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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 June 30, 2004 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                         



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



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



Yes  x     No ̈



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



Yes ̈No  x



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



Certain statements contained in this Form 10-Q of Wells Real Estate Fund 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. Some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in certain forward-looking statements follow:



General economic risks



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



| |  |  | Adverse economic conditions affecting the particular industry of one or more of our tenants.
| | - |  | --------------------------------------------------------------------------------------------



Real estate risks inherent in properties owned through joint ventures



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



| |  |  | 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;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Potential need to fund tenant improvements, lease-up costs, or other capital expenditures out of operating cash flow;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



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



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| |  |  | 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;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Unexpected costs of capital expenditures related to tenant build-out projects or other unforeseen capital expenditures;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Ability to sell a property when desirable at an acceptable return, including the ability of the purchaser to satisfy any continuing obligations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



Other operational risks



| |  |  | Our dependency on Wells Capital, Inc. (Wells Capital), the corporate general partner of one of our General Partners, its key personnel, and its affiliates for various
administrative services;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | Changes in governmental, tax, real estate, environmental, and zoning laws and regulations and the related costs of compliance;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to prove compliance with any governmental, tax, real estate, environmental, and zoning in the event that any such position is questioned by the respective authority; 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June 30, 2004 (unaudited) and December 31, 2003                                                          |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Six Months Ended June 30, 2004 (unaudited) and 2003 (unaudited)       |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2003 and the Six Months Ended June 30, 2004 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Six Months Ended June 30, 2004 (unaudited) and 2003 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                     |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Conditions and Results of Operations                                  |  | 14      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risks                                                             |  | 21      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                 |  | 21      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  | 22                                                                                                                     



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WELLS REAL ESTATE FUND VII, L.P.



BALANCE SHEETS



ASSETS

|                                                                                                                |  |                           |            |                  |   |           
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ---------------- | - | ----------
|                                                                                                                |  | June 30, 2004 (unaudited) |            | December 31,2003
|Investments in joint ventures                                                                                   |  | $                         | 10,293,962 |                  | $ | 13,397,571
|Cash and cash equivalents                                                                                       |  |                           | 4,637,500  |                  |   | 1,078,108 
|Due from joint ventures                                                                                         |  |                           | 379,843    |                  |   | 407,105   
|Other assets                                                                                                    |  |                           | 14,466     |                  |   | 0         
|                                                                                                                |  |                           |            |                  |   |           
|Total assets                                                                                                    |  | $                         | 15,325,771 |                  | $ | 14,882,784
|                                                                                                                |  |                           |            |                  |   |           
|                                                                                                               
|LIABILITIES AND PARTNERS CAPITAL                                                                              
|Liabilities:                                                                                                    |  |                           |            |                  |   |           
|Accounts payable and accrued expenses                                                                           |  | $                         | 21,657     |                  | $ | 13,623    
|Partnership distributions payable                                                                               |  |                           | 156,550    |                  |   | 368,497   
|                                                                                                                |  |                           |            |                  |   |           
|Total liabilities                                                                                               |  |                           | 178,207    |                  |   | 382,120   
|                                                                                                                |  |                          
|Partners capital:                                                                                              |  |                           |            |                  |   |           
|Limited partners:                                                                                               |  |                           |            |                  |   |           
|Class A2,113,647 units and 2,105,697 units outstanding as of June 30, 2004 and December 31, 2003, respectively |  |                           | 14,479,031 |                  |   | 14,500,664
|Class B304,370 units and 312,320 units outstanding as of June 30, 2004 and December 31, 2003, respectively     |  |                           | 668,533    |                  |   | 0         
|General partners                                                                                                |  |                           | 0          |                  |   | 0         
|                                                                                                                |  |                           |            |                  |   |           
|Total partners capital                                                                                         |  |                           | 15,147,564 |                  |   | 14,500,664
|                                                                                                                |  |                           |            |                  |   |           
|Total liabilities and partners capital                                                                         |  | $                         | 15,325,771 |                  | $ | 14,882,784
|                                                                                                                |  |                           |            |                  |   |           



