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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006 or



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------

For the transition period from
 to

Commission file number 0-25606



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WELLS REAL ESTATE FUND VII, L.P.

(Exact name of registrant as specified in
its charter)



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

N/A

(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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund VII, L.P. (the Partnership) other than historical facts may be
considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in particular, statements about our plans, strategies,
and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a
guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as may, will, expect, intend,
anticipate, estimate, believe, continue, or other similar words. Specifically, we consider, among others, statements concerning future operating results and cash flows, our ability to meet future
obligations, and the amount and timing of any 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 this
report is filed with the Securities and Exchange Commission. We make no representations or warranties (express or implied) about the accuracy of any such 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 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 partners, and maintain the value of our remaining real estate asset, may be significantly hindered. See Item 1A in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2005 for a discussion of
some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.



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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, 2006 (unaudited) and December 31, 2005                                                        |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Six Months Ended June 30, 2006 (unaudited) and 2005 (unaudited)       |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2005 and the Six Months Ended June 30, 2006 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Six Months Ended June 30, 2006 (unaudited) and 2005 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                     |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 15      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                              |  | 21      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                 |  | 21      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                        
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                       |  | 22      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                            |  | 22      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 22      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                         |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                     |  | 22      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                       |  | 22      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                |  | 22      



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PART I.    FINANCIAL STATEMENTS

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

The accompanying financial statements should be read in conjunction with the notes to the Partnerships
financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included both in this report on Form 10-Q and in the Partnerships Annual Report on Form 10-K for the year ended
December 31, 2005. The Partnerships results of operations for the three months and six months ended June 30, 2006 are not necessarily indicative of the operating results expected for the full year.



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WELLS REAL ESTATE FUND VII, L.P.



BALANCE SHEETS

ASSETS



|                             |  |               |           |                   |   |          
|---------------------------- |  | ------------- | --------- | ----------------- | - | ---------
|                             |  | (Unaudited)   |           |                  
|                             |  | June 30, 2006 |           | December 31, 2005
|Investment in joint ventures |  | $             | 201,669   |                   | $ | 2,050,867
|Cash and cash equivalents    |  |               | 5,241,408 |                   |   | 3,507,960
|Due from joint ventures      |  |               | 0         |                   |   | 39,159   
|Other assets                 |  |               | 22,391    |                   |   | 498      
|                             |  |               |           |                   |   |          
|Total assets                 |  | $             | 5,465,468 |                   | $ | 5,598,484
|                             |  |               |           |                   |   |          

LIABILITIES AND PARTNERS CAPITAL



|                                                 |  |   |           |  |   |          
|------------------------------------------------ |  | - | --------- |  | - | ---------
|LIABILITIES:                                     |  |   |           |  |   |          
|Accounts payable and accrued expenses            |  | $ | 13,333    |  | $ | 57,073   
|Due to affiliates                                |  |   | 4,476     |  |   | 8,402    
|                                                 |  |   |           |  |   |          
|Total liabilities                                |  |   | 17,809    |  |   | 65,475   
|                                                 |  |  
|PARTNERS CAPITAL:                               |  |   |           |  |   |          
|Limited partners:                                |  |   |           |  |   |          
|Class A  2,156,298 units issued and outstanding |  |   | 3,223,883 |  |   | 4,055,781
|Class B  261,719 units issued and outstanding   |  |   | 2,223,089 |  |   | 1,477,228
|General partners                                 |  |   | 687       |  |   | 0        
|                                                 |  |   |           |  |   |          
|Total partners capital                          |  |   | 5,447,659 |  |   | 5,533,009
|                                                 |  |   |           |  |   |          
|Total liabilities and partners capital          |  | $ | 5,465,468 |  | $ | 5,598,484
|                                                 |  |   |           |  |   |          

See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF OPERATIONS



|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|----------------------------------------------------- |  | -------------------------------------- | --------- | ------------------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                      |  | (Unaudited) Three Months EndedJune 30, |           | (Unaudited) Six Months Ended June 30,
|                                                      |  | 2006                                   |           | 2005                                  |   | 2006      |  | 2005
|EQUITY IN INCOME OF JOINT VENTURES                    |  | $                                      | 2,266,814 |                                       | $ | 1,895,020 |  | $    | 2,323,641 |  | $ | 1,984,985
|                                                      |  |                                        |           |                                      
|EXPENSES:                                             |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|Partnership administration                            |  |                                        | 26,133    |                                       |   | 40,832    |  |      | 59,438    |  |   | 72,442   
|Legal and accounting                                  |  |                                        | 13,795    |                                       |   | 13,056    |  |      | 32,636    |  |   | 26,363   
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|Total expenses                                        |  |                                        | 39,928    |                                       |   | 53,888    |  |      | 92,074    |  |   | 98,805   
|                                                      |  |                                        |           |                                      
|INTEREST AND OTHER INCOME                             |  |                                        | 44,481    |                                       |   | 48,077    |  |      | 83,082    |  |   | 75,846   
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|NET INCOME                                            |  | $                                      | 2,271,367 |                                       | $ | 1,889,209 |  | $    | 2,314,649 |  | $ | 1,962,026
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|                                                      |  |                                        |           |                                      
|NET INCOME ALLOCATED TO:                              |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|CLASS A                                               |  | $                                      | 1,233,473 |                                       | $ | 498,006   |  | $    | 1,308,332 |  | $ | 632,115  
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|CLASS B                                               |  | $                                      | 1,037,639 |                                       | $ | 1,391,203 |  | $    | 1,005,630 |  | $ | 1,329,911
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|GENERAL PARTNERS                                      |  | $                                      | 255       |                                       | $ | 0         |  | $    | 687       |  | $ | 0        
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|                                                      |  |                                        |           |                                      
|NET INCOME PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT: |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|CLASS A                                               |  | $                                      | 0.57      |                                       | $ | 0.23      |  | $    | 0.61      |  | $ | 0.29     
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|CLASS B                                               |  | $                                      | 3.96      |                                       | $ | 5.26      |  | $    | 3.84      |  | $ | 5.02     
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|                                                      |  |                                        |           |                                      
|WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:   |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|CLASS A                                               |  |                                        | 2,156,298 |                                       |   | 2,153,348 |  |      | 2,156,298 |  |   | 2,152,848
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          
|CLASS B                                               |  |                                        | 261,719   |                                       |   | 264,669   |  |      | 261,719   |  |   | 265,169  
|                                                      |  |                                        |           |                                       |   |           |  |      |           |  |   |          

