             29,010           71,380
   Other operating expenses                191,232       147,609            289,199          233,551
                                         ---------      --------          ---------       ----------
                                           388,885       351,918            655,494          642,028
                                         ---------      --------          ---------       ----------
                                                                                      
Net (loss) income                        $(199,089)     $175,551          $(463,181)      $  412,963
                                         =========      ========          =========       ==========
                                                                                      
Occupied %                                   100.0%        100.0%             100.0%           100.0%
                                                                                      
Partnership Ownership %                      38.72%         34.4%             38.72%            34.4%
                                                                                      
Cash generated to the Partnership        $       0      $140,164          $       0       $  294,141
 
Net (loss) income allocated to the  
  Partnership                            $  (77,047)    $ 60,389          $(167,895)      $  142,059
 
 
</TABLE>

Rental and interest income decreased for the three and six month periods ended
June 30, 1997, compared to the three and six months ended June 30, 1996, due to
the lower rental rate being paid by Boeing, the new tenant, and the vacancy of
the building for the first four and one-half months of 1997.  Operating expenses
increased for the three and six months ended June 30, 1997, compared to the
three and six months ended June 30, 1996, due to increased utility, repair, and
maintenance expenses being paid with the leasing of the building to Boeing.

For details related to the recent leasing of the Atrium, please refer to the
Condensed Notes to Financial Statements, (2) Investment in Joint Ventures.

                                       13
<PAGE>
 
The Brookwood Grill Property/Fund II and Fund III Joint Venture
---------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                           Three Months Ended                  Six Months Ended
                                       -----------------------------    ----------------------------
                                       June 30, 1997   June 30, 1996    June 30, 1997  June 30, 1996
                                       -------------   -------------    -------------  -------------
<S>                                    <C>              <C>             <C>            <C>             
 
Revenues:
   Rental income                          $56,187         $56,187          $112,731       $112,375
   Equity in income (loss) of joint                                                  
     venture                                7,498         (20,990)           18,355        (26,423)          
                                          -------         -------          --------       --------
                                           63,685          35,197           131,086         85,952
Expenses:                                                                            
  Depreciation                             13,503          13,503            27,006         27,006
  Management & leasing expenses             7,284           5,727            14,045         12,695
  Other operating expenses                 13,872          17,387            16,131         35,276
                                          -------         -------          --------       --------
                                           34,659          36,617            57,182         74,977
                                          -------         -------          --------       --------
                                                                                     
Net income (loss)                         $29,026         $(1,420)         $ 73,904       $ 10,975
                                          =======         =======          ========       ========
                                                                                     
Occupied %                                  100.0%          100.0%            100.0%         100.0%
                                                                                   
Partnership Ownership %                     37.65%          59.04%            37.65%         59.04%
                                                                                   
Cash distributed to the Partnership       $26,215         $21,982          $ 54,675       $ 39,118
                                                                                                                              
Net income (loss) allocated to the                                                                                              
   Partnership                            $10,928         $  (885)         $ 27,825       $  6,843
 
</TABLE>

Although rental income remained stable, total revenues increased for the three
and six month periods ended June 30, 1997, as compared to the same periods in
1996, due to the increased equity in income from the Fund II, III, VI, and VII
Joint Venture.  Operating expenses decreased in 1997 compared to 1996 due
primarily to the decrease in property tax reimbursements in 1996.

                                       14
<PAGE>
 
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
----------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                           Three Months Ended                  Six Months Ended
                                       -----------------------------    ----------------------------
                                       June 30, 1997   June 30, 1996    June 30, 1997  June 30, 1996
                                       -------------   -------------    -------------  -------------
<S>                                    <C>              <C>             <C>            <C>             
 
Revenues:
   Rental income                         $135,912        $ 43,754          $296,097       $ 53,175
                                                                                       
Expenses:                                                                              
   Depreciation                            69,982          77,822           136,112         83,942
   Management & leasing expenses           22,483           5,029            43,063          6,080
   Other operating expenses                13,633          28,894            43,940         47,733
                                         --------        --------          --------       --------
                                          106,098         111,745           223,115        137,755
                                         --------        --------          --------       --------
                                                                                       
Net income (loss)                        $ 29,814        $(67,991)         $ 72,982       $(84,580)
                                         ========        ========          ========       ========
                                                                                       
Occupied %                                   72.7%           20.9%             72.7%          20.9%
                                                                                       
Partnership Ownership %                      9.50%          11.57%             9.50%         11.57%
                                                                                       
Cash distributed to the Fund II-                                                       
 Fund II-OW Joint Venture*               $ 25,828        $      0          $ 53,324       $      0
 
Net income (loss) allocated to the
  Fund II-Fund II-OW Joint Venture*      $  7,498        $(20,990)         $ 18,355       $(26,423)
 
</TABLE>
*The Partnership holds a 37.65% ownership in the Fund II-Fund III Joint Venture.