See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|------------------------------------------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                                                      |  | Three Months Ended June 30, |           | Six Months Ended June 30,
|                                                                                      |  | 2004                        |           | 2003                      |   | 2004      |  | 2003
|EQUITY IN INCOME OF JOINT VENTURES (Note 2)                                           |  | $                           | 1,514,063 |                           | $ | 270,684   |  | $    | 1,783,147 |  | $ | 515,273  
|                                                                                      |  |                             |           |                          
|EXPENSES:                                                                             |  |                             |           |                           |   |           |  |      |           |  |   |          
|Partnership administration                                                            |  |                             | 51,792    |                           |   | 23,976    |  |      | 73,585    |  |   | 42,402   
|Legal and accounting                                                                  |  |                             | 9,345     |                           |   | 4,496     |  |      | 16,198    |  |   | 8,799    
|Other general and administrative                                                      |  |                             | 798       |                           |   | 2,268     |  |      | 1,191     |  |   | 3,682    
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|Total expenses                                                                        |  |                             | 61,935    |                           |   | 30,740    |  |      | 90,974    |  |   | 54,883   
|                                                                                      |  |                             |           |                          
|OTHER INCOME                                                                          |  |                             | 598       |                           |   | 2,761     |  |      | 2,768     |  |   | 4,420    
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|NET INCOME                                                                            |  | $                           | 1,452,726 |                           | $ | 242,705   |  | $    | 1,694,941 |  | $ | 464,810  
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS                                      |  | $                           | 784,192   |                           | $ | 242,705   |  | $    | 554,524   |  | $ | 464,810  
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS                                      |  | $                           | 668,534   |                           | $ | 0         |  | $    | 1,140,417 |  | $ | 0        
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|NET INCOME PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT:                                 |  |                             |           |                           |   |           |  |      |           |  |   |          
|CLASS A                                                                               |  | $                           | 0.37      |                           | $ | 0.12      |  | $    | 0.26      |  | $ | 0.22     
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|CLASS B                                                                               |  | $                           | 2.20      |                           | $ | 0.00      |  | $    | 3.74      |  | $ | 0.00     
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|DISTRIBUTION OF OPERATING CASH PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT:             |  |                             |           |                           |   |           |  |      |           |  |   |          
|CLASS A                                                                               |  | $                           | 0.07      |                           | $ | 0.18      |  | $    | 0.15      |  | $ | 0.35     
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|CLASS B                                                                               |  | $                           | 0.00      |                           | $ | 0.00      |  | $    | 0.00      |  | $ | 0.00     
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|DISTRIBUTION OF NET PROPERTY SALE PROCEEDS PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT: |  |                             |           |                           |   |           |  |      |           |  |   |          
|CLASS A                                                                               |  | $                           | 0.00      |                           | $ | 0.00      |  | $    | 0.12      |  | $ | 0.00     
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|CLASS B                                                                               |  | $                           | 0.00      |                           | $ | 0.00      |  | $    | 1.55      |  | $ | 0.00     
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:                                   |  |                             |           |                           |   |           |  |      |           |  |   |          
|CLASS A                                                                               |  |                             | 2,113,647 |                           |   | 2,099,947 |  |      | 2,113,247 |  |   | 2,098,747
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          
|CLASS B                                                                               |  |                             | 304,370   |                           |   | 318,070   |  |      | 304,770   |  |   | 319,270  
|                                                                                      |  |                             |           |                           |   |           |  |      |           |  |   |          



See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF PARTNERS CAPITAL



FOR THE
YEAR ENDED DECEMBER 31, 2003

AND THE SIX MONTHS ENDED JUNE 30, 2004 (unaudited)



|                                                  |  |                  |  |         |                  |   |                         |         |   |         |   |           |   |  |   |   |  |   |            |  
|------------------------------------------------- |  | ---------------- |  | ------- | ---------------- | - | ----------------------- | ------- | - | ------- | - | --------- | - |  | - | - |  | - | ---------- | -
|                                                  |  | Limited Partners |  |         | General Partners |   | Total Partners Capital |        
|                                                  |  | Class A          |  |         | Class B          |   |                         |        
|                                                  |  | Units            |  | Amounts |                  |   | Units                   |         |   | Amounts |   |           |  
|BALANCE, December 31, 2002                        |  | 2,092,547        |  | $       | 14,932,843       |   |                         | 325,470 |   |         | $ | 0         |   |  | $ | 0 |  | $ | 14,932,843 |  
|                                                  |  |                  |  |         |                  |  
|Net income                                        |  | 0                |  |         | 1,039,461        |   |                         | 0       |   |         |   | 0         |   |  |   | 0 |  |   | 1,039,461  |  
|Distributions of operating cash flow              |  | 0                |  |         | (1,471,640       | ) |                         | 0       |   |         |   | 0         |   |  |   | 0 |  |   | (1,471,640 | )
|Class B conversion elections                      |  | 13,150           |  |         | 0                |   |                         | (13,150 | ) |         |   | 0         |   |  |   | 0 |  |   | 0          |  
|                                                  |  |                  |  |         |                  |   |                         |         |   |         |   |           |   |  |   |   |  |   |            |  
|BALANCE, December 31, 2003                        |  | 2,105,697        |  |         | 14,500,664       |   |                         | 312,320 |   |         |   | 0         |   |  |   | 0 |  |   | 14,500,664 |  
|                                                  |  |                  |  |         |                  |  
|Net income                                        |  | 0                |  |         | 554,524          |   |                         | 0       |   |         |   | 1,140,417 |   |  |   | 0 |  |   | 1,694,941  |  
|Partnership distributions of operating cash flows |  | 0                |  |         | (313,040         | ) |                         | 0       |   |         |   | 0         |   |  |   | 0 |  |   | (313,040   | )
|Distributions of net sales proceeds               |  | 0                |  |         | (263,117         | ) |                         | 0       |   |         |   | (471,884  | ) |  |   | 0 |  |   | (735,001   | )
|Class B conversion elections                      |  | 7,950            |  |         | 0                |   |                         | (7,950  | ) |         |   | 0         |   |  |   | 0 |  |   | 0          |  
|                                                  |  |                  |  |         |                  |   |                         |         |   |         |   |           |   |  |   |   |  |   |            |  
|BALANCE, June 30, 2004                            |  | 2,113,647        |  | $       | 14,479,031       |   |                         | 304,370 |   |         | $ | 668,533   |   |  | $ | 0 |  | $ | 15,147,564 |  
|                                                  |  |                  |  |         |                  |   |                         |         |   |         |   |           |   |  |   |   |  |   |            |  



