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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



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



For the quarterly period ended September 30, 2005 or



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



For the transition period from
 to



Commission file number 0-25606



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WELLS REAL ESTATE FUND VII, L.P.

(Exact name of registrant as specified in
its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58-2022629                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|6200 The Corners Pkwy.,Norcross, Georgia                       |  | 30092-3365                             
|(Address of principal executive offices)                       |  | (Zip Code)                             
|                                                               | 
|Registrants telephone number, including area code             |  | (770) 449-7800                         



N/A

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



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

Yes  x    No ̈



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

Yes ̈No  x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).

Yes ̈No  x



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



Certain statements contained in this Form 10-Q of Wells Real Estate Fund VII, L.P. (the
Partnership) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in
particular, statements about our plans, strategies and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated.
Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as may, will,
expect, intend, anticipate, estimate, believe, continue, or other similar words. Specifically, among others, we consider statements concerning projections of future operating
results and cash flows, our ability to meet future obligations, and the amount and timing of future distributions to limited partners to be forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date that this report is filed with the Securities and Exchange Commission. Neither the Partnership nor the general partners make any representations or warranties (expressed or implied) about the accuracy of
any such forward-looking statements. Actual results could differ materially from any forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.



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



General economic risks



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



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



Enterprise risks



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



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



| |  |  | Our ability to liquidate and dissolve the Partnership in a timely manner, to fund related administrative costs, and to minimize such costs;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



Real estate risks



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



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



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



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



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



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



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



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



Other operational risks



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



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



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



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



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WELLS REAL ESTATE FUND VII, L.P.





TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                               |  |         
|-------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                               |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                          |  |         
|         |  |                       | 
|         |  |                       |  | Balance SheetsSeptember 30, 2005 (unaudited) and December 31, 2004                                                           |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Nine Months Ended September 30, 2005 (unaudited) and 2004 (unaudited)       |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2004 and the Nine Months Ended September 30, 2005 (unaudited) |  | 8       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Nine Months Ended September 30, 2005 (unaudited) and 2004 (unaudited)                        |  | 9       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                           |  | 10      
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 17      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                    |  | 24      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                       |  | 24      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                             |  | 25      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |  | 25      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                               |  | 25      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 25      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                             |  | 25      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                      |  | 25      



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PART I.    FINANCIAL STATEMENTS



The information furnished in the Partnerships accompanying balance sheets and consolidated statements of operations, partners capital, and cash flows reflects all adjustments that are, in managements opinion, necessary for
a fair and consistent presentation of the aforementioned financial statements.



The financial statements should be read in conjunction with the notes to the Partnerships financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included both in this report
on Form 10-Q and in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2004. The Partnerships results of operations for the three months and nine months ended September 30, 2005 are not necessarily indicative of
the operating results expected for the full year.



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WELLS REAL ESTATE FUND VII, L.P.





BALANCE SHEETS



ASSETS



|                                                                                                                                |  |                                |           |                   |   |           
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | --------- | ----------------- | - | ----------
|                                                                                                                                |  | September 30, 2005 (unaudited) |           | December 31, 2004
|Investment in joint ventures                                                                                                    |  | $                              | 3,480,028 |                   | $ | 9,225,694 
|Cash and cash equivalents                                                                                                       |  |                                | 4,662,890 |                   |   | 3,884,551 
|Due from joint ventures                                                                                                         |  |                                | 80,274    |                   |   | 370,802   
|                                                                                                                                |  |                                |           |                   |   |           
|Total assets                                                                                                                    |  | $                              | 8,223,192 |                   | $ | 13,481,047
|                                                                                                                                |  |                                |           |                   |   |           
|                                                                                                                               
|LIABILITIES AND PARTNERS CAPITAL                                                                                              
|                                                                                                                                |  |                               
|LIABILITIES:                                                                                                                    |  |                                |           |                   |   |           
|Accounts payable and accrued expenses                                                                                           |  | $                              | 24,086    |                   | $ | 50,333    
|Due to affiliates                                                                                                               |  |                                | 6,595     |                   |   | 6,213     
|                                                                                                                                |  |                                |           |                   |   |           
|Total liabilities                                                                                                               |  |                                | 30,681    |                   |   | 56,546    
|                                                                                                                                |  |                               
|PARTNERS CAPITAL:                                                                                                              |  |                                |           |                   |   |           
|Limited partners:                                                                                                               |  |                                |           |                   |   |           
|Class A2,155,098 units and 2,147,148 units issued and outstanding as of September 30, 2005 and December 31, 2004,
respectively |  |                                | 7,243,945 |                   |   | 12,916,741
|Class B262,919 units and 270,869 units issued and outstanding as of September 30, 2005 and December 31, 2004,
respectively     |  |                                | 948,566   |                   |   | 507,760   
|General partners                                                                                                                |  |                                | 0         |                   |   | 0         
|                                                                                                                                |  |                                |           |                   |   |           
|Total partners capital                                                                                                         |  |                                | 8,192,511 |                   |   | 13,424,501
|                                                                                                                                |  |                                |           |                   |   |           
|Total liabilities and partners capital                                                                                         |  | $                              | 8,223,192 |                   | $ | 13,481,047
|                                                                                                                                |  |                                |           |                   |   |           



See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.





STATEMENTS OF OPERATIONS

(unaudited)



|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|------------------------------------------------------------ |  | ------------------------------- | --------- | ------------------------------ | ---- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                             |  | Three Months EndedSeptember 30, |           | Nine Months EndedSeptember 30,
|                                                             |  | 2005                            |           |                                | 2004 |   | 2005      |  | 2004
|EQUITY IN INCOME OF JOINT VENTURES                           |  | $                               | 69,783    |                                |      | $ | 1,105,248 |  | $    | 2,054,768 |  | $ | 2,888,396
|                                                             |  |                                 |           |                               
|EXPENSES:                                                    |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|Partnership administration                                   |  |                                 | 27,464    |                                |      |   | 36,459    |  |      | 99,906    |  |   | 111,235  
|Legal and accounting                                         |  |                                 | 25,812    |                                |      |   | 13,155    |  |      | 52,175    |  |   | 29,353   
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|Total expenses                                               |  |                                 | 53,276    |                                |      |   | 49,614    |  |      | 152,081   |  |   | 140,588  
|                                                             |  |                                 |           |                               
|INTEREST AND OTHER INCOME                                    |  |                                 | 39,476    |                                |      |   | 11,573    |  |      | 115,322   |  |   | 14,340   
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|NET INCOME                                                   |  | $                               | 55,983    |                                |      | $ | 1,067,207 |  | $    | 2,018,009 |  | $ | 2,762,148
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS:             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|CLASS A                                                      |  | $                               | 113,154   |                                |      | $ | 208,541   |  | $    | 745,269   |  | $ | 778,554  
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|CLASS B                                                      |  | $                               | (57,171   | )                              |      | $ | 858,666   |  | $    | 1,272,740 |  | $ | 1,983,594
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|NET INCOME (LOSS) PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT: |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|CLASS A                                                      |  | $                               | 0.05      |                                |      | $ | 0.10      |  | $    | 0.35      |  | $ | 0.37     
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|CLASS B                                                      |  | $                               | (0.22     | )                              |      | $ | 2.92      |  | $    | 4.81      |  | $ | 6.59     
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:          |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|CLASS A                                                      |  |                                 | 2,155,098 |                                |      |   | 2,124,147 |  |      | 2,153,598 |  |   | 2,116,880
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          
|CLASS B                                                      |  |                                 | 262,919   |                                |      |   | 293,870   |  |      | 264,419   |  |   | 301,137  
|                                                             |  |                                 |           |                                |      |   |           |  |      |           |  |   |          



