<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          March 31, 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 - March 31, 1997
                  and December 31, 1996.................................... 3

                 Statements of Income for the Three Months
                  Ended March 31, 1997 and 1996............................ 4

                 Statement of Partner's Capital for the
                  Three Months Ended March 31, 1997
                  and the Year Ended December 31, 1996..................... 5

                 Statements of Cash Flows for the Three
                  Months Ended March 31, 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.................................................17

                                       2
<PAGE>
 
                        WELLS REAL ESTATE FUND III, L.P.
                     (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
 
 
Assets                                            March 31, 1997  December  31, 1996
------------------------------------------------  --------------  ------------------
<S>                                               <C>             <C>
 
Real estate, at cost:
 Land                                                $   576,350         $   576,350
 Building and improvements, less accumulated
 depreciation of $654,640 in 1997 and $613,213
 in 1996                                               2,923,961           2,965,388
                                                     -----------         -----------
 
  Total real estate                                    3,500,311           3,541,738
                                                     -----------         -----------
 
Cash and cash equivalents                                317,240             342,318
Investment in joint ventures (Note 2)                 12,773,215          12,926,074
Due from affiliates                                      167,730             212,943
Accounts receivable                                       75,431              67,790
Prepaid expenses and other assets                         28,806              24,100
                                                     -----------         -----------
 
  Total assets                                       $16,862,733         $17,114,963
                                                     ===========         ===========
 
          Liabilities and Partners' Capital
------------------------------------------------
 
Liabilities:
 Accounts payable                                    $    40,068         $    35,941
 Partnership distributions payable                         3,733             324,495
 Due to affiliates                                        11,396              11,396
                                                     -----------         -----------
 
  Total liabilities                                       55,197             371,832
                                                     -----------         -----------
 
Partners' capital:
 General Partners                                              0                   0
 Limited Partners:
  Class A - 19,635,965 units outstanding              16,807,536          16,743,131
  Class B - 2,544,540 units outstanding                        0                   0
                                                     -----------         -----------
 
     Total partners' capital                          16,807,536          16,743,131
                                                     -----------         -----------
 
     Total liabilities and partners' capital         $16,862,733         $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
                                                 ------------------------------
                                                 March 31, 1997  March 31, 1996
                                                 --------------  --------------
<S>                                              <C>             <C>
 
Revenues:
  Rental income                                        $147,677        $145,742
  Interest income                                         7,159           5,853
  Equity in income of joint ventures (Note 2)            44,873         203,602
                                                       --------        --------
                                                        199,709         355,197
                                                       --------        --------
 
Expenses:
  Management and leasing fees                             9,108           8,774
  Operating costs-rental properties,
      net of tenant reimbursements                       55,194          48,059
  Depreciation                                           41,427          39,577
  Legal and accounting expenses                          11,617           1,543
  Computer expense                                        3,306           1,327
  Partnership administration                             14,652          20,781
                                                       --------        --------
                                                        135,304         120,061
                                                       --------        --------
  Net  income                                          $ 64,405        $235,136
                                                       ========        ========
 
Net income allocated to
  Class A Limited Partners                             $ 64,405        $235,136
 
Net loss allocated to
  Class B Limited Partners                             $      0        $      0
 
Net income per Class A
  Limited Partner Unit                                    $0.00           $0.01
 
Net loss per Class B
  Limited Partner Unit                                 $      0        $      0
 
Cash distribution per Class A
  Limited Partner Unit                                 $      0           $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, 1996 AND THE THREE MONTHS ENDED
                                 MARCH 31, 1997
<TABLE>
<CAPTION>
 
 
                                            LIMITED PARTNERS                  TOTAL
                                       --------------------------
                                       CLASS A                 CLASS B        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  $    64,405           0        0  $    64,405
                               ----------  -----------   ---------       --  -----------
BALANCE, MARCH 31, 1997        19,635,965  $16,807,536   2,544,540       $0  $16,807,536
                               ==========  ===========   =========       ==  ===========
 
</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>
 
                                                     March 31, 1997   March 31, 1996
                                                     ---------------  ---------------
<S>                                                  <C>              <C>
 