See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                           |            |   |      |   |           |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ---------- | - | ---- | - | --------- | -
|                                                                                  |  | Six Months Ended June 30, |           
|                                                                                  |  | 2004                      |            |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                           |            |   |      |   |           |  
|Net income                                                                        |  | $                         | 1,694,941  |   |      | $ | 464,810   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |            |   |      |   |           |  
|Equity in income of joint ventures                                                |  |                           | (1,783,147 | ) |      |   | (515,273  | )
|Operating distributions received from joint ventures                              |  |                           | 748,493    |   |      |   | 981,970   |  
|Changes in operating assets and liabilities:                                      |  |                           |            |   |      |   |           |  
|Other assets                                                                      |  |                           | (14,466    | ) |      |   | 0         |  
|Accounts payable and accrued expenses                                             |  |                           | 8,034      |   |      |   | (553      | )
|                                                                                  |  |                           |            |   |      |   |           |  
|Total adjustments                                                                 |  |                           | (1,041,086 | ) |      |   | 466,144   |  
|                                                                                  |  |                           |            |   |      |   |           |  
|Net cash provided by operating activities                                         |  |                           | 653,855    |   |      |   | 930,954   |  
|                                                                                  |  |                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                           |            |   |      |   |           |  
|Investments in joint ventures                                                     |  |                           | (332,571   | ) |      |   | 0         |  
|Net sale proceeds received from joint ventures                                    |  |                           | 4,498,096  |   |      |   | 0         |  
|                                                                                  |  |                           |            |   |      |   |           |  
|Net cash provided by investing activities                                         |  |                           | 4,165,525  |   |      |   | 0         |  
|                                                                                  |  |                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                           |            |   |      |   |           |  
|Net sales proceeds distributions paid to limited partners                         |  |                           | (735,001   | ) |      |   | 0         |  
|Operating distributions paid to limited partners                                  |  |                           | (524,987   | ) |      |   | (759,425  | )
|                                                                                  |  |                           |            |   |      |   |           |  
|Net cash used in financing activities                                             |  |                           | (1,259,988 | ) |      |   | (759,425  | )
|                                                                                  |  |                          
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                           | 3,559,392  |   |      |   | 171,529   |  
|                                                                                  |  |                          
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                           | 1,078,108  |   |      |   | 993,780   |  
|                                                                                  |  |                           |            |   |      |   |           |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                         | 4,637,500  |   |      | $ | 1,165,309 |  
|                                                                                  |  |                           |            |   |      |   |           |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:           |  |                           |            |   |      |   |           |  
|Partnership distributions payable                                                 |  | $                         | 156,550    |   |      | $ | 367,491   |  
|                                                                                  |  |                           |            |   |      |   |           |  



See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



CONDENSED NOTES TO FINANCIAL STATEMENTS



JUNE
30, 2004 (unaudited)



|1. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------



|(a) |  | Organization and Business
|--- |  | -------------------------



Wells Real Estate Fund VII, L.P. (the Partnership) is a public limited partnership organized on December 1, 1992 under the laws of the state of Georgia. The
general partners are Leo F. Wells, III and Wells Partners, L.P. (Wells Partners), a Georgia nonpublic limited partnership (collectively, the General Partners). Upon subscription, limited partners elect to have their units
treated as either 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 or Class B Units one time during each quarterly 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) 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 terminated its offering on January 5, 1995 upon receiving gross proceeds of $24,180,174 representing subscriptions for approximately 1,678,810 Class A Units
and 739,207 Class B Units.



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 eight properties through the affiliated joint ventures listed below (the
Joint Ventures):



|                                                                           |  |                                                                                                                                           |  |                                                                                                                                                                                            
|-------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 A three-story office building located in Appleton, Wisconsin                                                                                                          
|Fund VI and Fund VII Associates (Fund VI-Fund VII Associates)            |  |    Wells Real Estate Fund VI,
L.P.    Wells Real Estate Fund VII, L.P.                                                                  |  | 3. Stockbridge Village III(3) Two retail buildings located in
Stockbridge, Georgia 4. Stockbridge Village I Expansion(3) A retail shopping center expansion located in Stockbridge,
Georgia
|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 A retail center in Clemmons, North Carolina                                      



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|                                                               |  |                                                                            |  |                                                                                                                                               
|-------------------------------------------------------------- |  | -------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                  |  | Joint Venture Partners                                                     |  | Properties                                                                                                                                    
|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(2) A retail center located in Stockbridge, Georgia 8. CH2M Hill Property An office building located in
Gainesville, Florida



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

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

|(3) |  | These properties were sold in April 2004.
|--- |  | -----------------------------------------



Each of the aforementioned properties was
acquired on an all-cash basis. The investment objectives of each of the joint venture partners listed in the above table are substantially identical to those of the Partnership. Approval of the other joint venture partners is required for any major
decision or any action that would materially affect the Joint Ventures, or their real property investments. For further information regarding the Joint Ventures and foregoing properties, refer to the report filed for the Partnership on Form 10-K for
the year ended December 31, 2003.



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 I Expansion, Stockbridge Village III, and Hannover Center, to an unrelated third party for a gross sales price of
$23,750,000. As a result of the sale of Stockbridge Village I Expansion, net proceeds of approximately $2,300,000, and a gain of approximately $944,000 have been allocated to the Partnership. As a result of the sale of Stockbridge Village III, net
proceeds of approximately $1,600,000, and a gain of approximately $237,000 have been allocated to the Partnership. As a result of the sale of the Hannover Center, net proceeds of approximately $624,000, and a gain of approximately $168,000 have been
allocated to the Partnership.



|(b) |  | 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 accounting principles generally accepted in the United States
(GAAP) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly
present the results for 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, 2003.



|(c) |  | 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, amortization, and cost recovery and the gain on the sale of assets. Net income, as defined, of the Partnership is generally allocated each year in the same proportions that net cash from operations is distributed to the limited
partners holding Class A Units and the General Partners. To the extent the Partnerships net income in any year exceeds net cash from operations, it will be allocated 99% to the limited partners and 1% to the General Partners.