See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.





STATEMENTS OF PARTNERS CAPITAL



FOR THE YEAR ENDED DECEMBER 31, 2004

AND THE NINE MONTHS ENDED SEPTEMBER 30, 2005 (unaudited)



|                                                                                                                 |         |                  |        |         |                 |       |                         |         |        |  |   |            |   |  |   |   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------- | ------- | ---------------- | ------ | ------- | --------------- | ----- | ----------------------- | ------- | ------ |  | - | ---------- | - |  | - | - |  | - | ---------- | -
|                                                                                                                 |         | Limited Partners |        |         | GeneralPartners |       | Total Partners Capital |        
|                                                                                                                 | Class A |                  |        | Class B |                 |       |                        
|                                                                                                                 | Units   |                  | Amount |         |                 | Units |                         |         | Amount |  |   |           
|BALANCE, December 31, 2003                                                                                       |         | 2,105,697        |        | $       | 14,500,664      |       |                         | 312,320 |        |  | $ | 0          |   |  | $ | 0 |  | $ | 14,500,664 |  
|                                                                                                                 |         |                  |        |         |                 |      
|Class B conversion elections                                                                                     |         | 41,451           |        |         | 139,085         |       |                         | (41,451 | )      |  |   | (139,085   | ) |  |   | 0 |  |   | 0          |  
|Net income                                                                                                       |         | 0                |        |         | 1,416,306       |       |                         | 0       |        |  |   | 2,925,908  |   |  |   | 0 |  |   | 4,342,214  |  
|Distributions of operating cash flows ($0.22 per Class A weighted-average Class A Unit)                          |         | 0                |        |         | (470,378        | )     |                         | 0       |        |  |   | 0          |   |  |   | 0 |  |   | (470,378   | )
|Distributions of net sale proceeds ($1.26 and $7.76 per Class A and Class B weighted-average Unit, respectively) |         | 0                |        |         | (2,668,936      | )     |                         | 0       |        |  |   | (2,279,063 | ) |  |   | 0 |  |   | (4,947,999 | )
|                                                                                                                 |         |                  |        |         |                 |       |                         |         |        |  |   |            |   |  |   |   |  |   |            |  
|BALANCE, December 31, 2004                                                                                       |         | 2,147,148        |        |         | 12,916,741      |       |                         | 270,869 |        |  |   | 507,760    |   |  |   | 0 |  |   | 13,424,501 |  
|                                                                                                                 |         |                  |        |         |                 |      
|Class B conversionelections                                                                                      |         | 7,950            |        |         | 18,085          |       |                         | (7,950  | )      |  |   | (18,085    | ) |  |   | 0 |  |   | 0          |  
|Net income                                                                                                       |         | 0                |        |         | 745,269         |       |                         | 0       |        |  |   | 1,272,740  |   |  |   | 0 |  |   | 2,018,009  |  
|Distributions of net sale proceeds ($2.99 and $3.08 per Class A and Class B weighted-average Unit, respectively) |         | 0                |        |         | (6,436,150      | )     |                         | 0       |        |  |   | (813,849   | ) |  |   | 0 |  |   | (7,249,999 | )
|                                                                                                                 |         |                  |        |         |                 |       |                         |         |        |  |   |            |   |  |   |   |  |   |            |  
|BALANCE, September 30, 2005                                                                                      |         | 2,155,098        |        | $       | 7,243,945       |       |                         | 262,919 |        |  | $ | 948,566    |   |  | $ | 0 |  | $ | 8,192,511  |  
|                                                                                                                 |         |                  |        |         |                 |       |                         |         |        |  |   |            |   |  |   |   |  |   |            |  



See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.





STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                                 |            |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                  |  | Nine Months Ended September 30, |           
|                                                                                  |  | 2005                            |            |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                 |            |   |      |   |            |  
|Net income                                                                        |  | $                               | 2,018,009  |   |      | $ | 2,762,148  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |            |   |      |   |            |  
|Equity in income of joint ventures                                                |  |                                 | (2,054,768 | ) |      |   | (2,888,396 | )
|Operating changes in assets and liabilities:                                      |  |                                 |            |   |      |   |            |  
|Increase in due to affiliates                                                     |  |                                 | 382        |   |      |   | 0          |  
|(Decrease) increase in accounts payable and accrued expenses                      |  |                                 | (26,247    | ) |      |   | 10,972     |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|Total adjustments                                                                 |  |                                 | (2,080,633 | ) |      |   | (2,877,424 | )
|Operating distributions received from joint ventures                              |  |                                 | 362,095    |   |      |   | 953,050    |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|Net cash provided by operating activities                                         |  |                                 | 299,471    |   |      |   | 837,774    |  
|                                                                                  |  |                                
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                 |            |   |      |   |            |  
|Investment in joint ventures                                                      |  |                                 | (164,190   | ) |      |   | (332,571   | )
|Net sale proceeds received from joint ventures                                    |  |                                 | 7,893,057  |   |      |   | 7,971,721  |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|Net cash provided by investing activities                                         |  |                                 | 7,728,867  |   |      |   | 7,639,150  |  
|                                                                                  |  |                                
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                 |            |   |      |   |            |  
|Net sale proceeds distributions paid to limited partners                          |  |                                 | (7,249,999 | ) |      |   | (735,001   | )
|Operating distributions paid to limited partners                                  |  |                                 | 0          |   |      |   | (681,538   | )
|                                                                                  |  |                                 |            |   |      |   |            |  
|Net cash used in financing activities                                             |  |                                 | (7,249,999 | ) |      |   | (1,416,539 | )
|                                                                                  |  |                                 |            |   |      |   |            |  
|                                                                                  |  |                                
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                                 | 778,339    |   |      |   | 7,060,385  |  
|                                                                                  |  |                                
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                                 | 3,884,551  |   |      |   | 1,078,108  |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                               | 4,662,890  |   |      | $ | 8,138,493  |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|                                                                                  |  |                                
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:           |  |                                 |            |   |      |   |            |  
|Increase in partnership distributions payable                                     |  | $                               | 0          |   |      | $ | 157,337    |  
|                                                                                  |  |                                 |            |   |      |   |            |  



See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.