In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road (the "Holcomb Bridge Road
Property") to the Fund II, III, VI, and VII Joint Venture.  Development is being
completed on two buildings containing a total of approximately 49,500 square
feet.  Approximately 4,100 square feet is currently under construction for which
leases have been signed.  Efforts are continuing to lease the remaining space of
approximately 9,300 square feet.

As of June 30, 1997, ten tenants are occupying approximately 36,100 square feet
of space in the retail and office building under leases of varying lengths.
Operating expenses decreased for the three month period ended June 30, 1997, as
compared to June 30, 1996, due to the billing of CAM reimbursements for prior
periods in 1997.  Increases in revenues, expenses and net income for the six
months ended June 30, 1997, compared to the six months ended June 30, 1996, are
due to increased occupancy at the property.

                                       15
<PAGE>
 
The G.E. Building/Richmond-Fund III-Fund IV Joint Venture
---------------------------------------------------------
<TABLE>
<CAPTION>
 
                                           Three Months Ended                  Six Months Ended
                                       -----------------------------    ----------------------------
                                       June 30, 1997   June 30, 1996    June 30, 1997  June 30, 1996
                                       -------------   -------------    -------------  -------------
<S>                                    <C>              <C>             <C>            <C>             
Revenues:
   Rental income                          $131,856        $131,856          $263,712       $263,712
                                                                                      
Expenses:                                                                             
   Depreciation                             49,056          49,053            98,112         98,106
   Management & leasing expenses             9,965           9,965            19,930         19,930
   Other operating expenses                    289           4,162             3,692          7,182
                                          --------        --------          --------       --------
                                            59,310          63,180           121,734        125,218
                                          --------        --------          --------       --------
                                                                                      
Net income (loss)                         $ 72,546        $ 68,676          $141,978       $138,494
                                          ========        ========          ========       ========
                                                                                      
Occupied %                                   100.0%          100.0%            100.0%         100.0%
                                                                                      
Partnership Ownership %                      57.30%          57.30%            57.30%         57.30%
                                                                                      
Cash distributed to the Partnership       $ 71,941        $ 68,307          $140,684       $135,826
                                                                                                                                
Net income allocated to the
   Partnership                            $ 41,581        $ 39,362          $ 81,377       $ 79,380
 
 
</TABLE>

Rental income remained constant for 1997 and 1996.  Total expenses decreased in
1997 as compared to 1996, and accordingly, net income increased in 1997, as
compared to 1996, due primarily to a decrease in the cost of property insurance.

                                       16
<PAGE>
 
The Stockbridge Village Shopping Center Property/Fund III-Fund IV Joint Venture
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
 
                                           Three Months Ended                  Six Months Ended
                                       -----------------------------    ----------------------------
                                       June 30, 1997   June 30, 1996    June 30, 1997  June 30, 1996
                                       -------------   -------------    -------------  -------------
<S>                                    <C>              <C>             <C>            <C>             
Revenues:
   Rental income                          $274,300       $269,887          $548,037       $538,342
   Interest income                           2,474          3,079             6,117          6,692
                                          --------       --------          --------       --------
                                           276,774        272,966           554,154        545,034
                                          --------       --------          --------       --------
Expenses:                                                                              
   Depreciation                             84,747         84,748           169,494        169,496
   Management & leasing expenses            25,101         24,166            55,437         51,320
   Other operating expenses                 43,845          2,970            68,263         48,362
                                          --------       --------          --------       --------
                                           153,693        131,884           293,194        269,178
                                          --------       --------          --------       --------
                                                                                       
Net (loss) income                         $123,081       $141,082          $260,960       $275,856
                                          ========       ========          ========       ========
                                                                                       
Occupied %                                    93.0%          93.0%             93.0%          93.0%
                                                                                       
Partnership Ownership %                      57.30%         57.30%            57.30%         57.30%
                                                                                       
Cash generated to the Partnership         $122,863       $136,168          $256,230       $268,712
                                                                                              
Net income allocated to the Partnership   $ 70,545       $ 80,863          $149,573       $158,111
                                                                                              
</TABLE>   

Rental income increased for the three and six months ended June 30, 1997, as
compared to the same periods in 1996, due to rental rate increases.  Expenses of
the property increased from $269,178 in 1996 to $293,194 in 1997 due primarily
to timing differences in billing tenant expense reimbursements.        
                                                                       
                                                                       

                                       17
<PAGE>
 
                          PART II - OTHER INFORMATION                  
                          ---------------------------                  
                                                                       
Item 6(b).  No reports on Form 8-K were filed during the second quarter of 1997.
                                        
                                   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 8, 1997                  By:  /s/Leo F. Wells, III         
                                             --------------------         
                                        Leo F. Wells, III, as Individual  
                                        General Partner and as President, 
                                        Sole Director and Chief Financial 
                                        Officer of Wells Capital, Inc.     

                                       18