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



Gains on the sale or exchange of the
Partnerships properties will be allocated generally in the same manner that the net proceeds from such sale are distributed to partners after the following allocations are made, if applicable: (a) allocations made pursuant to a qualified
income offset provision in the partnership agreement; (b) allocations to partners having negative 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 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; 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.



|(d) |  | Distribution of Net Cash From Operations
|--- |  | ----------------------------------------



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



|(e) |  | Distribution of Sales Proceeds
|--- |  | ------------------------------



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



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



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



| |  |  | To limited partners, on a per-unit basis, until each limited partner has received 100% of his adjusted capital contributions, as defined;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners until each limited partner has received a cumulative 10% per annum return on his adjusted capital contributions, as defined;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners on a per-unit basis until each limited partner has received an amount equal to his 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);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | To the General Partners until they have received 100% of their 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(f) |  | Reclassifications
|--- |  | -----------------



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



|2. |  | INVESTMENT IN JOINT VENTURES
|-- |  | ----------------------------



|(a) |  | Basis of Presentation
|--- |  | ---------------------



The Partnership owned interests in eight properties during the periods presented through its ownership in the Joint Ventures. The Partnership does not have control over
the operations of the Joint Ventures; however, it does exercise significant influence. Approval of 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, investments in the Joint Ventures are recorded using the equity method of accounting. For further information, refer to the financial statements and footnotes included in the
Partnerships Form 10-K for the year ended December 31, 2003.



|(b) |  | Summary of Operations
|--- |  | ---------------------



The following information summarizes the operations of the Joint Ventures for the three months and six months ended June 30, 2004 and 2003, respectively:



|                              |  |                             |           |                                  |   |                                    |  |                             |         |      |   |         |  |      |           |      |   |         |  |   |           |  |   |          
|----------------------------- |  | --------------------------- | --------- | -------------------------------- | - | ---------------------------------- |  | --------------------------- | ------- | ---- | - | ------- |  | ---- | --------- | ---- | - | ------- |  | - | --------- |  | - | ---------
|                              |  | Total Revenues              |           | Income FromContinuing Operations |   | Income FromDiscontinued Operations |  | Net Income                 
|                              |  | Three Months Ended June 30, |           | Three Months EndedJune 30,       |   | Three Months Ended June 30,        |  | Three Months Ended June 30,
|                              |  | 2004                        |           | 2003                             |   | 2004                               |  | 2003                        |         | 2004 |   | 2003    |  | 2004 |           | 2003
|Fund II-III-VI-VII Associates |  | $                           | 0         |                                  | $ | 0                                  |  | $                           | 0       |      | $ | 0       |  | $    | 113,344   |      | $ | 18,529  |  | $ | 113,344   |  | $ | 18,529   
|Fund V-VI-VII Associates      |  |                             | 206,431   |                                  |   | 242,701                            |  |                             | 81,784  |      |   | 144,325 |  |      | 0         |      |   | 0       |  |   | 81,784    |  |   | 144,325  
|Fund VI-VII Associates        |  |                             | 0         |                                  |   | 0                                  |  |                             | 0       |      |   | 0       |  |      | 2,117,336 |      |   | 157,303 |  |   | 2,117,336 |  |   | 157,303  
|Fund VI-VII-VIII Associates   |  |                             | 727,301   |                                  |   | 704,521                            |  |                             | 218,813 |      |   | 259,935 |  |      | 0         |      |   | 0       |  |   | 218,813   |  |   | 259,935  
|Fund VII-VIII Associates      |  |                             | 223,899   |                                  |   | 258,575                            |  |                             | 23,291  |      |   | 32,851  |  |      | 470,636   |      |   | 42,230  |  |   | 493,927   |  |   | 75,081   
|                              |  |                             |           |                                  |   |                                    |  |                             |         |      |   |         |  |      |           |      |   |         |  |   |           |  |   |          
|                              |  | $                           | 1,157,631 |                                  | $ | 1,205,797                          |  | $                           | 323,888 |      | $ | 437,111 |  | $    | 2,701,316 |      | $ | 218,062 |  | $ | 3,025,204 |  | $ | 655,173  
|                              |  |                             |           |                                  |   |                                    |  |                             |         |      |   |         |  |      |           |      |   |         |  |   |           |  |   |          
|                              |  |                             |           |                                 
|                              |  | Total Revenues              |           | Income FromContinuing Operations |   | Income FromDiscontinued Operations |  | Net Income                 
|                              |  | Six Months Ended June 30,   |           | Six Months Ended June 30,        |   | Six Months Ended June 30,          |  | Six Months Ended June 30,  
|                              |  | 2004                        |           | 2003                             |   | 2004                               |  | 2003                        |         | 2004 |   | 2003    |  | 2004 |           | 2003
|Fund II-III-VI-VII Associates |  | $                           | 0         |                                  | $ | 0                                  |  | $                           | 0       |      | $ | 0       |  | $    | 207,722   |      | $ | 28,927  |  | $ | 207,722   |  | $ | 28,927   
|Fund V-VI-VII Associates      |  |                             | 412,858   |                                  |   | 485,737                            |  |                             | 155,722 |      |   | 283,321 |  |      | 0         |      |   | 0       |  |   | 155,722   |  |   | 283,321  
|Fund VI-VII Associates        |  |                             | 0         |                                  |   | 0                                  |  |                             | 0       |      |   | 0       |  |      | 2,267,603 |      |   | 290,710 |  |   | 2,267,603 |  |   | 290,710  
|Fund VI-VII-VIII Associates   |  |                             | 1,446,075 |                                  |   | 1,419,101                          |  |                             | 450,348 |      |   | 500,935 |  |      | 0         |      |   | 0       |  |   | 450,348   |  |   | 500,935  
|Fund VII-VIII Associates      |  |                             | 475,771   |                                  |   | 535,335                            |  |                             | 64,053  |      |   | 85,834  |  |      | 512,825   |      |   | 63,621  |  |   | 576,878   |  |   | 149,455  
|                              |  |                             |           |                                  |   |                                    |  |                             |         |      |   |         |  |      |           |      |   |         |  |   |           |  |   |          
|                              |  | $                           | 2,334,704 |                                  | $ | 2,440,173                          |  | $                           | 670,123 |      | $ | 870,090 |  | $    | 2,988,150 |      | $ | 383,258 |  | $ | 3,658,273 |  | $ | 1,253,348
|                              |  |                             |           |                                  |   |                                    |  |                             |         |      |   |         |  |      |           |      |   |         |  |   |           |  |   |          



