##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---

(Mark One)



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

For the quarterly period ended June 30, 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 0-14463



---

WELLS REAL ESTATE FUND I

(Exact name of registrant as specified in its
charter)



---



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58-1565512                             
|(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



---



---

##### Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund I (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 real estate properties, 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.



Page 2



---

##### Table of Contents

WELLS REAL ESTATE FUND I AND SUBSIDIARY



TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                                      |  |         
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | --------
|         |  |                       |  |                                                                                                                                      |  | Page No.
|         |  |                      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                                     
|         |  |                       | 
|         |  | Item 1.               |  | Consolidated Financial Statements                                                                                                    |  |         
|         |  |                       | 
|         |  |                       |  | Consolidated Balance SheetsJune 30, 2006 (unaudited) and December 31, 2005                                                          |  | 5       
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2006 (unaudited) and 2005 (unaudited)       |  | 6       
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Partners Capital for the Year Ended December 31, 2005 and the Six Months Ended June 30, 2006 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 (unaudited) and 2005 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Consolidated Financial Statements (unaudited)                                                                     |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                |  | 16      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                           |  | 23      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                              |  | 23      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                                     
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                                    |  | 24      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                                         |  | 25      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                          |  | 25      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                                      |  | 26      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                                  |  | 26      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                                    |  | 26      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                             |  | 26      



Page 3



---

##### Table of Contents

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.



Page 4



---

##### Table of Contents

WELLS REAL ESTATE FUND I AND SUBSIDIARY



CONSOLIDATED BALANCE SHEETS

ASSETS



|                                                                                                                                              |  |               |            |                  |   |           
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---------------- | - | ----------
|                                                                                                                                              |  | (Unaudited)   |            |                 
|                                                                                                                                              |  | June 30, 2006 |            | December 31,2005
|Real estate, at cost:                                                                                                                         |  |               |            |                  |   |           
|Land                                                                                                                                          |  | $             | 1,238,819  |                  | $ | 1,238,819 
|Building and improvements, less accumulated depreciation of $7,157,020 and $7,020,755 as of June 30, 2006 and December 31, 2005,
respectively |  |               | 3,817,142  |                  |   | 3,813,692 
|                                                                                                                                              |  |               |            |                  |   |           
|Total real estate assets                                                                                                                      |  |               | 5,055,961  |                  |   | 5,052,511 
|                                                                                                                                              |  |              
|Investment in joint ventures                                                                                                                  |  |               | 1,960      |                  |   | 2,515,508 
|Cash and cash equivalents                                                                                                                     |  |               | 5,801,446  |                  |   | 3,942,166 
|Accounts receivable, net                                                                                                                      |  |               | 137,783    |                  |   | 142,791   
|Deferred leasing costs, net                                                                                                                   |  |               | 147,543    |                  |   | 98,069    
|Other assets                                                                                                                                  |  |               | 99,456     |                  |   | 91,846    
|                                                                                                                                              |  |               |            |                  |   |           
|Total assets                                                                                                                                  |  | $             | 11,244,149 |                  | $ | 11,842,891
|                                                                                                                                              |  |               |            |                  |   |           
|                                                                                                                                             
|LIABILITIES AND PARTNERS CAPITAL                                                                                                            
|                                                                                                                                              |  |              
|LIABILITIES:                                                                                                                                  |  |               |            |                  |   |           
|Accounts payable, accrued expenses, and refundable security deposits                                                                          |  | $             | 144,843    |                  | $ | 298,543   
|Accrued capital expenditures                                                                                                                  |  |               | 109,632    |                  |   | 87,286    
|Due to affiliates                                                                                                                             |  |               | 11,591     |                  |   | 18,089    
|Deferred income                                                                                                                               |  |               | 13,407     |                  |   | 3,822     
|                                                                                                                                              |  |               |            |                  |   |           
|Total liabilities                                                                                                                             |  |               | 279,473    |                  |   | 407,740   
|                                                                                                                                              |  |              
|PARTNERS CAPITAL:                                                                                                                            |  |               |            |                  |   |           
|Limited partners:                                                                                                                             |  |               |            |                  |   |           
|Class A  98,716 units issued and outstanding                                                                                                 |  |               | 10,964,676 |                  |   | 11,435,151
|Class B  42,568 units issued and outstanding                                                                                                 |  |               | 0          |                  |   | 0         
|General partners                                                                                                                              |  |               | 0          |                  |   | 0         
|                                                                                                                                              |  |               |            |                  |   |           
|Total partners capital                                                                                                                       |  |               | 10,964,676 |                  |   | 11,435,151
|                                                                                                                                              |  |               |            |                  |   |           
|Total liabilities and partners capital                                                                                                       |  | $             | 11,244,149 |                  | $ | 11,842,891
|                                                                                                                                              |  |               |            |                  |   |           

See accompanying notes.