CONDENSED NOTES TO FINANCIAL STATEMENTS



SEPTEMBER 30, 2005 (unaudited)



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



Wells Real Estate Fund VII, L.P. (the Partnership) is a Georgia public limited partnership, with Leo F. Wells, III and Wells Partners, L.P. (Wells
Partners), a Georgia nonpublic limited partnership, serving as its general partners (collectively, the General Partners). Wells Capital, Inc. (Wells Capital) serves as the corporate general partner of Wells Partners.
Wells Capital is a wholly owned subsidiary of Wells Real Estate Funds, Inc. Leo F. Wells, III is the president and sole director of Wells Capital and the sole owner of Wells Real Estate Funds, Inc. The Partnership was formed on December 1, 1992 for
the purpose of acquiring, developing, owning, operating, improving, leasing, and managing income-producing commercial properties for investment purposes. Upon subscription, limited partners elected to have their units treated as Class A Units or
Class B Units. Limited partners have the right to change their prior elections to have some or all of their units treated as Class A Units or Class B Units one time during each annual accounting period. Limited partners may vote to, among other
things: (a) amend the partnership agreement, subject to certain limitations; (b) change the business purpose or investment objectives of the Partnership; and (c) add or remove a general partner. A majority vote on any of the above-described matters
will bind the Partnership, without the concurrence of the General Partners. Each limited partnership unit has equal voting rights, regardless of class.



On April 6, 1994, the Partnership commenced an offering of up to $25,000,000 of Class A or Class B limited partnership units pursuant to a Registration Statement filed on
Form S-11 under the Securities Act of 1933. The Partnership commenced active operations upon receiving and accepting subscriptions for 125,000 units on April 26, 1994. The offering was terminated on January 5, 1995, at which time the Partnership had
sold approximately 1,678,810 Class A Units and 739,207 Class B Units representing capital contributions of $24,180,174.



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



|                                                                      |  |                                                                                                                                            |  |                                                                                                                                                                                            
|--------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                         |  | Joint Venture Partners                                                                                                                     |  | Properties                                                                                                                                                                                 
|Fund II, III, VI and VII Associates (Fund II-III-VI-VII Associates) |  |    Fund II and Fund III Associates
(Fund II-III Associates)(1)    Wells Real Estate Fund VI, L.P.    Wells Real Estate Fund VII, L.P. |  | 1. Holcomb Bridge Property(2) An office/retail center located in
Roswell, Georgia                                                                                                          
|Fund V, Fund VI and Fund VII Associates (Fund V-VI-VII Associates)  |  |    Wells Real Estate Fund V, L.P.    Wells Real Estate Fund VI, L.P.    Wells Real Estate Fund VII, L.P.                                |  | 2. Marathon Building(3) A three-story office building located in Appleton,
Wisconsin                                                                                                       
|Fund VI and Fund VII Associates (Fund VI-VII Associates)            |  |    Wells Real Estate Fund VI, L.P.
   Wells Real Estate Fund VII, L.P.                                                                   |  | 3. Stockbridge Village III(4) Two retail buildings located in
Stockbridge, Georgia 4. Stockbridge Village I Expansion(4) A retail shopping center expansion
located in Stockbridge, Georgia



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|                                                                           |  |                                                                                                                |  |                                                                                                                                                                                      
|-------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                              |  | Joint Venture Partners                                                                                         |  | Properties                                                                                                                                                                           
|Fund VI, Fund VII and Fund VIII Associates (Fund VI-VII-VIII Associates) |  |    Wells Real Estate Fund VI, L.P.
   Wells Real Estate Fund VII, L.P.    Wells Real Estate Fund VIII, L.P. |  | 5. BellSouth Building A four-story office building located in Jacksonville, Florida 6. Tanglewood Commons(5) A retail
center in Clemmons, North Carolina, and four outparcels of land
|Fund VII and Fund VIII Associates (Fund VII-VIII Associates)             |  |    Wells Real Estate Fund VII, L.P.
   Wells Real Estate Fund VIII, L.P.                                     |  | 7. Hannover Center(4) A retail center located in Stockbridge, Georgia 8. CH2M Hill Building An office building located in
Gainesville, Florida                                       



| | (1) | Fund II-III Associates is a joint venture between Fund II-IIOW Associates and Wells Real
Estate Fund III, L.P.
| | --- | --------------------------------------------------------------------------------------------------------------

| | (2) | This property was sold in July 2004.
| | --- | ------------------------------------

| | (3) | This property was sold in December 2004.
| | --- | ----------------------------------------

| | (4) | These properties were sold in April 2004.
| | --- | -----------------------------------------

| | (5) | The shopping center and one outparcel of land was sold in April 2005; one outparcel of
land was sold in October 2002; and two outparcels of land remain unsold as of September 30, 2005.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund VI, L.P, and Wells Real Estate Fund VIII, L.P. are
affiliated with the Partnership through one or more common general partners. Each of the properties described above was acquired on an all-cash basis. For further information regarding the Joint Ventures and forgoing properties, refer to the
Partnerships Form 10-K for the year ended December 31, 2004.



On April
29, 2004, four Wells-affiliated Joint Ventures, including Fund VI-VII Associates and Fund VII-VIII Associates, sold five real properties, including Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center, to an unrelated third
party for a gross sale price of $23,750,000. As a result of the sale of Stockbridge Village III, the Partnership received net sale proceeds of approximately $1,606,000 and was allocated a gain of approximately $237,000. As a result of the sale of
Stockbridge Village I Expansion, the Partnership received net sale proceeds of approximately $2,268,000, and was allocated a gain of approximately $944,000. As a result of the sale of the Hannover Center, the Partnership received net sale proceeds
of approximately $624,000, and was allocated a gain of approximately $168,000.



On July 1, 2004, two Wells-affiliated Joint Ventures, including Fund II-III-VI-VII Associates, sold two real properties, including the Holcomb Bridge Property, to an unrelated third party for a gross sale price of $9,500,000. As a result of
the sale of the Holcomb Bridge Property, the Partnership received net sale proceeds of approximately $3,474,000 and was allocated a gain of approximately $995,000.



On December 29, 2004, Fund V-VI-VII Associates sold the Marathon Building to an unrelated third party for a gross sales price of
$10,250,000. As a result of the sale, the Partnership received net proceeds of approximately $4,141,000 and was allocated a gain of approximately $1,391,000.