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



|(a) |  | Management and Leasing Fees
|--- |  | ---------------------------



Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners, receives compensation for the management and leasing of the
Partnerships properties owned through the Joint Ventures equal to (a) of the gross revenues collected monthly, 3% of the gross revenues for management and 3% of the gross revenues for leasing (aggregate maximum of 6%) plus a separate fee for
the one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties or (b) in the case
of commercial properties which are leased on a long-term net basis (ten or more years), 1% of the gross revenues except for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term. The Partnerships
share of management and leasing fees and lease acquisition costs incurred through the Joint Ventures was $35,089 and $48,544 for the three months ended June 30, 2004 and 2003, respectively, and $79,733 and $86,147 for the six months ended June 30,
2004 and 2003, respectively.



|(b) |  | Administration Reimbursements
|--- |  | -----------------------------



Wells Capital, the general partner of Wells Partners, one of our General Partners, and its affiliates perform certain administrative services for the Partnership, such as
accounting, property management, and other partnership administration, and incur the related expenses. Such expenses are allocated among various other entities affiliated with the General Partners (the Wells Real Estate Funds) based on
time spent on each fund by individual administrative personnel. In the opinion of management, this allocation is a reasonable estimation of such expenses. The Partnership reimbursed Wells Capital $33,387 and $13,803 for the three months ended June
30, 2004 and 2003, respectively, and $51,902 and $27,153 for the six months ended June 30, 2004 and 2003, respectively, for these services and expenses.



|(c) |  | Conflicts of Interest
|--- |  | ---------------------



The General Partners are also general partners of other Wells Real Estate Funds. As such, there may exist conflicts of interest where the General Partners in their
capacity as general partners of other Wells Real Estate Funds may be in competition with the Partnership for tenants in similar geographic markets.



|4. |  | SUBSEQUENT EVENT
|-- |  | ----------------



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.



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As a result of the sale of the Holcomb Bridge Property, the Partnership received net sale proceeds of approximately
$3,478,000, recognized an immediate gain of approximately $943,000, and recorded a deferred gain of approximately $81,000. The deferred gain represents the Partnerships pro rata allocation of maximum exposure under an eighteen-month rental
guarantee provided to the purchaser in connection with the sale. Gain on the sale of the Holcomb Bridge Property may be adjusted as additional information becomes available in subsequent periods.



|5. |  | CONTINGENCIES
|-- |  | -------------



By Order dated June 3, 2004, the Superior Court of Gwinnett County, Georgia, dismissed, without prejudice, the putative class action complaint filed on or about March 12, 2004 against Leo F. Wells, III, Wells Capital,
and certain affiliates of Wells Capital relating to Wells Real Estate Fund I, an affiliate of the General Partners (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04-A-2791 2).



|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.



|(a) |  | Overview
|--- |  | --------



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



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

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



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

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



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

The period during which real
estate assets are owned and operated by the Partnership during the initial lease terms of the tenants



| |  |  | 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.



| |  |  | Disposition and Liquidation phase
| | - |  | ---------------------------------

The period
during which the Partnership sells its real estate investments and distributes net sales proceeds to the partners



Portfolio Overview



The Partnership has moved from the positioning-for-sale phase into the disposition and liquidation phase of its life cycle. We have now sold five assets, including the
recent sales of the three Stockbridge Village properties



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(including Hannover Center), and the Holcomb Bridge Property, which was sold after the close of the quarter. Our focus on
the remaining assets involves re-leasing and marketing efforts that we believe will result in the best disposition pricing for our investors.



Two recent sale transactions were highlights for the Partnership. The three Stockbridge Village properties (including Hannover Center) were sold on April 29, 2004, and
the Holcomb Bridge Property was sold on July 1, 2004. These sales capitalized on the current strong investor demand for retail shopping centers in the market. We have secured 100% occupancy at the Marathon Building through two long-term leases,
placing this asset in a stable condition. We made our first distribution of net sale proceeds in January 2004 to limited partners, totaling approximately $735,000. We also have announced the next net sale proceeds distribution to limited partners,
scheduled for the fourth quarter 2004, totaling $4,213,000, from the sales of the Tanglewood Commons outparcel, Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center properties.