See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF PARTNERS CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2005

AND THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)



|                                                                                                                      |  |                  |  |        |                  |   |                         |         |   |        |   |            |   |  |   |     |  |   |             |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | ------ | ---------------- | - | ----------------------- | ------- | - | ------ | - | ---------- | - |  | - | --- |  | - | ----------- | -
|                                                                                                                      |  | Limited Partners |  |        | General Partners |   | Total Partners Capital |        
|                                                                                                                      |  | Class A          |  |        | Class B          |   |                         |        
|                                                                                                                      |  | Units            |  | Amount |                  |   | Units                   |         |   | Amount |   |            |  
|BALANCE, DECEMBER 31, 2004                                                                                            |  | 2,147,148        |  | $      | 12,916,741       |   |                         | 270,869 |   |        | $ | 507,760    |   |  | $ | 0   |  | $ | 13,424,501  |  
|                                                                                                                      |  |                  |  |        |                  |  
|Class B conversion elections                                                                                          |  | 9,150            |  |        | 22,415           |   |                         | (9,150  | ) |        |   | (22,415    | ) |  |   | 0   |  |   | 0           |  
|Net income                                                                                                            |  | 0                |  |        | 1,296,095        |   |                         | 0       |   |        |   | 2,262,412  |   |  |   | 0   |  |   | 3,558,507   |  
|Distributions of net sale proceeds ($4.73 and $4.82 per weighted-average Class A Unit and Class B Unit, respectively) |  | 0                |  |        | (10,179,470      | ) |                         | 0       |   |        |   | (1,270,529 | ) |  |   | 0   |  |   | (11,449,999 | )
|                                                                                                                      |  |                  |  |        |                  |   |                         |         |   |        |   |            |   |  |   |     |  |   |             |  
|BALANCE, DECEMBER 31, 2005                                                                                            |  | 2,156,298        |  |        | 4,055,781        |   |                         | 261,719 |   |        |   | 1,477,228  |   |  |   | 0   |  |   | 5,533,009   |  
|                                                                                                                      |  |                  |  |        |                  |  
|Net income                                                                                                            |  | 0                |  |        | 1,308,332        |   |                         | 0       |   |        |   | 1,005,630  |   |  |   | 687 |  |   | 2,314,649   |  
|Distributions of net sale proceeds ($0.99 and $0.99 per weighted-average Class A Unit and Class B Unit,
respectively) |  | 0                |  |        | (2,140,230       | ) |                         | 0       |   |        |   | (259,769   | ) |  |   | 0   |  |   | (2,399,999  | )
|                                                                                                                      |  |                  |  |        |                  |   |                         |         |   |        |   |            |   |  |   |     |  |   |             |  
|BALANCE, JUNE 30, 2006                                                                                                |  | 2,156,298        |  | $      | 3,223,883        |   |                         | 261,719 |   |        | $ | 2,223,089  |   |  | $ | 687 |  | $ | 5,447,659   |  
|                                                                                                                      |  |                  |  |        |                  |   |                         |         |   |        |   |            |   |  |   |     |  |   |             |  

See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



STATEMENTS OF CASH FLOWS



|                                                                                            |  |                                       |            |   |      |   |            |  
|------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                            |  | (Unaudited) Six Months Ended June 30, |           
|                                                                                            |  | 2006                                  |            |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |  |                                       |            |   |      |   |            |  
|Net income                                                                                  |  | $                                     | 2,314,649  |   |      | $ | 1,962,026  |  
|Operating distributions received from joint ventures                                        |  |                                       | 60,350     |   |      |   | 370,812    |  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |                                       |            |   |      |   |            |  
|Equity in income of joint ventures                                                          |  |                                       | (2,323,641 | ) |      |   | (1,984,985 | )
|Changes in assets and liabilities:                                                          |  |                                       |            |   |      |   |            |  
|Increase in other assets                                                                    |  |                                       | (21,893    | ) |      |   | 0          |  
|Decrease in accounts payable and accrued expenses                                           |  |                                       | (43,740    | ) |      |   | (25,334    | )
|(Decrease) increase in due to affiliates                                                    |  |                                       | (3,926     | ) |      |   | 1,572      |  
|                                                                                            |  |                                       |            |   |      |   |            |  
|Net cash (used in) provided by operating activities                                         |  |                                       | (18,201    | ) |      |   | 324,091    |  
|                                                                                            |  |                                      
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |  |                                       |            |   |      |   |            |  
|Investment in joint ventures                                                                |  |                                       | (158,629   | ) |      |   | (189,237   | )
|Net sale proceeds received from joint ventures                                              |  |                                       | 4,310,277  |   |      |   | 7,893,057  |  
|                                                                                            |  |                                       |            |   |      |   |            |  
|Net cash provided by investing activities                                                   |  |                                       | 4,151,648  |   |      |   | 7,703,820  |  
|                                                                                            |  |                                      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |  |                                       |            |   |      |   |            |  
|Net sale proceeds distributions paid to limited partners                                    |  |                                       | (2,399,999 | ) |      |   | (7,249,999 | )
|                                                                                            |  |                                       |            |   |      |   |            |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                   |  |                                       | 1,733,448  |   |      |   | 777,912    |  
|                                                                                            |  |                                      
|CASH AND CASH EQUIVALENTS, beginning of period                                              |  |                                       | 3,507,960  |   |      |   | 3,884,551  |  
|                                                                                            |  |                                       |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                                    |  | $                                     | 5,241,408  |   |      | $ | 4,662,463  |  
|                                                                                            |  |                                       |            |   |      |   |            |  

See accompanying notes.