On April 21, 2005, Fund VI-VII-VIII Associates sold the Tanglewood Commons shopping center and one outparcel of land to an unrelated third party for a gross sales price
of $11,500,000. As a result of the sale, the Partnership received net proceeds of approximately $3,752,000 and was allocated a gain of approximately $1,811,000.



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##### Table of Contents

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



Basis of Presentation



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



Investment in Joint Ventures



The Partnership does not have control over the operations of the Joint Ventures; however, it
does exercise significant influence. Approval by the Partnership as well as the other joint venture partners is required for any major decision or any action that would materially affect the Joint Ventures, or their real property investments.
Accordingly, the Partnerships investments in the Joint Ventures are recorded using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for contributions, distributions, and net income
(loss) attributable to the Partnership. Pursuant to the terms of the joint venture agreements, all income (loss) and distributions are allocated to joint venture partners in accordance with their respective ownership interests. Distributions of net
cash from operations, if available, are distributed to the joint venture partners on a quarterly basis.



The Partnership adopted FIN 46(R) effective March 31, 2004. The Partnership owns interests in certain unconsolidated joint venture partnerships (see Note 4). The joint venture partners of the Partnerships
unconsolidated joint ventures in which the Partnership owns an interest have disproportionate voting rights for certain major decisions relative to their obligations to absorb expected losses and rights to receive residual returns of such ventures.
However, management has evaluated such joint ventures and has determined that they are not variable interest entities under the provisions of FIN 46(R) because not substantially all of the activities of the joint ventures are conducted on behalf of
a joint venture partner with disproportionately fewer voting rights. Management has also determined the joint venture partners are not related parties, as defined in FIN 46(R) and SFAS No. 57. Accordingly, the adoption of FIN 46(R) did not result in
the consolidation of any previously unconsolidated entities.



Distribution
of Net Cash from Operations



Net cash from operations, if available, is
generally distributed to limited partners quarterly. In accordance with the partnership agreement, such distributions are paid first to the Class A limited partners until such limited partners have received a 10% per annum return on their respective
adjusted capital contributions, as defined. Cash from operations is then paid to the General Partners until they have received an amount equal to 10% of distributions. Any remaining cash from operations is to be allocated between the limited
partners holding Class A Units and the General Partners on a basis of 90% and 10%, respectively. No distributions of net cash from operations will be made to limited partners holding Class B Units.



Distribution of Sale Proceeds



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



| |  |  | In the event that the particular property sold is sold for a price that is less than its original property purchase price, to the limited partners holding Class A
Units until they have received an amount equal
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | to the excess of the original property purchase price over the price for which the property was sold, limited to the amount of depreciation, amortization,
and cost recovery deductions taken by the limited partners holding Class B Units with respect to such property;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners holding units, which at any time have been treated as Class B Units, until such limited partners have received an amount necessary to equal the net cash
available for distribution received by the Class A limited partners on a per-unit basis;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners, on a per-unit basis, until the limited partners have received 100% of their respective adjusted capital contributions, as defined;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners on a per-unit basis until the limited partners have received a cumulative 10% per annum return on their respective adjusted capital contributions, as
defined;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners on a per-unit basis until the limited partners have received an amount equal to their respective cumulative limited partner return (defined as the sum of a 10%
per annum cumulative return on net capital contributions for all periods during which the units were treated as Class A Units and a 15% per annum cumulative return on net capital contributions for all periods during which the units were treated as
Class B Units);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To the General Partners until they have received 100% of their respective capital contributions, as defined;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | To the General Partners until they have received 100% of their respective capital contributions; in the event that limited partners have received aggregate cash distributions from
the Partnership over the life of their investment in excess of a return of their net capital contributions plus their cumulative limited partner return, then the General Partners shall receive an additional sum equal to 25% of such excess; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Thereafter, 80% to the limited partners and 20% to the General Partners.
| | - |  | ------------------------------------------------------------------------



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



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



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



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



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3. RELATED-PARTY TRANSACTIONS



Management and Leasing Fees



The Partnership entered into a property management and leasing agreement with Wells Management Company, Inc. (Wells Management), an affiliate of the General
Partners. In consideration for the management and leasing of the Partnerships properties, the Joint Ventures pay Wells Management Company, Inc. management and leasing fees equal to (a) of the gross revenues collected monthly, 3% of the gross
revenues for management and 3% of the gross revenues for leasing (aggregate maximum of 6%), plus a separate fee for the one-time initial lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in
arms-length transactions by others rendering similar services in the same geographic area for similar properties or (b) in the case of commercial properties leased on a long-term net basis (ten or more years), 1% of the gross revenues except
for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term. Management and leasing fees are paid by the Joint Ventures and, accordingly, included in equity in income (loss) of joint venture in the
accompanying statements of operations. The Partnerships share of management and leasing fees and lease acquisition costs incurred though the Joint Ventures is $5,775 and $21,722 for the three months ended September 30, 2005 and 2004,
respectively, and $30,884 and $91,008 for the nine months ended September 30, 2005 and 2004, respectively.



Administration Reimbursements



Wells
Capital, the corporate general partner of Wells Partners, one of the Partnerships general partners, and Wells Management perform certain administrative services for the Partnership, relating to accounting and other partnership administration,
and incurs the related expenses. Such expenses are allocated among the other entities affiliated with the General Partners based on estimates of the amount of time dedicated to each fund by individual administrative personnel. In the opinion of the
General Partners, this allocation is a reasonable estimation of such expenses. The Partnership reimbursed Wells Capital and Wells Management for administrative expenses of $21,842 and $27,862 for the three months ended September 30, 2005 and 2004,
respectively, and $71,037 and $79,764 for the nine months ended September 30, 2005 and 2004, respectively. As of September 30, 2005 and December 31, 2004, administrative reimbursements due to Wells Management and/or Wells Capital of $6,595 and
$4,726, respectively, are included in due to affiliates in the accompanying balance sheets. In addition, Wells Capital pays for certain operating expenses (bill-backs) of the Partnership directly and invoices the Partnership for the
reimbursement thereof on a monthly basis. As of December 31, 2004, bill-backs of $1,487 are included in due to affiliates in the accompanying balance sheet.