The second quarter 2004 operating distributions to the Class A unit holders were 3.0%,
consistent with the prior quarter, as a result of the free rent periods at the Marathon Building. The General Partners anticipate that operating distributions may decline in the near term, particularly given that operating cash flow will be
decreased with the recent property sales, the near-term free rent periods at Marathon, and potential capital expenditures at the CH2M Hill Property. As 2004 progresses, the General Partners will evaluate if further distributions of net sale proceeds
are appropriate.



As of June 30, 2004, current Class A unit holders have
received cumulative net operating cash flows of approximately $15.1 million, as compared to approximately $21.1 million originally invested, or approximately 72% of the dollars invested since inception. No operating distributions have been made to
investors holding Class B units or to the General Partners, in line with the partnership agreement.



Property Summary



| |  |  | The Holcomb Bridge Property was sold on July 1, 2004, and approximately $3,478,000 in net sales proceeds has been allocated to the Partnership. The General Partners are reviewing
potential capital costs for the Partnership to determine if all, or a portion, of these net sales proceeds can be distributed in 2005.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The BellSouth Building in Jacksonville, Florida, is currently 100% leased. Leases for both tenants of the building expire in 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Cherokee Commons property was sold in 2001 and approximately $886,000 of the net sales proceeds was allocated to the Partnership. Approximately $151,000 has been used to fund
the Partnerships pro rata share of operating expenses and re-leasing costs at the Marathon Building. The remaining net sales proceeds of approximately $735,000 were distributed to the limited partners in January 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CH2M Hill Property, located in Gainesville, Florida, is approximately 92% leased to a single tenant. This lease expires in November 2005.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Marathon Building is 100% leased, with a new seven-year lease to Marathon for approximately 44,000 square feet, and a 10-year lease to Virchow Krause for approximately 27,000
square feet. Each of these leases included a free rent period, which extends through July 2004 and December 2004, respectively. The Marathon Building is expected to begin providing positive cash flow later this year once the Marathon free rent
period has expired.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center properties were sold on April 29, 2004, and approximate net sales proceeds of $1,606,000,
$2,268,000, and $624,000, respectively, have been allocated to the Partnership from these sales. The General Partners have reviewed the capital
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | costs anticipated for the Partnership and determined that approximately $4,164,000 of the total $4,498,000 of net sales proceeds from these assets can be distributed, which is
scheduled for the fourth quarter 2004. The remaining approximate $334,000 will be reserved to fund capital costs at the CH2M Hill Property.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Tanglewood Commons shopping center continues to be well occupied at approximately 99%. The Partnership sold a land outparcel at Tanglewood Commons in 2002, resulting in an
allocation of net sales proceeds of approximately $175,000 to the Partnership. Approximately $126,000 of these net sales proceeds has been used to fund the Partnerships pro rata share of operating expenses and re-leasing costs at the Marathon
Building. The remaining approximate $49,000 will be distributed as part of the net sales proceeds distribution scheduled for the fourth quarter 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the positioning-for-sale 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 we move further into the disposition and liquidation phase, our attention will shift to locating suitable buyers, 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 buyer.



Industry Factors



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



General Economic and Real Estate Market Commentary



The U.S. economy appears to be on the road to recovery. The economy has shown signs of growth recently, as companies have recommenced making investments in new employees. Job growth is the most significant demand
driver for office markets. Market fundamentals are improving, and new office jobs are slowly being created. In general, the real estate office market lags behind the overall economic recovery and, therefore, recovery is not expected until late 2004
or 2005 at the earliest, and then will vary by market.



Overall, real estate market fundamentals are weak; however, capital continues to flow into this asset class. The increase in capital drives the prices of many properties upward and investor returns downward. There is a significant pricing
differential in the underwriting parameters of well-leased assets with credit tenants and those with either existing vacancies or substantial near-term tenant rollover. Properties with long-term leases to strong credit tenants have seen an increase
in value.



The office market has significant excess space.
Vacancy levels are believed to have peaked and are expected to trend downward moderately through the end of 2004. There is some encouraging news in that construction continues to taper off and has come to a complete halt in many markets. As a result
of the slowdown in new construction and the modest decline in sublease space, net absorption has turned positive. Many industry professionals believe office market fundamentals have bottomed-out; however, a recovery cannot be expected until job
growth and corresponding demand for office space continue to increase.



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



Real estate funds, such as the Partnership, that invest in properties with current vacancies or near-term tenant rollover may face a challenging leasing
environment. In connection with re-leasing vacant space, the properties within these funds will encounter lower market rental rates and higher concession packages to tenants.



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##### Table of Contents

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



|(b) |  | Results of Operations
|--- |  | ---------------------



Equity in Income of Joint Ventures



Equity in income of the Joint Ventures was $1,514,063 and $270,684 for the three months ended June 30, 2004 and 2003, respectively, and $1,783,147 and $515,273 for the
six months ended June 30, 2004 and 2003, respectively. The 2004 increases are primarily attributable to (i) the gains recognized on the sales of Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center, (ii) an increase in
occupancy of the Holcomb Bridge Property, partially offset by (iii) lower income from the Marathon Building resulting from lower rental rates on the new leases which were effective January 2004, (iv) increased legal costs associated with the
negotiation of the new leases for the Marathon Building, (v) increased depreciation expense as a result of placing tenant improvements into service at the Marathon Building during in the first quarter of 2004, and (vi) an increase in building
expenses related to landscaping and HVAC repairs for the BellSouth Building.