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WELLS REAL ESTATE FUND VII, L.P.



CONDENSED NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2006 (unaudited)



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

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

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

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



|                                                                           |  |                                                                                                                                         |  |                                                                                                                                                                                          
|-------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                              |  | Joint Venture Partners                                                                                                                  |  | Properties                                                                                                                                                                               
|Fund II, III, VI and VII Associates (Fund II-III-VI-VII Associates)      |  |   Fund II and Fund III Associates (Fund II-III Associates)(1)   Wells Real Estate Fund VI,
L.P.   Wells Real Estate Fund VII, L.P. |  | No properties owned during the periods presented.                                                                                                                                        
|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.                                |  | No properties owned during the periods presented.                                                                                                                                        
|Fund VI and Fund VII Associates (Fund VI-VII Associates)                 |  |   Wells Real Estate Fund VI, L.P.   Wells Real Estate Fund VII, L.P.                                                                  |  | No properties owned during the periods presented.                                                                                                                                        
|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.                             |  | 1. BellSouth Building(2) A four-story office building located in
Jacksonville, Florida  2. Tanglewood
Commons(3) A retail center in Clemmons, North Carolina, and four outparcels of land



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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. |  | 3. CH2M Hill Building(4) An office building located in Gainesville,
Florida



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



| | (2) | This property was sold in May 2006.
| | --- | -----------------------------------



| | (3) | One outparcel of land was sold in October 2002, the shopping center
and one outparcel of land were sold in April 2005, a portion of an outparcel of land was condemned by the North Carolina Department of Transportation in October 2005, and two outparcels of land remain unsold as of June 30, 2006.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | This property was sold in December 2005.
| | --- | ----------------------------------------

Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund V,
L.P., Wells Real Estate Fund VI, L.P, and Wells Real Estate Fund VIII, L.P. are affiliated with the Partnership through one or more common general partners. Each of the properties described above was acquired on an all-cash basis. For further
information regarding the Joint Ventures and foregoing properties, refer to the Partnerships Annual Report on Form 10-K for the year ended December 31, 2005.

On April 21, 2005, Fund VI-VII-VIII Associates sold the Tanglewood Commons shopping center and one outparcel of land to an unrelated third party for a gross sales price of $11,500,000. As a result of the sale,
the Partnership received net proceeds of approximately $3,752,000 and was allocated a gain of approximately $1,811,000. On October 12, 2005, a portion of one of the remaining outparcels of land was condemned by the North Carolina Department of
Transportation. As a result of the land condemnation, the Partnership received net proceeds of approximately $17,000 and was allocated a gain of approximately $11,000.

On December 7, 2005, Fund VII-VIII Associates sold the CH2M Hill Building to an unrelated third party for a gross sale price of $8,200,000. As a result of the sale of the CH2M Hill Building, the Partnership
received net sale proceeds of approximately $2,907,000 and was allocated a gain of approximately $1,465,000.

On May 15, 2006, Fund
VI-VII-VIII Associates and another Wells-affiliated joint venture sold the BellSouth Building and a second office property owned by the other Wells-affiliated joint venture to an unaffiliated third party for an aggregate gross sales price of
$24,000,000, less agreed-upon credits of approximately $228,000. As a result of the sale, the Partnership received net sale proceeds of approximately $4,290,000 and was allocated a gain of approximately $2,246,000.



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

Basis of Presentation

The financial statements of the Partnership have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and in accordance with such rules and regulations, do not include all of the information and footnotes required by U.S.
generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and
recurring nature and necessary to fairly and consistently present the results for these periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the financial statements and
footnotes included in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2005.

Investment in Joint Ventures

The Partnership has evaluated the Joint Ventures and concluded that none are variable interest entities under the provisions of
Financial Accounting Standards Board Interpretation No. (FIN) 46(R), Consolidation of Variable Interest Entities, which supersedes FIN 46 and is an interpretation of Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements. The Partnership does not have control over the operations of the Joint Ventures; however, it does exercise significant influence. Approval by the Partnership as well as the other joint venture partners is
required for any major decision or any action that would materially affect the Joint



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##### Table of Contents

Ventures, or their real property investments. Accordingly, upon applying the provisions of Statement of Financial Accounting Standard (SFAS)
No. 94, Consolidation of All Majority-Owned Subsidiaries, ARB No. 51, and Statement of Position No. 78-9, Accounting for Investments In Real Estate Ventures, the Partnership accounts for its investments in the Joint
Ventures using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for contributions, distributions, and net income (loss) attributable to the Partnership. Pursuant to the terms of the joint
venture agreements, all income (loss) and distributions are allocated to joint venture partners in accordance with their respective ownership interests. Distributions of net cash from operations, if available, are generally distributed to the joint
venture partners on a quarterly basis.