Cash flows from operating activities:
 Net income                                               $  64,405        $ 235,136
  Adjustments to reconcile net income to net cash
   used by operating activities:
     Equity in income of joint ventures                     (44,873)        (203,603)
     Distributions received from joint ventures             242,945          336,217
     Partnership distributions paid                        (320,762)        (609,293)
     Depreciation                                            41,427           39,577
     Changes in assets and liabilities:
      Accounts receivable                                    (7,641)             997
      Prepaids and other assets                              (4,706)              64
      Accounts payable                                        4,127           13,207
      Due to affiliates                                           0             (110)
                                                          ---------        ---------
       Net cash used in operating activities                (25,078)        (187,808)
                                                          ---------        ---------
 
       Net decrease in cash and cash
         equivalents                                        (25,078)        (187,808)
 
Cash and cash equivalents, beginning of year                342,318          500,327
                                                          ---------        ---------
 
Cash and cash equivalents, end of period                  $ 317,240        $ 312,519
                                                          =========        =========
</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 to two
     classes of limited partnership interests, Class A and Class B limited
     partnership units.

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

     As of March 31, 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) Boeing at 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

                                       7
<PAGE>
 
     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, 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 Fund II - Fund II-OW Joint Venture holds approximately 66% equity
     interest in the Fund II - Fund III Joint Venture, and the Partnership holds
     approximately 34% equity interest in the Fund II - Fund III Joint Venture.

     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 their occupancy on April 15, 1997, and it
     is anticipated that they will begin paying rent on approximately May 15,
     1997.  The total cost of completing the required tenant improvements and
     outside broker commissions of 

                                       8
<PAGE>
 
     approximately $1.4 million will be funded from the reserves and cash flows
     of the Partnership, Wells Fund II and Wells Fund II-OW.
     
     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 Real Estate Fund II,
     L.P. ("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 is 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, alleges that it is 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 may make an offer to purchase up to 4.9% of the partnership
     units in each fund.  The plaintiff is seeking 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
     deems 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.  Thereafter, the Court will again consider the
     plaintiff's request to turn over the limited partner lists.

     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.

                                       9
<PAGE>
 
     Results in Operations and Changes in Financial Conditions
     ---------------------------------------------------------

     General
     -------

     Gross revenues of the Partnership were $199,709 for the three months ended
     March 31, 1997, as compared to $355,197 for the three months ended March
     31, 1996.   The decrease for 1997 over 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
     $120,061 for the three months ended March  31, 1996, to $135,304 for the
     three months ended March 31, 1997.  The increase in expenses was due
     primarily to increased operating costs, legal and accounting expenses, and
     computer costs.

     Net cash used in operating activities decreased from $187,808  in 1996 to
     $25,078 in 1997.  The decrease was due primarily to an increase in
     Partnership distributions paid.  Cash and cash equivalents remained
     relatively stable for each of the three months ending March 31, 1996 and
     1997.  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.

     There were no cash distributions to Limited Partners holding Class A Units
     for the first quarter of 1997, as compared to $0.02 per unit for the first
     quarter of 1996.  No cash distributions were made to Limited Partners
     holding Class B Units or the General Partners for the three months ended
     March 31, 1997 and 1996.  As set forth above, substantially all cash
     generated from the operations of properties owned by the Partnership in the
     first quarter of 1997 is being used to fund the required tenant
     improvements and outside brokerage commissions relating to the new lease at
     The Atrium.  In addition, it is anticipated that operating cash flow
     generated from properties owned by the Partnership for the second quarter
     of 1997 will also be used to fund such required tenant improvements and
     outside brokerage commissions, and Limited Partners hold Class A Units
     should not expect cash distributions from the Partnership to commence again
     until at least the third quarter ending September 30, 1997.