Expenses of the Partnership



Total expenses of the
Partnership were $61,935 and $30,740 for the three months ended June 30, 2004 and 2003, respectively, and $90,974 and $54,883 for the six months ended June 30, 2004 and 2003, respectively. The 2004 increases are primarily due to administrative
salaries, accounting fees, postage and delivery, and printing associated with increased reporting and regulatory requirements. We anticipate additional increases related to implementing and adhering to such reporting and regulatory requirements
going forward.



|(c) |  | Liquidity and Capital Resources
|--- |  | -------------------------------



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



Short-Term Liquidity



During the
six months ended June 30, 2004, we generated net operating cash flows, including distributions received from the Joint Ventures, of approximately $654,000, as compared to approximately $931,000 for the six months ended June 30, 2003. Operating
distributions from the Joint Ventures are generally representative of rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures. Such operating cash flows
were used to pay operating distributions to limited partners.



Operating
distributions from the Joint Ventures have declined from prior years but remained relatively stable in 2004 as a result of (i) the Partnership absorbing its pro-rata portion of rent abatements at the Marathon Building through the end of 2004, and
(ii) the sales of properties in previous periods and are expected to continue to decline as we sell additional properties in subsequent periods. At this time, we expect to continue to generate cash flows



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##### Table of Contents

from operations, including distributions from the Joint Ventures, sufficient to cover our estimated future expenses but
may use net sales proceeds to fund large capital expenditures as necessary. 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.



During the six months ended June 30, 2004, the Partnership invested operating cash flows and net property sale proceeds of approximately $333,000 into Fund V-VI-VII Associates in order to fund capital expenditures at
the Marathon Building, recorded net proceeds from the sales of Stockbridge Village III, Stockbridge Village I Expansion, and the Hannover Center, and distributed net proceeds from the sale of Cherokee Commons to limited partners.



We believe that the cash on hand and distributions due from the Joint Ventures are sufficient
to cover the Partnerships working capital needs, including liabilities of approximately $178,000 as of June 30, 2004. During the remainder of 2004, the General Partners anticipate that the Partnership will fund its proportionate share of
capital expenditures for the CH2M Hill Property.



Long-Term Liquidity



We expect that our future sources of capital will be primarily
derived from operating cash flows generated from the Joint Ventures, and net proceeds generated from the selective and strategic sale of properties. Our future long-term liquidity requirements will include, but not be limited to, tenant
improvements, renovations, expansions, and other significant capital improvements necessary for properties owned through the Joint Ventures. Specifically, we anticipate funding the Partnerships proportionate share of the costs necessary to
re-lease approximately 90% of the CH2M Hill Property upon the November 2005 expiration of the CH2M Hill lease. We expect to continue to use substantially all future net cash flows from operations, including distributions received from the Joint
Ventures, less, expenses related to the recurring operations of the properties and the portfolio and reserves for known capital expenditures, to pay operating distributions to the limited partners.



Capital Resources



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



We incur capital expenditures primarily in the form of building improvements for the purpose of maintaining the quality of our properties,
and tenant improvements for the purpose of readying our properties for re-leasing. As leases expire, we typically attempt to re-lease space to an existing tenant or market the space to prospective new tenants. Generally, tenant improvements funded
in connection with lease renewals require less capital than those funded in connection with new leases. However, external conditions, such as the supply of and demand for comparable space available within a given market, drive capital costs as well
as rental rates.



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



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As of June 30, 2004, the Partnership had received, used, and held net proceeds from the sale of properties as presented
below:



|                                          |  |                    |           |                                      |        |                                           |   |                       |  |                                 |         |                                               |                                         |  |   |         |  |   |          
|----------------------------------------- |  | ------------------ | --------- | ------------------------------------ | ------ | ----------------------------------------- | - | --------------------- |  | ------------------------------- | ------- | --------------------------------------------- | --------------------------------------- |  | - | ------- |  | - | ---------
|Property Sold                             |  | Total Net Proceeds |           | PartnershipsApproximate Ownership % |        | Net ProceedsAttributable tothePartnership |   | Net Proceeds Invested |  | Distributed to Partners to date |         | Undistributed Net Proceedsas of June 30, 2004
|                                          |  |                    |           | Amount                               |        | Purpose                                   |   |                      
|Cherokee Commons(sold 2001)               |  | $                  | 8,414,089 |                                      | 10.9%  |                                           | $ | 886,212               |  | $                               | 151,211 |                                               | Re-leasing the Marathon Building (2004) |  | $ | 735,001 |  | $ | 0        
|Tanglewood CommonsOutparcel(sold 2002)    |  |                    | 524,398   |                                      | 33.4%  |                                           |   | 175,149               |  |                                 | 126,160 |                                               | Re-leasing the Marathon Building (2004) |  |   | 0       |  |   | 48,989   
|Stockbridge Village III (sold 2004)       |  |                    | 2,909,853 |                                      | 55.2%  |                                           |   | 1,606,248             |  |                                 | 0       |                                               |                                        |  |   | 0       |  |   | 1,606,248
|Stockbridge Village IExpansion(sold 2004) |  |                    | 4,108,277 |                                      | 55.2%  |                                           |   | 2,267,781             |  |                                 | 0       |                                               |                                        |  |   |         |  |   | 2,267,781
|Hannover Center (sold 2004)               |  |                    | 1,703,431 |                                      | 36.64% |                                           |   | 624,067               |  |                                 | 0       |                                               |                                        |  |   | 0       |  |   | 624,067  
|                                          |  |                    |           |                                      |        |                                           |   |                       |  |                                 |         |                                               |                                         |  |   |         |  |   |          
|Total                                     |  |                    |           |                                      |        |                                           | $ | 5,559,457             |  | $                               | 277,371 |                                               |                                         |  | $ | 735,001 |  | $ | 4,547,085
|                                          |  |                    |           |                                      |        |                                           |   |                       |  |                                 |         |                                               |                                         |  |   |         |  |   |          