Page 5



---

##### Table of Contents

WELLS REAL ESTATE FUND I AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|---------------------------------------------------- |  | --------------------------------------- | ------- | - | ------------------------------------- | - | ------- | ---- |  | - | -------- | - |  | - | ------- | -
|                                                     |  | (Unaudited) Three Months Ended June 30, |         |   | (Unaudited) Six Months Ended June 30, |  
|                                                     |  | 2006                                    |         |   | 2005                                  |   |         | 2006 |  |   | 2005     |  
|REVENUES:                                            |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|Rental income                                        |  | $                                       | 256,060 |   |                                       | $ | 252,724 |      |  | $ | 515,137  |   |  | $ | 515,090 |  
|Reimbursement income                                 |  |                                         | 34,319  |   |                                       |   | 32,733  |      |  |   | 78,480   |   |  |   | 72,234  |  
|Interest and other income                            |  |                                         | 58,488  |   |                                       |   | 36,252  |      |  |   | 98,928   |   |  |   | 69,137  |  
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|Total revenues                                       |  |                                         | 348,867 |   |                                       |   | 321,709 |      |  |   | 692,545  |   |  |   | 656,461 |  
|EXPENSES:                                            |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|Legal and accounting                                 |  |                                         | 99,853  |   |                                       |   | 61,359  |      |  |   | 221,736  |   |  |   | 140,428 |  
|Property operating costs                             |  |                                         | 84,450  |   |                                       |   | 116,471 |      |  |   | 197,365  |   |  |   | 236,175 |  
|Depreciation                                         |  |                                         | 66,629  |   |                                       |   | 66,630  |      |  |   | 136,265  |   |  |   | 133,557 |  
|Amortization                                         |  |                                         | 10,704  |   |                                       |   | 31,205  |      |  |   | 17,895   |   |  |   | 39,106  |  
|Partnership administration                           |  |                                         | 51,579  |   |                                       |   | 71,054  |      |  |   | 97,152   |   |  |   | 117,576 |  
|Management and leasing fees                          |  |                                         | 17,037  |   |                                       |   | 15,116  |      |  |   | 34,175   |   |  |   | 32,853  |  
|Bad debt expense                                     |  |                                         | 22,753  |   |                                       |   | 0       |      |  |   | 32,280   |   |  |   | 0       |  
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|Total expenses                                       |  |                                         | 353,005 |   |                                       |   | 361,835 |      |  |   | 736,868  |   |  |   | 699,695 |  
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|                                                     |  |                                         |         |  
|LOSS FROM REAL ESTATE OPERATIONS                     |  |                                         | (4,138  | ) |                                       |   | (40,126 | )    |  |   | (44,323  | ) |  |   | (43,234 | )
|                                                     |  |                                         |         |  
|EQUITY IN INCOME (LOSS) OF JOINT VENTURES            |  |                                         | (9,518  | ) |                                       |   | 3,193   |      |  |   | (426,152 | ) |  |   | 8,359   |  
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|LOSS BEFORE MINORITY INTEREST                        |  |                                         | (13,656 | ) |                                       |   | (36,933 | )    |  |   | (470,475 | ) |  |   | (34,875 | )
|                                                     |  |                                         |         |  
|MINORITY INTEREST IN LOSS OF CONSOLIDATED SUBSIDIARY |  |                                         | 0       |   |                                       |   | 46      |      |  |   | 0        |   |  |   | 542     |  
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|NET LOSS                                             |  | $                                       | (13,656 | ) |                                       | $ | (36,887 | )    |  | $ | (470,475 | ) |  | $ | (34,333 | )
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|                                                     |  |                                         |         |  
|NET LOSS ALLOCATED TO LIMITED PARTNERS:              |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|CLASS A                                              |  | $                                       | (13,656 | ) |                                       | $ | (36,887 | )    |  | $ | (470,475 | ) |  | $ | (34,333 | )
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|CLASS B                                              |  | $                                       | 0       |   |                                       | $ | 0       |      |  | $ | 0        |   |  | $ | 0       |  
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|                                                     |  |                                         |         |  
|NET LOSS PER LIMITED PARTNER UNIT:                   |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|CLASS A                                              |  | $                                       | (0.14   | ) |                                       | $ | (0.37   | )    |  | $ | (4.77    | ) |  | $ | (0.35   | )
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  
|CLASS B                                              |  | $                                       | 0.00    |   |                                       | $ | 0.00    |      |  | $ | 0.00     |   |  | $ | 0.00    |  
|                                                     |  |                                         |         |   |                                       |   |         |      |  |   |          |   |  |   |         |  

See accompanying notes.