Other Assets

As of June 30, 2006 and December 31, 2005, other assets is comprised of the following items:



|                            |  |              |  |                 
|--------------------------- |  | ------------ |  | ----------------
|                            |  | June 30,2006 |  | December 31,2005
|Interest income receivable  |  | $19,969      |  | $    0          
|Insurance refund receivable |  | 2,422        |  | 498             
|                            |  |              |  |                 
|Total                       |  | $22,391      |  | $498            
|                            |  |              |  |                 

Distribution of Net Cash from Operations

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

Distribution of Sale Proceeds

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



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



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



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



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



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



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



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



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

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

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

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

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

Reclassifications

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



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##### Table of Contents

|3. | INVESTMENT IN JOINT VENTURES
|-- | ----------------------------

Summary of
Financial Information

Condensed financial information for the Joint Ventures for the three months and six months ended June 30,
2006 and 2005, respectively, is presented below:



|                              |  |                            |  |                                         |  |             |                                           |  |           |                            |  |                  |   |  |               |   |  |                  |   |  |               |  
|----------------------------- |  | -------------------------- |  | --------------------------------------- |  | ----------- | ----------------------------------------- |  | --------- | -------------------------- |  | ---------------- | - |  | ------------- | - |  | ---------------- | - |  | ------------- | -
|                              |  | Total Revenues             |  | Income (Loss) FromContinuing Operations |  |             | Income (Loss) FromDiscontinued Operations |  |           | Net Income (Loss)          | 
|                              |  | Three Months EndedJune 30, |  | Three Months EndedJune 30,              |  |             | Three Months EndedJune 30,                |  |           | Three Months EndedJune 30, | 
|                              |  | 2006                       |  | 2005                                    |  | 2006        |                                           |  | 2005      |                            |  | 2006             |   |  | 2005          |   |  | 2006             |   |  | 2005          |  
|Fund II-III-VI-VII Associates |  | $0                         |  | $0                                      |  | $         0 |                                           |  | $  (2,166 | )                          |  | $              0 |   |  | $      83,676 |   |  | $              0 |   |  | $      81,510 |  
|Fund V-VI-VII Associates      |  | 0                          |  | 0                                       |  | 0           |                                           |  | (2,385    | )                          |  | 0                |   |  | 0             |   |  | 0                |   |  | (2,385        | )
|Fund VI-VII Associates        |  | 0                          |  | 0                                       |  | 0           |                                           |  | (3,079    | )                          |  | 0                |   |  | (3,828        | ) |  | 0                |   |  | (6,907        | )
|Fund VI-VII-VIII Associates   |  | 0                          |  | 0                                       |  | (9,424      | )                                         |  | (10,762   | )                          |  | 6,800,734        |   |  | 5,542,295     |   |  | 6,791,310        |   |  | 5,531,533     |  
|Fund VII-VIII Associates      |  | 0                          |  | 0                                       |  | 1,731       |                                           |  | (5,446    | )                          |  | (4,872           | ) |  | 36,754        |   |  | (3,141           | ) |  | 31,308        |  
|                              |  |                            |  |                                         |  |             |                                           |  |           |                            |  |                  |   |  |               |   |  |                  |   |  |               |  
|                              |  | $0                         |  | $0                                      |  | $(7,693     | )                                         |  | $(23,838  | )                          |  | $6,795,862       |   |  | $5,658,897    |   |  | $6,788,169       |   |  | $5,635,059    |  
|                              |  |                            |  |                                         |  |             |                                           |  |           |                            |  |                  |   |  |               |   |  |                  |   |  |               |  



|                              |  |                          |  |                                 |  |               |                                           |  |           |                           |  |                  |   |  |               |   |  |                  |   |  |              |  
|----------------------------- |  | ------------------------ |  | ------------------------------- |  | ------------- | ----------------------------------------- |  | --------- | ------------------------- |  | ---------------- | - |  | ------------- | - |  | ---------------- | - |  | ------------ | -
|                              |  | Total Revenues           |  | Loss From Continuing Operations |  |               | Income (Loss) FromDiscontinued Operations |  |           | Net Income (Loss)         | 
|                              |  | Six Months EndedJune 30, |  | Six Months EndedJune 30,        |  |               | Six Months Ended June 30,                 |  |           | Six Months Ended June 30, | 
|                              |  | 2006                     |  | 2005                            |  | 2006          |                                           |  | 2005      |                           |  | 2006             |   |  | 2005          |   |  | 2006             |   |  | 2005         |  
|Fund II-III-VI-VII Associates |  | $0                       |  | $0                              |  | $           0 |                                           |  | $  (8,208 | )                         |  | $              0 |   |  | $      90,029 |   |  | $              0 |   |  | $     81,821 |  
|Fund V-VI-VII Associates      |  | 0                        |  | 0                               |  | 0             |                                           |  | (11,395   | )                         |  | 0                |   |  | (3,307        | ) |  | 0                |   |  | (14,702      | )
|Fund VI-VII Associates        |  | 0                        |  | 0                               |  | 0             |                                           |  | (16,220   | )                         |  | 0                |   |  | (3,828        | ) |  | 0                |   |  | (20,048      | )
|Fund VI-VII-VIII Associates   |  | 0                        |  | 0                               |  | (18,128       | )                                         |  | (16,274   | )                         |  | 6,984,963        |   |  | 5,841,774     |   |  | 6,966,835        |   |  | 5,825,500    |  
|Fund VII-VIII Associates      |  | 0                        |  | 0                               |  | (2,767        | )                                         |  | (11,302   | )                         |  | (5,258           | ) |  | 53,606        |   |  | (8,025           | ) |  | 42,304       |  
|                              |  |                          |  |                                 |  |               |                                           |  |           |                           |  |                  |   |  |               |   |  |                  |   |  |              |  
|                              |  | $0                       |  | $0                              |  | $(20,895      | )                                         |  | $(63,399  | )                         |  | $6,979,705       |   |  | $5,978,274    |   |  | $6,958,810       |   |  | $5,914,875   |  
|                              |  |                          |  |                                 |  |               |                                           |  |           |                           |  |                  |   |  |               |   |  |                  |   |  |              |  