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|4. | INVESTMENT IN JOINT VENTURES
|-- | ----------------------------



Summary of Operations



Condensed financial information for the Joint Ventures for the three months and nine months ended September 30, 2005 and 2004, respectively, is presented below:



|                              |  |                                  |         |                                          |   |         |                                            |   |         |                                  |  |      |         |   |      |   |        |      |  |   |           |     |  |   |         |   |  |   |           |    
|----------------------------- |  | -------------------------------- | ------- | ---------------------------------------- | - | ------- | ------------------------------------------ | - | ------- | -------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | --------- | --- |  | - | ------- | - |  | - | --------- | ---
|                              |  | Total Revenues                   |         | Income (Loss) From Continuing Operations |   |         | Income (Loss) From Discontinued Operations |   |         | Net Income (Loss)                | 
|                              |  | Three Months Ended September 30, |         | Three Months Ended September 30,         |   |         | Three Months Ended September 30,           |   |         | Three Months Ended September 30, | 
|                              |  | 2005                             |         | 2004                                     |   | 2005    |                                            |   | 2004    |                                  |  | 2005 |         |   | 2004 |   |        | 2005 |  |   | 2004      |    
|Fund II-III-VI-VII Associates |  | $                                | 0       |                                          | $ | 0       |                                            | $ | (1,720  | )                                |  | $    | (10,708 | ) |      | $ | 3,668  |      |  | $ | 1,861,538 | (3) |  | $ | 1,948   |   |  | $ | 1,850,830 |    
|Fund V-VI-VII Associates      |  |                                  | 0       |                                          |   | 0       |                                            |   | (2,722  | )                                |  |      | (4,754  | ) |      |   | 0      |      |  |   | 129,208   |     |  |   | (2,722  | ) |  |   | 124,454   | (1)
|Fund VI-VII Associates        |  |                                  | 0       |                                          |   | 0       |                                            |   | (83     | )                                |  |      | (19,628 | ) |      |   | 5,000  |      |  |   | 1,915     |     |  |   | 4,917   |   |  |   | (17,713   | )  
|Fund VI-VII-VIII Associates   |  |                                  | 461,605 |                                          |   | 460,132 |                                            |   | 174,796 |                                  |  |      | 158,362 |   |      |   | (1,104 | )    |  |   | 155,106   |     |  |   | 173,692 |   |  |   | 313,468   | (1)
|Fund VII-VIII Associates      |  |                                  | 244,708 |                                          |   | 251,295 |                                            |   | 25,565  |                                  |  |      | 68,886  |   |      |   | (404   | )    |  |   | 21        |     |  |   | 25,161  |   |  |   | 68,907    | (1)
|                              |  |                                  |         |                                          |   |         |                                            |   |         |                                  |  |      |         |   |      |   |        |      |  |   |           |     |  |   |         |   |  |   |           |    
|                              |  | $                                | 706,313 |                                          | $ | 711,427 |                                            | $ | 195,836 |                                  |  | $    | 192,158 |   |      | $ | 7,160  |      |  | $ | 2,147,788 |     |  | $ | 202,996 |   |  | $ | 2,339,946 |    
|                              |  |                                  |         |                                          |   |         |                                            |   |         |                                  |  |      |         |   |      |   |        |      |  |   |           |     |  |   |         |   |  |   |           |    



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|                              |  |                                 |           |                                          |   |           |                                            |   |         |                                 |  |      |         |   |      |   |           |      |  |   |           |     |  |   |           |   |  |   |           |    
|----------------------------- |  | ------------------------------- | --------- | ---------------------------------------- | - | --------- | ------------------------------------------ | - | ------- | ------------------------------- |  | ---- | ------- | - | ---- | - | --------- | ---- |  | - | --------- | --- |  | - | --------- | - |  | - | --------- | ---
|                              |  | Total Revenues                  |           | Income (Loss) From Continuing Operations |   |           | Income (Loss) From Discontinued Operations |   |         | Net Income (Loss)               | 
|                              |  | Nine Months Ended September 30, |           | Nine Months Ended September 30,          |   |           | Nine Months Ended September 30,            |   |         | Nine Months Ended September 30, | 
|                              |  | 2005                            |           | 2004                                     |   | 2005      |                                            |   | 2004    |                                 |  | 2005 |         |   | 2004 |   |           | 2005 |  |   | 2004      |    
|Fund II-III-VI-VII Associates |  | $                               | 0         |                                          | $ | 0         |                                            | $ | (9,928  | )                               |  | $    | (18,865 | ) |      | $ | 93,697    |      |  | $ | 2,077,417 | (2) |  | $ | 83,769    |   |  | $ | 2,058,552 |    
|Fund V-VI-VII Associates      |  |                                 | 0         |                                          |   | 0         |                                            |   | (13,994 | )                               |  |      | (13,293 | ) |      |   | (3,430    | )    |  |   | 293,470   |     |  |   | (17,424   | ) |  |   | 280,177   | (1)
|Fund VI-VII Associates        |  |                                 | 0         |                                          |   | 0         |                                            |   | (16,303 | )                               |  |      | (57,306 | ) |      |   | 1,172     |      |  |   | 2,307,196 | (3) |  |   | (15,131   | ) |  |   | 2,249,890 |    
|Fund VI-VII-VIII Associates   |  |                                 | 1,313,357 |                                          |   | 1,387,278 |                                            |   | 409,150 |                                 |  |      | 359,828 |   |      |   | 5,590,041 | (4)  |  |   | 403,987   |     |  |   | 5,999,191 |   |  |   | 763,815   | (1)
|Fund VII-VIII Associates      |  |                                 | 692,518   |                                          |   | 727,067   |                                            |   | 70,643  |                                 |  |      | 131,100 |   |      |   | (3,178    | )    |  |   | 514,685   | (5) |  |   | 67,465    |   |  |   | 645,785   | (1)
|                              |  |                                 |           |                                          |   |           |                                            |   |         |                                 |  |      |         |   |      |   |           |      |  |   |           |     |  |   |           |   |  |   |           |    
|                              |  | $                               | 2,005,875 |                                          | $ | 2,114,345 |                                            | $ | 439,568 |                                 |  | $    | 401,464 |   |      | $ | 5,678,302 |      |  | $ | 5,596,755 |     |  | $ | 6,117,870 |   |  | $ | 5,998,219 |    
|                              |  |                                 |           |                                          |   |           |                                            |   |         |                                 |  |      |         |   |      |   |           |      |  |   |           |     |  |   |           |   |  |   |           |    



| | (1) | Effective July 1, 2004, the Joint Ventures extended the weighted-average composite useful life for all building assets from 25 years to 40 years, which resulted
in an increase to net income for the three months and nine months ended September 30, 2004 of $42,330, $43,765, and $17,639 for Fund V-VI-VII Associates, Fund VI-VII-VIII Associates, and Fund VII-VIII Associates, respectively.Management
believes that this change more appropriately reflects the estimated useful lives of real estate assets and is consistent with prevailing industry practice.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes a gain of approximately $1,869,000 recognized on the sale of the Holcomb Bridge
Property, of which approximately $942,000 was attributable to the Partnership and has been allocated to the Class A and Class B partners pursuant to the provisions of the partnership agreement(Note 2).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Includes a gain of approximately $2,138,000 recognized on the sale of Stockbridge Village
III and Stockbridge Village I Expansion, of which approximately $1,180,000 was attributable to the Partnership and has been allocated to the Class A and Class B partners pursuant to the provisions of the partnership agreement (Note 2).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Includes a gain of approximately $5,423,000 recognized on the sale of the Tanglewood
Commons shopping center, of which approximately $1,811,000 was attributable to the Partnership and has been allocated to the Class A and Class B partners pursuant to the provisions of the partnership agreement (Note 2).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Includes a gain of approximately $459,000 recognized on the sale of the Hannover Center,
of which approximately $168,000 was attributable to the Partnership and has been allocated to the Class A and Class B partners pursuant to the provisions of the partnership agreement.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | SUBSEQUENT EVENTS
|-- | -----------------