Page 6



---

##### Table of Contents

WELLS REAL ESTATE FUND I AND SUBSIDIARY



CONSOLIDATED 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                                                                            |  | 98,716           |  | $      | 17,466,584       |   |                         | 42,568 |        | $0       |   |  | $0 |  | $ | 17,466,584 |  
|                                                                                                      |  |                  |  |        |                  |  
|Net income (loss)                                                                                     |  | 0                |  |        | (137,569         | ) |                         | 0      |        | 106,136  |   |  | 0  |  |   | (31,433    | )
|Distributions of net sale proceeds ($59.71 and $2.49 per Class A Unit and Class B Unit, respectively) |  | 0                |  |        | (5,893,864       | ) |                         | 0      |        | (106,136 | ) |  | 0  |  |   | (6,000,000 | )
|                                                                                                      |  |                  |  |        |                  |   |                         |        |        |          |   |  |    |  |   |            |  
|BALANCE, DECEMBER 31, 2005                                                                            |  | 98,716           |  |        | 11,435,151       |   |                         | 42,568 |        | 0        |   |  | 0  |  |   | 11,435,151 |  
|                                                                                                      |  |                  |  |        |                  |  
|Net loss                                                                                              |  | 0                |  |        | (470,475         | ) |                         | 0      |        | 0        |   |  | 0  |  |   | (470,475   | )
|                                                                                                      |  |                  |  |        |                  |   |                         |        |        |          |   |  |    |  |   |            |  
|BALANCE, JUNE 30, 2006                                                                                |  | 98,716           |  | $      | 10,964,676       |   |                         | 42,568 |        | $0       |   |  | $0 |  | $ | 10,964,676 |  
|                                                                                                      |  |                  |  |        |                  |   |                         |        |        |          |   |  |    |  |   |            |  

See accompanying notes.



Page 7



---

##### Table of Contents

WELLS REAL ESTATE FUND I AND SUBSIDIARY



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                 |  |                                       |           |   |      |   |            |  
|-------------------------------------------------------------------------------- |  | ------------------------------------- | --------- | - | ---- | - | ---------- | -
|                                                                                 |  | (Unaudited) Six Months Ended June 30, |          
|                                                                                 |  | 2006                                  |           |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            |  |                                       |           |   |      |   |            |  
|Net loss                                                                         |  | $                                     | (470,475  | ) |      | $ | (34,333    | )
|Operating distributions received from joint ventures                             |  |                                       | 8,927     |   |      |   | 0          |  
|Adjustments to reconcile net loss to net cash used in operating activities:      |  |                                       |           |   |      |   |            |  
|Depreciation                                                                     |  |                                       | 136,265   |   |      |   | 133,557    |  
|Amortization                                                                     |  |                                       | 17,895    |   |      |   | 39,106     |  
|Equity in (income) loss of joint ventures                                        |  |                                       | 426,152   |   |      |   | (8,359     | )
|Minority interest                                                                |  |                                       | 0         |   |      |   | (542       | )
|Changes in assets and liabilities:                                               |  |                                       |           |   |      |   |            |  
|Decrease (increase) in accounts receivable, net                                  |  |                                       | 2,876     |   |      |   | (30,034    | )
|(Increase) decrease in other assets                                              |  |                                       | (7,610    | ) |      |   | 969        |  
|Decrease in accounts payable, accrued expenses, and refundable security deposits |  |                                       | (153,700  | ) |      |   | (14,430    | )
|Decrease in due to affiliates                                                    |  |                                       | (6,498    | ) |      |   | (2,265,694 | )
|Increase (decrease) in deferred income                                           |  |                                       | 9,585     |   |      |   | (9,941     | )
|                                                                                 |  |                                       |           |   |      |   |            |  
|Net cash used in operating activities                                            |  |                                       | (36,583   | ) |      |   | (2,189,701 | )
|                                                                                 |  |                                      
|CASH FLOWS FROM INVESTING ACTIVITIES:                                            |  |                                       |           |   |      |   |            |  
|Investment in real estate assets                                                 |  |                                       | (117,369  | ) |      |   | 0          |  
|Investment in deferred leasing costs                                             |  |                                       | (65,237   | ) |      |   | (1,241     | )
|Net sale proceeds received from joint ventures                                   |  |                                       | 2,091,446 |   |      |   | 0          |  
|Investment in joint ventures                                                     |  |                                       | (12,977   | ) |      |   | (404,242   | )
|                                                                                 |  |                                       |           |   |      |   |            |  
|Net cash provided by (used in) investing activities                              |  |                                       | 1,895,863 |   |      |   | (405,483   | )
|                                                                                 |  |                                      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                            |  |                                       |           |   |      |   |            |  
|Contributions from minority interest partner                                     |  |                                       | 0         |   |      |   | 1,005      |  
|                                                                                 |  |                                       |           |   |      |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             |  |                                       | 1,859,280 |   |      |   | (2,594,179 | )
|                                                                                 |  |                                      
|CASH AND CASH EQUIVALENTS, beginning of period                                   |  |                                       | 3,942,166 |   |      |   | 12,304,254 |  
|                                                                                 |  |                                       |           |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                         |  | $                                     | 5,801,446 |   |      | $ | 9,710,075  |  
|                                                                                 |  |                                       |           |   |      |   |            |  
|                                                                                 |  |                                      
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:          |  |                                       |           |   |      |   |            |  
|Write-off of fully amortized deferred leasing costs                              |  | $                                     | 0         |   |      | $ | 24,783     |  
|                                                                                 |  |                                       |           |   |      |   |            |  
|Accrued capital expenditures                                                     |  | $                                     | 109,632   |   |      | $ | 0          |  
|                                                                                 |  |                                       |           |   |      |   |            |  