                                       10
<PAGE>
 
PROPERTY OPERATIONS
-------------------

As of March 31, 1997, the Partnership owned interests in the following
properties:

The Greenville Property- Fund III
---------------------------------
<TABLE>
<CAPTION>
 
                                                  Three Months Ended
                                           --------------------------------
                                           March 31, 1997   March 31, 1996
                                           ---------------  ---------------
<S>                                        <C>              <C>
Revenues:
 Rental Income                                   $159,437         $145,742
 
Expenses:
 Depreciation                                      41,428           39,577
 Management and leasing expenses                   16,698           17,568
 Other operating expenses                          59,364           39,805
                                                 --------         --------
                                                  117,490           96,950
                                                 --------         --------
 
Net income                                       $ 41,947         $ 48,792
                                                 ========         ========
 
Occupied %                                            100%              98%
Partnership Ownership %                               100%             100%
 
Cash generated to the Partnership                $ 85,463         $ 90,788
 
Net income allocated to the Partnership          $ 41,947         $ 48,792
</TABLE>

Rental income increased from 1996 to 1997 due to regularly scheduled rent
increase.  Expenses of the Greenville Property increased from $96,950 in 1996 to
$117,490 in 1997 due primarily to increased utilities, contract services and
repairs and maintenance.

Depreciation and management and leasing expenses remained relatively stable
during the periods of March 31, 1997 and March 31, 1996.

The Greenville Property remained 100% occupied as of March 31, 1997.

                                       11
<PAGE>
 
Boeing at the Atrium/Fund II and Fund III Joint Venture
-------------------------------------------------------
<TABLE>
<CAPTION>
 
                                                         Three Months Ended
                                                  --------------------------------
                                                  March 31, 1997   March 31, 1996
                                                  ---------------  ---------------
<S>                                               <C>              <C>
 
Revenues:
 Rental income                                         $       0         $519,836
 Interest income                                           2,517            7,686
                                                       ---------         --------
                                                           2,517          527,522
                                                       ---------         --------
 
Expenses:
 Depreciation                                            168,642          168,478
 Management and leasing expenses                               0           35,690
 Other operating expenses                                 97,967           85,942
                                                       ---------         --------
                                                         266,609          290,110
                                                       ---------         --------
 
Net (loss) income                                      $(264,092)        $237,412
                                                       =========         ========
 
Occupied %                                                     0%             100%
Partnership Ownership %                                     62.1%            62.1%
 
Cash generated to the Partnership                      $       0         $293,631
 
Net (loss) income allocated to the Partnership         $ (90,848)        $155,742
</TABLE>

Net income decreased for the three months ended March 31, 1997, compared to the
same period in 1996, due to the vacancy of the Atrium.  Expenses decreased in
first quarter 1997 compared to 1996 due to the building being vacant and the
decrease in management and leasing fees.  The increase in operating expenses was
due primarily to expenditures of approximately $9,700 on window replacement in
the building.

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

                                       12
<PAGE>
 
The Brookwood Grill Property/Fund II and Fund III Joint Venture
---------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                                   Three Months Ended
                                             --------------------------------
                                             March 31, 1997   March 31, 1996
                                             ---------------  ---------------
<S>                                          <C>              <C>              
 
Revenues:
 Rental Income                                      $56,544          $56,188
 Equity in income (loss) of joint venture            10,857           (5,433)  
                                                    -------          -------   
                                                     67,401           50,755
Expenses:                                           -------          -------
 Depreciation                                        13,503           13,503
 Management and leasing expenses                      6,761            6,968
 Other operating expenses                             2,259           17,889
                                                    -------          -------
                                                     22,523           38,360
                                                    -------          -------
 
Net income                                          $44,878          $12,395
                                                    =======          =======
 
Occupied %                                              100%             100%
Partnership Ownership %                                38.0%            62.0%
 
Cash generated to the Partnership                   $28,460          $17,136
 
Net income allocated to the Partnership             $16,896          $ 7,728
</TABLE>

Rental income has remained stable for the three months ended March 31, 1997 as
compared to 1996.  The decrease in operating expenses for the first quarter of
1997 over the same period of 1996 is due primarily to an adjustment in property
tax expense accrued in 1997 and billing of reimbursements for first quarter
1997.  The increase in net income is due primarily to an increase of
approximately $15,000 in the equity income of the joint venture and the
adjustment and billing noted above.