Distribution of Net Sale Proceeds



The
sales of the Marathon Building and the Tanglewood Commons shopping center generated total net sale proceeds to the Partnership of approximately $7,893,000, of which approximately $3,442,000 has previously been distributed to the limited partners
through September 30, 2005. Upon evaluating the capital needs of the existing properties in which the Partnership holds an interest, the General Partners have determined that reserves of approximately $251,000 will be required to fund the
Partnerships share of re-leasing costs for the BellSouth Building and anticipate re-leasing costs for the remaining vacant space at the CH2M Hill Building. In accordance with the terms of the partnership agreement, the General Partners
distributed the residual net sale proceeds on November 1, 2005 of approximately $4,200,000 to the limited partners of record as of September 30, 2005, which under the terms of the partnership agreement does not include limited partners acquiring
units after June 30, 2005.



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##### Table of Contents

Purchase and Sale Agreement



On November 8, 2005, Fund VII-VIII Associates entered into a purchase and sale agreement to sell the CH2M Hill Building for a gross sales
price of $8,200,000, excluding closing costs, to an unaffiliated third party. The closing of this transaction is expected to occur during the fourth quarter of 2005. The completion of this transaction is currently subject to, among other things, a
due diligence period expiring on November 17, 2005. Accordingly, there are no assurances that this sale will be completed.



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



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



Overview



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



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

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



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

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



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

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



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

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



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

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



Portfolio Overview



We moved from the positioning-for-sale phase into the disposition-and-liquidation phase of its life cycle. We have now sold seven assets with the closing of the Tanglewood Commons shopping center and outparcel of land
in the second quarter 2005. The CH2M Hill Building is currently under contract to sell. Our focus on the remaining assets involves re-leasing and marketing efforts that we believe will result in the best disposition pricing for our limited partners.



Our portfolio benefited from a number of positive events in 2005, including
the sale of the Tanglewood Commons shopping center for a gross price of $11,500,000, which is in excess of the original purchase price for



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##### Table of Contents

this asset, executing a three-year lease extension of the BellSouth Advertising and Publishing Corporation (BellSouth) lease, and executing an
approximate ten-year lease extension of the American Express Travel Related Services Company, Inc. (American Express) lease. We also completed the distribution of net sale proceeds to limited partners in May 2005, totaling approximately
$7,250,000. Lastly, we distributed net sale proceeds of approximately $4,200,000 from the sales of the Marathon Building and the Tanglewood Commons shopping center on November 1, 2005.



With only two properties remaining in the portfolio and the re-leasing costs at the BellSouth Building and the anticipated re-leasing costs
for the remaining vacant space at the CH2M Hill Building, the General Partners are currently reserving operating cash distributions to limited partners and the remaining net sale proceeds from the sale of the Tanglewood Commons shopping center. The
General Partners anticipate that operating distributions may remain low or be reserved in the near term, considering the number of property sales that have been completed and anticipated capital expenditures at the remaining assets.



Property Summary



Information related to the properties owned, or previously owned, by the Joint Ventures follows:



| |  |  | The Cherokee Commons property was sold on October 1, 2001.
| | - |  | ----------------------------------------------------------



| |  |  | The Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center properties were sold on April 29, 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | The Holcomb Bridge Property was sold on July 1, 2004.
| | - |  | -----------------------------------------------------



| |  |  | The Marathon property was sold on December 29, 2004.
| | - |  | ----------------------------------------------------



| |  |  | The Tanglewood Commons shopping center was sold on April 21, 2005. We retain an ownership interest in two remaining outparcels of land, which will be marketed for sale now that the
shopping center has been sold.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The BellSouth Building in Jacksonville, Florida, is currently 100% leased. We have completed a three-year lease extension with BellSouth through April 2009 and an approximate
ten-year lease extension with American Express through February 2016. As part of this negotiation, BellSouth released approximately 12,000 square feet of space to American Express effective November 1, 2005.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CH2M Hill Building is located in Gainesville, Florida. We renewed the CH2M Hill, Inc. lease in the fourth quarter 2004 for an additional five years, extending the lease term to
November 2010. As part of the negotiation, the tenant reduced the size of its space, resulting in a lower occupancy rate of 84% for the building. With the lease extension in place, we have marketed this asset for sale and we are currently under
contract.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As of September 30, 2005, the property sales described above generated an aggregate of approximately $16,926,000 in net sale proceeds allocated to the Partnership, of which
approximately $12,198,000 has previously been distributed to the limited partners, approximately $277,000 has been invested in the Joint Ventures to fund re-leasing costs at the Marathon Building, approximately $251,000 is currently being reserved
to fund the Partnerships pro-rata share of re-leasing costs at the BellSouth Building and anticipated re-leasing costs at the remaining vacant space for the CH2M Hill Building, and approximately $4,200,000 was distributed to the limited
partners in November 2005.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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Results of Operations



Equity in Income of Joint Ventures



Equity in income of Joint Ventures was $69,783 and $1,105,248 for the three months ended September 30, 2005 and 2004, respectively, and $2,054,768 and $2,888,396 for the
nine months ended September 30, 2005 and 2004, respectively. The 2005 decreases are primarily attributable to forgone operating income resulting from (i) the sale of the Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center
in April 2004; (ii) the sale of the Holcomb Bridge Property in July 2004; (iii) the sale of the Tanglewood Commons shopping center in April 2005; and (iv) a decline in depreciation expense as a result of changing the useful life for all buildings
owned through the Joint Ventures from 25 years to 40 years effective July 1, 2004.



We expect equity in income of Joint Ventures to decrease going forward as a result of forgone operating income resulting from the sale of the shopping center at Tanglewood Commons.