The Partnership allocates operating income (loss) and gain (loss) on the sale of properties
generated by the Joint Ventures to its Class A and Class B limited partners pursuant to the respective partnership agreement provisions outlined in Note 2. The components of income (loss) from discontinued operations recognized by the Joint
Ventures are provided below:



|                              |  |                                |   |  |                                |  |                  |   |  |                        |   |  |              |     |  |              |  
|----------------------------- |  | ------------------------------ | - |  | ------------------------------ |  | ---------------- | - |  | ---------------------- | - |  | ------------ | --- |  | ------------ | -
|                              |  | Six Months Ended June 30, 2006 |   |  | Six Months Ended June 30, 2005 | 
|                              |  | OperatingIncome (Loss)         |   |  | Gain on Sale                   |  | Total            |   |  | OperatingIncome (Loss) |   |  | Gain on Sale |     |  | Total        |  
|Fund II-III-VI-VII Associates |  | $          0                   |   |  | $              0               |  | $              0 |   |  | $(10,157               | ) |  | $   100,186  | (1) |  | $     90,029 |  
|Fund V-VI-VII Associates      |  | 0                              |   |  | 0                              |  | 0                |   |  | (3,307                 | ) |  | 0            |     |  | (3,307       | )
|Fund VI-VII Associates        |  | 0                              |   |  | 0                              |  | 0                |   |  | (3,828                 | ) |  | 0            |     |  | (3,828       | )
|Fund VI-VII-VIII Associates   |  | 259,781                        |   |  | 6,725,182                      |  | 6,984,963        |   |  | 418,798                |   |  | 5,422,976    |     |  | 5,841,774    |  
|Fund VII-VIII Associates      |  | (5,258                         | ) |  | 0                              |  | (5,258           | ) |  | 53,606                 |   |  | 0            |     |  | 53,606       |  
|                              |  |                                |   |  |                                |  |                  |   |  |                        |   |  |              |     |  |              |  
|                              |  | $254,523                       |   |  | $6,725,182                     |  | $6,979,705       |   |  | $455,112               |   |  | $5,523,162   |     |  | $5,978,274   |  
|                              |  |                                |   |  |                                |  |                  |   |  |                        |   |  |              |     |  |              |  



| | (1) | Represents additional gain recognized on the sale of the
Holcomb Bridge Property, which was deferred at closing related to a rental guarantee for certain space at the Holcomb Bridge Property.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Due from Joint Ventures

As presented in the accompanying balance sheets, due from joint ventures as of June 30, 2006 and December 31, 2005 represents operating cash flow generated by the Joint Ventures for the three months ended
June 30, 2006 and December 31, 2005, respectively, which is attributable to the Partnership.



|4. | RELATED-PARTY TRANSACTIONS
|-- | --------------------------

Management
and Leasing Fees

The Partnership entered into a property management and leasing agreement with Wells Management Company, Inc.
(Wells Management), an affiliate of the General Partners. Accordingly, Wells Management 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 initial lease-up of newly constructed properties in an amount not to
exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties or (b) in the case of commercial properties leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term. Management and leasing fees are paid by the Joint Ventures and, accordingly, included in equity in
income of joint venture in the accompanying statements of operations. The Partnerships share of management and leasing fees and lease acquisition costs incurred though the Joint Ventures is $1,432 and $10,871 for the three months ended
June 30, 2006 and 2005, respectively, and $6,082 and $25,035 for the six months ended June 30, 2006 and 2005, respectively.

Administration
Reimbursements

Wells Capital, the corporate general partner of Wells Partners, one of the Partnerships general partners, and
Wells Management perform certain administrative services for the Partnership, relating to accounting and other partnership administration, and incurs the related expenses. Such expenses are allocated among the other entities affiliated with the
General Partners based on estimates of the amount of time dedicated to each fund by individual administrative personnel. In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The Partnership reimbursed
Wells Capital and Wells Management for administrative expenses of $14,477 and $24,529 for the three months ended June 30, 2006 and 2005, respectively, and $30,689 and $49,195 for the six months ended June 30, 2006 and 2005, respectively.
In addition, Wells Capital pays for certain operating expenses of the Partnership (bill-backs) directly and invoices the Partnership for the reimbursement thereof. As of June 30, 2006 and December 31, 2005, the due to
affiliates balances represent administrative reimbursements and bill-backs due to Wells Management and/or Wells Capital.

Economic Dependency

We have engaged Wells Capital and Wells Management to provide certain essential services, including supervision of the management and
leasing of our properties, asset acquisition and disposition services, as well as other administrative responsibilities for us including accounting services and investor communications and relations. These agreements are terminable by either party
upon 60 days written notice. As a result of these relationships, we are dependent upon Wells Capital and Wells Management.

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



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##### Table of Contents

Future net income generated by WREF will be largely dependent upon the amount of fees earned by Wells
Capital and Wells Management based on, among other things, the level of investor proceeds raised from the sale of common stock for certain WREF-sponsored programs and the volume of future acquisitions and dispositions of real estate assets by
WREF-sponsored programs. As of June 30, 2006, the General Partners believe that WREF generates adequate cash flow from operations and has adequate liquidity available in the form of cash on hand and current receivables necessary to meet its
current and future obligations as they become due.



|5. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------

The Partnership and its General Partners are from time to time a party to legal proceedings, which arise in the ordinary course of its business. The Partnership is not currently involved in any legal proceedings of which the outcome is
reasonable likely to have a material adverse effect on results of operations or financial condition. The Partnership is not aware of any legal proceedings contemplated by governmental authorities.