                                       13
<PAGE>
 
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
----------------------------------------------------------------
<TABLE>
<CAPTION>
 
 
                                                           Three Months Ended
                                                    --------------------------------
                                                    March 31, 1997   March 31, 1996
                                                    ---------------  ---------------
<S>                                                 <C>              <C>
 
Revenues:
 Rental Income                                            $160,185         $  9,421
 
Expenses:
 Depreciation                                               66,130            6,120
 Management and leasing expenses                            20,580            1,051
 Other operating expenses                                   30,307           18,839
                                                          --------         --------
                                                           117,017           26,010
                                                          --------         --------
 
Net income (loss)                                         $ 43,168         $(16,589)
                                                          ========         ========
 
Occupied %                                                      63%              21%
Partnership Ownership % in Fund II, III, VI, VII               9.5%            12.3%
 
Cash distribution to the
 Fund II-Fund III Joint Venture*                          $ 27,496         $      0
 
Net income (loss) allocated to the
 Fund II-Fund III Joint Venture*                          $ 10,857         $ (5,433)

</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
currently underway for approximately 6,700 square feet of spaces for which
leases have been signed.  Efforts are continuing to lease the remaining space of
approximately 11,500 square feet.

As of March 31, 1997, nine tenants are occupying approximately 31,140 square
feet of space in the retail and office building under leases of varying lengths.
Increases in revenues, expenses and net income for the quarter ended March 31,
1997, compared to the same quarter of 1996 are due to the rental income from the
additional tenants and the operation of the property for a full three months.

                                       14
<PAGE>
 
The G.E. Building/Richmond-Fund III-Fund IV Joint Venture
---------------------------------------------------------
<TABLE>
<CAPTION>
 
                                                  Three Months Ended
                                           --------------------------------
                                           March 31, 1997   March 31, 1996
                                           ---------------  ---------------
<S>                                        <C>              <C>
 
Revenues:
 Rental Income                                   $131,856         $131,856
 
Expenses:
 Depreciation                                      49,056           49,053
 Management and leasing expenses                    9,965            9,965
 Other operating expenses                           3,403            3,020
                                                 --------         --------
                                                   62,424           62,038
                                                 --------         --------
 
Net income                                       $ 69,432         $ 69,818
                                                 ========         ========
 
Occupied %                                            100%             100%
Partnership Ownership %                              57.3%            57.3%
 
Cash distributed to the Partnership              $ 68,743         $ 67,519
 
Net income allocated to the Partnership          $ 39,796         $ 40,017
</TABLE>

Rental income remained constant for 1997 and 1996.  In addition, expenses, net
income and cash distributions generated from the G.E. Building remained
relatively stable in the first quarter of 1997, as compared to the same period
for 1996.

                                       15
<PAGE>
 
The Stockbridge Village Shopping Center Property/Fund III-Fund IV Joint Venture
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
 
                                                 Three Months Ended
                                           --------------------------------
                                           March 31, 1997   March 31, 1996
                                           ---------------  ---------------
<S>                                        <C>              <C>              
 
Revenues:
 Rental Income                                   $273,737         $268,455
 Interest income                                    3,643            3,613   
                                                 --------         --------   
                                                  277,380          272,068
Expenses:                                        --------         -------- 
 Depreciation                                      84,747           84,748
 Management and leasing expenses                   30,336           27,154
 Other operating expenses                          24,418           25,392
                                                 --------         --------
                                                  139,501          137,294
                                                 --------         --------
 
Net income                                       $137,879         $134,774
                                                 ========         ========
 
Occupied %                                             93%              93%
Partnership Ownership %                              57.3%            57.3%
 
Cash distributed to the Partnership              $133,367         $132,544
 
Net income allocated to the Partnership          $ 79,028         $ 77,248

</TABLE>

Rental income and net income increased in 1997, as compared to 1996, due
primarily to increased rental rates offset partially by a slight increase in
expenses.

                                       16
<PAGE>
 
                          PART  II - OTHER INFORMATION
                         -----------------------------

Item 6(b).  No reports on Form 8-K were filed during the first 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:  May 13, 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.

                                       17