Expenses of the Partnership



Our total expenses were $53,276 and $49,614 for the three months ended September 30, 2005
and 2004, respectively, and $152,081 and $140,588 for the nine months ended September 30, 2005 and 2004, respectively. The 2005 increases, as compared to 2004, are primarily due to an increase in legal and accounting expenses associated with
increased reporting and regulatory requirements. We anticipate additional increases in our administrative expenses in future periods related to compliance with reporting and regulatory requirements.



Liquidity and Capital Resources



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



Short-Term Liquidity



During the nine
months ended September 30, 2005, we generated net operating cash flows, including operating distributions received from the Joint Ventures, of approximately $299,000, as compared to approximately $838,000 for the nine months ended September 30,
2004. The 2005 decrease is primarily due to the corresponding decline in operating distributions received from Joint Ventures as further described below. Operating distributions from the Joint Ventures are generally representative of rental revenues
and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures.



Operating distributions received from the Joint Ventures have declined in 2005 primarily due to (i) forgone cash flows as a result of the sale of Stockbridge Village III,
Stockbridge Village I Expansion, Hannover Center, the Holcomb Bridge Property, and the Tanglewood Commons shopping center, and (ii) funding re-leasing costs at the CH2M Hill Building and capital improvements at the BellSouth Building. Future
operating distributions from the Joint Ventures are expected to be reserved or remain low as a result of selling properties in current or prior periods and funding re-leasing costs at the BellSouth Building and the anticipated re-leasing costs for
the



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##### Table of Contents

remaining vacant space at the CH2M Hill Building. Future operating distributions paid to limited partners will be largely dependent upon the amount of cash
generated from the Joint Ventures, our expectations of future cash flows, and determination of near-term cash needs for tenant re-leasing costs and other capital improvements for properties owned by the Joint Ventures.



We believe that the cash on hand and operating distributions due from the Joint Ventures are
sufficient to cover our working capital needs, including liabilities of approximately $31,000 as of September 30, 2005. At this time, we expect to continue to generate cash flows from operations, including distributions from the Joint Ventures,
sufficient to cover our estimated future expenses; however, net sale proceeds may be used to fund large capital expenditures as necessary.



Long-Term Liquidity



We expect that our future sources of capital will be primarily derived from operating cash flows generated from the Joint Ventures and net proceeds generated from the selective and strategic sale of properties. Our
future long-term liquidity requirements will include, but not be limited to, funding tenant improvements, renovations, expansions, and other significant capital improvements necessary for properties owned through the Joint Ventures. We expect to
continue to use substantially all future net cash flows from operations to provide funding for such requirements. Future cash flows from operating activities will be primarily affected by distributions received from the Joint Ventures, which are
dependent upon the net operating income generated by the Joint Ventures properties, fewer reserves for known capital expenditures.



Capital Resources



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



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



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



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As of September 30, 2005, we have received, used, distributed, and held net proceeds allocated to the Partnership from
the sale of properties as presented below:



|                                               |  |              |            |                                     |      |         |                                         |   |                     |  |                                                            |         |                                                   |                                              |  |   |            |  |   |          
|---------------------------------------------- |  | ------------ | ---------- | ----------------------------------- | ---- | ------- | --------------------------------------- | - | ------------------- |  | ---------------------------------------------------------- | ------- | ------------------------------------------------- | -------------------------------------------- |  | - | ---------- |  | - | ---------
|Property Sold                                  |  | Net Proceeds |            | PartnershipsApproximateOwnership % |      |         | Net ProceedsAllocated to thePartnership |   | Use of Net Proceeds |  | Net ProceedsDistributed toPartners as
ofSeptember 30, 2005 |         | Undistributed NetProceeds as
ofSeptember 30, 2005
|                                               |  |              |            | Amount                              |      | Purpose |                                         |  
|Cherokee Commons (sold in 2001)                |  | $            | 8,414,089  |                                     | 10.9 | %       |                                         | $ | 886,212             |  | $                                                          | 151,211 |                                                   |     Re-leasing the Marathon Building (2004) |  | $ | 735,001    |  | $ | 0        
|Tanglewood Commons Outparcel (sold in 2002)    |  |              | 524,398    |                                     | 33.4 | %       |                                         |   | 175,149             |  |                                                            | 126,160 |                                                   |     Re-leasing the Marathon Building (2004) |  |   | 48,989     |  |   | 0        
|Stockbridge Village III (sold in 2004)         |  |              | 2,909,853  |                                     | 55.2 | %       |                                         |   | 1,606,248           |  |                                                            | 0       |                                                   |                                             |  |   | 1,606,248  |  |   | 0        
|Stockbridge Village I Expansion (sold in 2004) |  |              | 4,108,277  |                                     | 55.2 | %       |                                         |   | 2,267,781           |  |                                                            | 0       |                                                   |                                             |  |   | 2,267,781  |  |   | 0        
|Hannover Center (sold in 2004)                 |  |              | 1,703,431  |                                     | 36.6 | %       |                                         |   | 624,067             |  |                                                            | 0       |                                                   |                                             |  |   | 624,067    |  |   | 0        
|Holcomb Bridge Property (sold in 2004)         |  |              | 6,889,379  |                                     | 50.4 | %       |                                         |   | 3,473,625           |  |                                                            | 0       |                                                   |                                             |  |   | 3,473,625  |  |   | 0        
|Marathon Building (sold in 2004)               |  |              | 9,927,330  |                                     | 41.7 | %       |                                         |   | 4,140,689           |  |                                                            | 0       |                                                   |                                             |  |   | 3,442,287  |  |   | 698,402  
|Tanglewood Commons (sold in 2005)              |  |              | 11,236,283 |                                     | 33.4 | %       |                                         |   | 3,752,368           |  |                                                            | 0       |                                                   |                                             |  |   | 0          |  |   | 3,752,368
|                                               |  |              |            |                                     |      |         |                                         |   |                     |  |                                                            |         |                                                   |                                              |  |   |            |  |   |          
|Total                                          |  |              |            |                                     |      |         |                                         | $ | 16,926,139          |  | $                                                          | 277,371 |                                                   |                                              |  | $ | 12,197,998 |  | $ | 4,450,770
|                                               |  |              |            |                                     |      |         |                                         |   |                     |  |                                                            |         |                                                   |                                              |  |   |            |  |   |          



Upon evaluating the capital needs of
the properties in which we currently hold an interest, our General Partners have determined that reserves of net sale proceeds of approximately $251,000 will be required to fund the Partnerships share of re-leasing costs for the BellSouth
Building and the anticipated re-leasing costs for the remaining vacant space at the CH2M Hill Building. Accordingly, in November 2005, the remaining net sale proceeds of approximately $4,200,000 from the sales of the Marathon Building and the
Tanglewood Commons shopping center were distributed to the limited partners of record as of September 30, 2005, which, under the terms of the partnership agreement, does not include limited partners acquiring units after June 30, 2005.