Upon evaluating the capital needs of
the properties in which the Partnership currently holds an interest, the General Partners determined that reserves of net sale proceeds of approximately $334,000 will be required to fund the costs anticipated in connection with re-leasing the CH2M
Hill Property. The General Partners anticipate distributing residual net sales proceeds of approximately $4,213,000 in the fourth quarter of 2004 to the limited partners of record as of September 30, 2004, which under the terms of the partnership
agreement does not include limited partners acquiring their units after June 30, 2004.



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|(d) |  | Related-Party Transactions
|--- |  | --------------------------



The Partnership and the Joint Ventures have entered into agreements with Wells Capital and its affiliates, whereby the Partnership or the Joint Ventures pay certain fees
or reimbursements to Wells Partners, or its affiliates (e.g., property management and leasing fees, administrative salary reimbursements, etc.). See Note 3 to the Partnerships financial statements included in this report for a discussion of
the various related-party transactions, agreements, and fees.



|(e) |  | Inflation
|--- |  | ---------



The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. Most tenant leases include provisions designed to protect the lessor from the
impact of inflation and other increases in costs and operating expenses, including common area maintenance, real estate tax, and insurance reimbursements from tenants either on a per-square-foot basis, or above a certain allowance per-square-foot
annually. In addition, a number of the Partnerships leases are for remaining terms of less than five years, which may allow the Partnership to enter into new leases at higher base rental rates in the event that market rental rates rise above
the existing lease rates. There is no assurance, however, that the Partnership would be able to replace existing leases with new leases at higher base rental rates.



|(f) |  | Application of Critical Accounting Policies
|--- |  | -------------------------------------------



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



Below is a
discussion of the accounting policies that management considers to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. Additional discussion of accounting
policies that management considers to be significant, including further discussion of the critical accounting policies described below, is presented in Note 1 to the Partnerships financial statements included in this report.



Investment in Real Estate Assets



Management is required to make subjective assessments as to the useful lives of its
depreciable assets. Management considers 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             |  | 25 years                             
|Building improvements |  | Remaining useful life of the building
|Land improvements     |  | 20 years                             
|Tenant improvements   |  | Lease term                           



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In the event that management uses inappropriate useful lives or methods for depreciation, the Partnerships net
income would be misstated.



Valuation of Real Estate Assets



Management continually monitors events and changes in circumstances
that could indicate that the carrying amounts of the real estate assets in which the Partnership has 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. Management has determined that there has been no impairment in the carrying value of real estate assets held by the Partnership as of June 30, 2004.



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.



|(g) |  | Certain Litigation Involving our General Partners
|--- |  | -------------------------------------------------



By Order dated June 3, 2004, the Superior Court of Gwinnett County, Georgia, dismissed, without prejudice, the putative class action complaint filed on or about March 12,
2004 against Leo F. Wells, III, Wells Capital, and certain affiliates of Wells Capital relating to Wells Real Estate Fund I, an affiliate of the General Partners (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia,
Civil Action No. 04-A-2791 2).



|(h) |  | Subsequent Event
|--- |  | ----------------



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 $3,478,000, recognized an immediate gain of approximately $943,000, and recorded a deferred gain of approximately
$81,000. The deferred gain represents the Partnerships pro rata allocation of maximum exposure under an eighteen-month rental guarantee provided to the purchaser in connection with the sale. Gain on the sale of the Holcomb Bridge Property may
be adjusted as additional information becomes available in subsequent periods.



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



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



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



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



There were no significant changes in the Partnerships
internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.



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PART II.    OTHER INFORMATION



|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K
|------- |  | --------------------------------



|(a) |  | The Exhibits to this report are set forth on Exhibit Index to Second Quarter Form 10-Q attached hereto.
|--- |  | -------------------------------------------------------------------------------------------------------



|(b) |  | The Partnership filed the following Current Reports on Form 8-K during the second quarter of 2004:
|--- |  | --------------------------------------------------------------------------------------------------



| | (i) |  | On May 10, 2004, the Partnership filed a Current Report on Form 8-K dated April 29, 2004, reporting the sale of Stockbridge Village III, Stockbridge Village I Expansion and Hannover
Center; and
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | On June 24, 2004, the Partnership filed Amendment No. 1 to Current Report on Form 8-K/A dated April 29, 2004, providing the required financial statements relating to the sale of
Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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)                                             
|                |  | 
|August 12, 2004 |  |  |  | /s/    LEO F. WELLS, IIILeo F. Wells, III President                                             
|August 12, 2004 |  |  |  | /s/    DOUGLAS P. WILLIAMSDouglas P. Williams Principal Financial Officer of Wells Capital, Inc.



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EXHIBIT INDEX

TO

SECOND QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND VII, L.P.



|           |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                                                                                                                                        
|           | 
|10.1       |  | Purchase and Sale Agreement for Stockbridge Village Shopping Center, Stockbridge Village II, Stockbridge Village III, Stockbridge Village I Expansion, and Hannover Center (previously filed
with the Commission as Exhibit 10.1 to the Form 10-Q of Wells Real Estate Fund III, L.P. for the period ending June 30, 2004, Commission File No. 0-18407, 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