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

The following discussion and analysis should be read in conjunction with the accompanying financial statements and notes thereto. See also Cautionary Note Regarding Forward-Looking
Statements preceding Part I, as well as the notes to our financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended
December 31, 2005.

Overview

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



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

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



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

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



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

The period during which the Partnership owns and operates its real estate assets 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; and



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

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



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##### Table of Contents

Portfolio Overview

We are in the disposition-and-liquidation phase of our life cycle. With the sale of the BellSouth Building in the second quarter of 2006, only two outparcels of land remain at Tanglewood Commons.

Having sold all of the rental properties within the portfolio, the General Partners are currently reserving operating cash and a portion of net sale
proceeds to fund anticipated costs necessary to liquidate and dissolve the Partnership. Due to a reduction in operating cash flow resulting from recent property sales, operating distributions to limited partners will continue to be reserved. We
completed the distribution of net sale proceeds to limited partners in May 2006 of approximately $2,400,000 from the sales of the Tanglewood Commons shopping center, the Tanglewood Commons land condemnation, and the CH2M Hill Building. Also, the
General Partners have announced their intention to distribute net sale proceeds from the sales of the CH2M Hill Building and the BellSouth Building of approximately $4,650,000 in November 2006. (See Contractual Obligations and
Commitments below.)

Property Summary

Information relating to the properties owned, or previously owned, by joint ventures is provided below:



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



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



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



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



| |  |  | The Tanglewood Commons shopping center was sold on April 21, 2005. On October 12, 2005, a portion of one of the remaining outparcels of land.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CH2M Hill Building was sold on December 7, 2005.
| | - |  | ----------------------------------------------------



| |  |  | The BellSouth Building was sold on May 15, 2006.
| | - |  | ------------------------------------------------

Liquidity and Capital Resources

Overview

Our operating strategy has entailed funding expenditures related to the recurring operations of the Joint Ventures properties and the portfolio with operating cash flows, including current and prior period
operating distributions received from the Joint Ventures, and assessing the amount of remaining cash flows that will be required to fund known future re-leasing costs and other capital improvements. Historically, residual operating cash flows were
generally considered available for distribution to the Class A limited partners and, unless reserved, were generally paid quarterly. To the extent that operating cash flows have been insufficient to fund our recurring operations, net sale
proceeds have been utilized. As a result, the ongoing monitoring of our cash position has been critical to ensuring that adequate liquidity and capital resources are available.



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##### Table of Contents

Short-Term Liquidity

During the six months ended June 30, 2006, we used net operating cash flows, including operating distributions received from the Joint Ventures, of approximately $(18,000), as compared to generating net operating
cash inflows of approximately $324,000 for the six months ended June 30, 2005. The 2006 decrease is primarily due to the corresponding decline in operating distributions received from Joint Ventures as further described below. Operating
distributions from the Joint Ventures are generally representative of rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital expenditures.

Operating distributions received from the Joint Ventures have declined in 2006, primarily as a result of a decrease in cash flows resulting from the
sales of properties in the current and previous periods. We expect operating distributions from the Joint Ventures to cease, as we have sold the last remaining rental property in the current quarter. Future operating distributions to limited
partners are expected to be reserved as a result of having sold all of the real estate assets in which we owned interests other than two outparcels of land at Tanglewood Commons.

We believe that the cash on hand is sufficient to cover our working capital needs, including liabilities of approximately $18,000 as of June 30, 2006.

Long-Term Liquidity

We have sold all of the rental
real estate assets in which we owned interests and do not anticipate acquiring additional properties. Accordingly, sources of capital will be primarily derived from the reserves of net sale proceeds generated from the sale of properties in the
current and previous periods.

Capital Resources

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

Historically, the Joint Ventures
funded capital expenditures primarily related to 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 expired, the Joint
Ventures would 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 required less capital than those funded in connection with new
leases. However, external conditions, such as the supply of and demand for comparable space available within a given market, drive capital costs as well as rental rates. Any capital or other expenditures not provided for by the operations of the
Joint Ventures will be required to be funded by the Partnership and respective joint venture partners on a pro-rata basis.

Operating cash
flows, if available, are generally distributed from the Joint Ventures to the Partnership approximately one month following calendar quarter-ends. 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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##### Table of Contents

As of June 30, 2006, we have received, used, distributed, and held net sale proceeds allocated to
the Partnership from the sale of properties as presented below:



|                                                    |  |                   |  |                                       |  |                                              |  |                          |  |                                                              |  |                                                    |  |                
|--------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | -------------------------------------------- |  | ------------------------ |  | ------------------------------------------------------------ |  | -------------------------------------------------- |  | ---------------
|Property Sold                                       |  | Net Sale Proceeds |  | Partnerships Approximate Ownership % |  | Net SaleProceeds Allocated tothe Partnership |  | Use of Net Sale Proceeds |  | Net Sale Proceeds Distributed toPartners as of June 30, 2006 |  | Undistributed NetSale Proceeds as of June 30, 2006
|                                                    |  |                   |  | Amount                                |  | Purpose                                      |  |                         
|                                                    |  |                   |  |                                       |  |                                              | 
|Cherokee Commons (sold in 2001)                     |  | $  8,414,089      |  | 10.9%                                 |  | $     886,212                                |  | $151,211                 |  |   Re-leasing the Marathon Building (2004)                   |  | $     735,001                                      |  | $             0
|                                                    |  |                   |  |                                       |  |                                              | 
|Tanglewood Commons Outparcel(sold in 2002)          |  | 524,398           |  | 33.4%                                 |  | 175,149                                      |  | 126,160                  |  |   Re-leasing the Marathon Building (2004)                   |  | 48,989                                             |  | 0              
|                                                    |  |                   |  |                                       |  |                                              | 
|Stockbridge Village III (sold in 2004)              |  | 2,909,853         |  | 55.2%                                 |  | 1,606,248                                    |  | 0                        |  |                                                             |  | 1,606,248                                          |  | 0              
|                                                    |  |                   |  |                                       |  |                                              | 
|Stockbridge Village I Expansion(sold in 2004)       |  | 4,108,277         |  | 55.2%                                 |  | 2,267,781                                    |  | 0                        |  |                                                             |  | 2,267,781                                          |  | 0              
|                                                    |  |                   |  |                                       |  |                                              | 
|Hannover Center(sold in 2004)                       |  | 1,703,431         |  | 36.6%                                 |  | 624,067                                      |  | 0                        |  |                                                             |  | 624,067                                            |  | 0              
|                                                    |  |                   |  |                                       |  |                                              | 
|Holcomb Bridge Property(sold in 2004)               |  | 6,889,379         |  | 50.4%                                 |  | 3,473,625                                    |  | 0                        |  |                                                             |  | 3,473,625                                          |  | 0              
|                                                    |  |                   |  |                                       |  |                                              | 
|Marathon Building (sold in 2004)                    |  | 9,927,330         |  | 41.7%                                 |  | 4,140,689                                    |  | 0                        |  |                                                             |  | 4,140,689                                          |  | 0              
|                                                    |  |                   |  |                                       |  |                                              | 
|Tanglewood Commons shopping center(sold in 2005)    |  | 11,236,283        |  | 33.4%                                 |  | 3,752,368                                    |  | 0                        |  |                                                             |  | 3,752,368                                          |  | 0              
|                                                    |  |                   |  |                                       |  |                                              | 
|Tanglewood Commons land condemnation (sold in 2005) |  | 52,050            |  | 33.4%                                 |  | 17,382                                       |  | 0                        |  |                                                             |  | 17,382                                             |  | 0              
|                                                    |  |                   |  |                                       |  |                                              | 
|CH2M Hill Building (sold in 2005)                   |  | 7,935,259         |  | 36.6%                                 |  | 2,907,154                                    |  | 0                        |  |                                                             |  | 2,131,847                                          |  | 775,307        
|                                                    |  |                   |  |                                       |  |                                              | 
|BellSouth Building (sold in 2006)                   |  | 12,846,905        |  | 33.4%                                 |  | 4,290,237                                    |  | 0                        |  |                                                             |  | 0                                                  |  | 4,290,237      
|                                                    |  |                   |  |                                       |  |                                              |  |                          |  |                                                              |  |                                                    |  |                
|                                                    |  |                   |  |                                       |  |                                              | 
|Total                                               |  |                   |  |                                       |  | $24,140,912                                  |  | $277,371                 |  |                                                              |  | $18,797,997                                        |  | $5,065,544     
|                                                    |  |                   |  |                                       |  |                                              |  |                          |  |                                                              |  |                                                    |  |                

In May 2006, net sale proceeds of approximately $2,400,000 from the sale of the CH2M Hill
Building, the Tanglewood Commons shopping center, and the Tanglewood Commons land condemnation were distributed to the limited partners of record as of March 31, 2006, which, under the terms of the Partnership Agreement, did not include limited
partners acquiring units after December 31, 2005. Upon evaluating the Partnerships obligations, our General Partners have determined that reserves of net sale proceeds of approximately $416,000 will be required to fund the
Partnerships ongoing operations and eventual dissolution costs. Our General Partners anticipate distributing net sales proceeds of approximately $4,650,000 in November 2006, as further described below.

Contractual Obligations and Commitments

In June
2006, our General Partners announced their intention to distribute net sale proceeds from the sales of the CH2M Hill Building and the BellSouth Building of approximately $4,650,000 in November 2006 to the limited partners of record as of
September 30, 2006, which, under the terms of the partnership agreement, does not include limited partners acquiring units after June 30, 2006. Following such distribution, we would hold residual net sale proceeds of approximately $416,000
in reserve in order to fund the ongoing operations of the Partnership and eventual dissolution costs.



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This distribution has not been formally declared by our General Partners. In accordance with the terms of
the partnership agreement, our General Partners may elect to retain reserves deemed reasonably necessary in the sole discretion of our General Partners. Thus, should a change in circumstances prior to the intended distribution date require our
General Partners to reevaluate our reserve requirements, it is possible that this distribution may not occur, or that such distribution could be made at a lower amount.

Results of Operations

Equity in Income of Joint Ventures

Equity in income of Joint Ventures was $2,266,814 and $1,895,020 for the three months ended June 30, 2006 and 2005, respectively, and $2,323,641 and
$1,984,985 for the six months ended June 30, 2006 and 2005, respectively. The increases in equity in income of Joint Ventures for 2006, as compared to 2005, are primarily attributable to (i) the gain recognized on the sale of the BellSouth
Building in the second quarter of 2006, partially offset by (ii) the gain recognized on the sale of the Tanglewood Commons shopping center in the second quarter of 2005, and (iii) a decrease in operating income from the sales of the
Tanglewood Commons shopping center, the CH2M Hill Building, and the BellSouth Building.

We expect equity in income of Joint Ventures to
decrease going forward as a result of a decrease in operating income due to having disposed of all rental properties within the portfolio.

Expenses

Our total expenses were $39,928 and $53,888 for the three months ended June 30, 2006 and 2005, respectively, and $92,074 and
$98,805 for the six months ended June 30, 2006 and 2005, respectively. The 2006 decreases, as compared to 2005, are primarily attributable to a decline in administrative costs relative to the decrease in the size of the portfolio as a result of
the sales of properties.