Related-Party Transactions



Related-Party Fees and Reimbursements



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



Economic Dependency



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



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



Future net income generated by WREF will be largely dependent upon the amount of fees earned by Wells Capital, Wells Management, and Wells
Investment Securities, Inc. based on, among other things, the level of investor proceeds raised from the sale of Wells Real Estate Investment Trust II, Inc.s common stock and the volume of future acquisitions and dispositions of real estate
assets by Wells-sponsored programs. As of September 30, 2005 and December 31, 2004, WREF believes that it generates adequate cash flow from operations and has adequate liquidity available in the form of cash on hand and current receivables necessary
to meet its current and future obligations as they become due.



Dismissal of
Litigation Against Related Parties



During early 2004, a
putative class action complaint was filed against, among others, Leo. F. Wells, III and Wells Capital, our General Partners, and Wells Management (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil
Action No. 04-A-2791-2). The Court granted the plaintiffs motion to permit voluntary dismissal of this suit, and it was subsequently dismissed without prejudice. In November 2004, the same plaintiffs filed a second putative class action
complaint against, among others, Mr. Wells, Wells Capital, and Wells Management (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04A-13051-6). On January 28, 2005, the defendants filed
motions for summary judgment and motions to dismiss the plaintiffs claims. Pursuant to orders entered July 1, 2005, the Court granted the Wells defendants motions to dismiss and for summary judgment on all counts in the complaint. Thus,
this action has now been dismissed, subject to the plaintiffs right to file a notice of appeal within the required time period. On August 3, 2005, the plaintiffs filed a motion requesting the Court to vacate and re-enter the orders to give the
plaintiffs an opportunity to file a motion for reconsideration or notice of appeal. Both the plaintiffs and the defendants have filed briefs supporting their respective positions, and the plaintiffs motion is still pending before the Court.



Inflation



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



Application of Critical Accounting Policies



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



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



Investment in Real Estate Assets



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



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



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



Valuation of Real Estate Assets



We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which we have an ownership interest,
either directly or through investments in the Joint Ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the
recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In
the event that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. We have determined that there has been no impairment in the
carrying value of any of the real estate assets held as of September 30, 2005.



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



Potential Tax Impact on Limited Partners Holding Class B UnitsAmerican Jobs Creation Act of 2004



The American Jobs Creation Act of 2004 (the Act) added Section 470 to the
Internal Revenue Code, which provides certain limitations on the utilization of losses allocable to leased property owned by a partnership having both taxable and tax-exempt partners such as the Partnership. In March 2005, the Internal Revenue
Service issued IRS Notice 2005-29 announcing that the IRS would not be applying Section 470 to partnerships for taxable year 2004 based solely on the fact that a partnership had both taxable and tax-exempt partners; however, it is important to note
that IRS Notice 2005-29 provided relief for partnerships for taxable year 2004 only. Although the IRS has indicated that it is continuing to study the application of Section 470 to partnerships, such as the Partnership, unless Congress passes
legislation which addresses this issue or some other form of relief from the provisions of Section 470 of the Act is granted, beginning in taxable year 2005 and thereafter, passive losses allocable to limited partners holding Class B Units may only
be used to offset passive income generated from the same property or within the same fund.



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Subsequent Event



Purchase and Sale Agreement



On November 8, 2005, Fund VII-VIII Associates entered into a purchase and sale agreement to sell the CH2M Hill Building for a gross sales price of $8,200,000, excluding
closing costs, to an unaffiliated third party. The closing of this transaction is expected to occur during the fourth quarter of 2005. The completion of this transaction is currently subject to, among other things, a due diligence period expiring on
November 17, 2005. Accordingly, there are no assurances that this sale will be completed.



ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



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



ITEM 4.    CONTROLS AND PROCEDURES



We carried out an evaluation, under the supervision and with the participation of management of Wells Capital, the corporate general partner of one of our General Partners, including the Principal Executive Officer and Principal Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation,
the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that
information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including
providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.



There
were no significant changes in our internal control over financial reporting during the quarter ended September 30, 2005 that have materially affected, or are likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II.    OTHER INFORMATION



ITEM 1.    LEGAL PROCEEDINGS



We were not involved in any material legal proceedings during the quarter ended September 30, 2005 requiring disclosure under Item 103 of Regulation S-K.



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



|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended September 30, 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



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



|(c) | We did not redeem any securities during the quarter ended September 30, 2005.
|--- | -----------------------------------------------------------------------------



ITEM 3.    DEFAULTS UPON SENIOR SECURITIES



We were not subject to any indebtedness, and therefore, we did not default respect to any indebtedness during the quarter ended September 30, 2005.



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



No matters were submitted to a vote of our limited partners during the quarter ended September 30, 2005.



ITEM 5.    OTHER INFORMATION



|(a) | During the quarter ended September 30, 2005, there was no information which was required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



ITEM 6.    EXHIBITS



The
Exhibits to this report are set forth on Exhibit Index to Third Quarter Form 10-Q attached hereto.



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##### Table of Contents

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 VII, L.P.                                                
|                  |  |  |  | (Registrant)                                                                    
|                  |  | 
|                  |  |  |  | By: WELLS PARTNERS, L.P.                                                        
|                  |  |  |  | (General Partner)                                                               
|                  |  | 
|                  |  |  |  | By: WELLS CAPITAL, INC.                                                         
|                  |  |  |  | (Corporate General Partner)                                                     
|                  |  | 
|November 14, 2005 |  |  |  | /s/    LEO F. WELLS, III                                                        
|                  |  |  |  | Leo F. Wells, III                                                               
|                  |  |  |  | President, Principle Executive Officer, and Sole Director of Wells Capital, Inc.
|                  |  | 
|November 14, 2005 |  |  |  | /s/    DOUGLAS P. WILLIAMS                                                      
|                  |  |  |  | Douglas P. Williams                                                             
|                  |  |  |  | Principal Financial Officer of Wells Capital, Inc.                              



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##### Table of Contents

EXHIBIT INDEX



TO THIRD QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND VII, L.P.



|            |  |                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                
|            | 
|10.1        |  | Purchase and Sale Agreement for sale of CH2MHill Building                                                                                                                                                                                                                                                                                                  
|            | 
|10.2        |  | Second Amendment to Lease Agreement with American Express Travel Related Services, Inc. for a portion of the BellSouth Building (previously filed with the Commission as Exhibit 10.1 to the
Form 10-Q of Wells Real Estate Fund VI, L.P. for the period ending September 30, 2005, Commission File No. 0-23656, and hereby incorporated by this reference)
|            | 
|31.1        |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                     
|            | 
|31.2        |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                     
|            | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                             



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