We anticipate increases in our administrative expenses and legal fees in future periods resulting from increased
costs relating to compliance with reporting and regulatory requirements.

Interest and Other Income

Interest and other income was $44,481 and $48,077 for the three months ended June 30, 2006 and 2005, respectively, and $83,082 and $75,846 for the
six months ended June 30, 2006 and 2005, respectively. The decrease for the three months ended June 30, 2006, as compared to the three months ended June 30, 2005, is primarily attributable to (i) a decrease in the average amount
of net sales proceeds held during the second quarter of 2006, as compared to the second quarter of 2005, partially offset by (ii) an increase in the daily interest yield. The overall 2006 increase, compared to 2005, is primarily attributable to
an increase in the daily interest yield.

Future levels of interest income will be largely dependent upon the timing of the disposition of
the remaining asset and the distribution of net sale proceeds to the investors.

Application of Critical Accounting Policies

Summary

Our 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



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would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different
estimates that may impact comparability of our results of operations to those of companies in similar businesses.

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

Investment in Real Estate Assets

We are required
to make subjective assessments as to the useful lives of our depreciable assets. We have considered the period of future benefit in determining the appropriate useful lives for our real estate assets. These assessments have a direct impact on net
income. We depreciated real estate assets owned through the Joint Ventures during the periods presented over the following estimated useful lives:



|                      |  |                                       
|--------------------- |  | --------------------------------------
|Buildings             |  | 40 years                              
|Building improvements |  | 5-25 years                            
|Land improvements     |  | 20 years                              
|Tenant improvements   |  | Shorter of lease term or economic life

In the event that the Joint Ventures utilized inappropriate useful lives or methods of
depreciation, our net income would be misstated.

Valuation of Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which we have an ownership interest 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, as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and recognizes an impairment
loss. Estimated fair values are calculated based on the following information, dependent upon availability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present
value of undiscounted cash flows, including estimated salvage value. We have determined that there has been no impairment in the carrying value of the remaining real estate asset in which the Partnership held an interest as of June 30, 2006.

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.

Related-Party Transactions

We have entered into agreements with Wells Capital and Wells Management, affiliates of our General Partners, and their affiliates, whereby we pay certain fees and expense reimbursements to Wells Capital, Wells Management, and their
affiliates for asset management; the management and leasing of our properties; administrative services relating to accounting, property management, and other partnership administration; and incur the related expenses. See Note 4 to our financial
statements included in this report for a description of these fees and expense reimbursements we have incurred.



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

The American Jobs Creation Act of 2004 added Section 470 to the Internal Revenue Code, which provides for certain limitations on
the utilization of losses by investors that are attributable to leased property owned by a partnership having both taxable and tax-exempt partners such as the Partnership. If Section 470 were deemed to apply to the Partnership, passive losses
allocable to limited partners holding Class B Units could only be utilized to offset passive income generated from the same property or potentially from properties owned by the same partnership. In March 2005, the Internal Revenue Service
(IRS) announced that the IRS would not apply Section 470 to partnerships for the taxable year 2004 based solely on the fact that a partnership had both taxable and tax-exempt partners, and in December 2005, the IRS extended the
period for transitional relief through the 2005 tax year. In addition, pursuant to Section 403(ff) of the Gulf Opportunity Zone Act of 2005, the effective date provisions regarding the applicability of Section 470 were amended to provide
that, in the case of leased property treated as tax-exempt use property by reason of its being owned by a partnership having both taxable and tax-exempt partners, Section 470 will apply only to property acquired after March 12, 2004. Since
the Partnership acquired all of its properties prior to March 12, 2004, and is not expected to acquire interests in any additional properties in the future, we do not believe that the provisions of Section 470 should apply to limit the
utilization of losses attributable to the properties owned by the Partnership; however, due to the uncertainties and lack of guidance relating to this provision, it is unclear as to whether the acquisition of a limited partnership interest in the
Partnership after the March 12, 2004 effective date may be deemed to be an acquisition of property within the meaning of the effective date provisions of Section 470.



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

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



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

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

There were no significant changes in our internal
control over financial reporting during the quarter ended June 30, 2006 that have materially affected, or are likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are from time to time a party
to other legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any litigation the outcome of which would, in managements judgment based on information currently available, have a material
adverse effect on our results of operations or financial condition, nor is management aware of any such litigation threatened against us during the quarter ended June 30, 2006, requiring disclosure under Item 103 of Regulation S-K.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There have been no material changes
from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005.



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



|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended June 30, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



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



|(c) | We did not redeem any securities during the quarter ended June 30, 2006.
|--- | ------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------



|(a) | We were not subject to any indebtedness and, therefore, did not default with respect to any indebtedness during the quarter ended June 30, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



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



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

No matters were submitted to a vote of our limited partners during the quarter ended June 30, 2006.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------



|(a) | During the quarter ended June 30, 2006, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on
Form 8-K.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|ITEM 6. | EXHIBITS
|------- | --------

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



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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 10, 2006 |  |  |  | /S/    LEO F. WELLS,
III                                                                         
|                |  |  |  | Leo F. Wells, III President, Principal Executive Officer, and Sole Directorof Wells Capital, Inc.
|                |  | 
|August 10, 2006 |  |  |  | /S/    DOUGLAS P. WILLIAMS                                                                       
|                |  |  |  | Douglas 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.



|            |  |                                                                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                               
|            | 
|10.1        |  | Purchase and Sale Agreement for BellSouth Building (previously filed with the Commission as Exhibit 10.1 to the Form 10-Q of Wells Real Estate Fund IV, L.P. for the period
ending March 31, 2006, Commission File No. 0-20103, 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