See accompanying notes.



Page 8



---

##### Table of Contents

WELLS REAL ESTATE FUND I AND SUBSIDIARY



CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006 (unaudited)



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

Wells Real Estate Fund I (the Partnership) is a Georgia public limited partnership with Leo F. Wells, III and Wells Capital, Inc. (Wells Capital), a Georgia corporation, serving as its general partners
(collectively, the General 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 April 26, 1984 for the purpose of acquiring, developing, constructing, owning, operating, improving, leasing, and managing income-producing commercial properties for investment
purposes. The Partnership has two classes of limited partnership interests, Class A and Class B Units. 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 September 6, 1984, the Partnership commenced an offering of
up to $50,000,000 of Class A or Class B limited partnership units ($250.00 per unit) 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 5,000 units on February 15, 1985. The offering was terminated on September 5, 1986, at which time the Partnership had sold approximately 98,716 Class A Units and 42,568 Class B Units representing capital
contributions of $35,321,000.



|                                                                                                                                                                        |  |                                                            |  |                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------- |  | -------------------------------------------------------------------------
|During the periods presented, the Partnership owned
direct interests in the following properties:                                                                      
|                                                                                                                                                                       
|1.      Paces Pavilion A medical office building located in Atlanta, Georgia
in which the Partnership owns a condominium interest of approximately 27% of the property.
|                                                                                                                                                                       
|2.      Black Oak Plaza A retail shopping center located in Knoxville,
Tennessee.                                                                                      
|                                                                                                                                                                       
|During the period presented, the Partnership owned interests in the following joint ventures (the Joint Ventures) and property:                                      
|                                                                                                                                                                        |  |                                                           
|Joint Ventures                                                                                                                                                          |  | Joint Venture Partners                                     |  | Properties                                                               
|Wells-Baker Associates                                                                                                                                                  |  |   Wells Real Estate Fund I   Wells & Associates, Inc.(1) |  | No properties owned during theperiods
presented.(2)                      
|Fund I and Fund II Tucker                                                                                                                                               |  |   Wells Real Estate Fund I   Fund II and Fund II-OW(3)   |  | 1. Heritage Place(4)A commercial office complexlocated in Tucker, Georgia



| | (1) | Wells & Associates, Inc. is an affiliate of the General
Partners.
| | --- | -----------------------------------------------------------------



| | (2) | The property owned by this joint venture originally included two
office buildings; one building was sold in August 2000, and the remaining building was sold in June 2004.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Fund II and Fund II-OW is a
joint venture between Wells Real Estate Fund II and Wells Real Estate Fund II-OW.
| | --- | -------------------------------------------------------------------------------------------------------------



| | (4) | The retail portion of this property (approximately 30%) was sold in
April 2003, and the remaining office component of this property was sold in May 2006.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



Page 9



---

##### Table of Contents

Wells Real Estate Fund II and Wells Real Estate Fund II-OW are affiliated with the Partnership through
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 May 10, 2006, Fund I and Fund II Tucker sold the office component of Heritage Place to an unrelated
third party for a gross sale price of $4,215,000. As a result of the sale, Fund I and Fund II Tucker received net sale proceeds of approximately $4,029,000, of which approximately $2,091,000 was distributed to the Partnership. As of March 31,
2006, Fund I and Fund II Tucker recognized an impairment loss of approximately $795,000 in order to reduce the carrying value of Heritage Place to its estimated fair value, less costs to sell, and recognized an additional loss on sale of
approximately $9,000. Approximately $413,000 and $5,000 of the impairment loss and loss on sale were allocable to the Partnership, respectively.



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

Basis of Presentation

The consolidated financial statements include the accounts of the Partnership and Wells-Baker
Associates. All significant intercompany balances have been eliminated in consolidation. Minority interest represents Wells & Associates, Inc.s interest in Wells-Baker Associates of approximately 10% for each of the periods presented.

The consolidated 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 those periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the consolidated 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 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.



Page 10



---

##### Table of Contents

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
|Refundable security deposits |  | $53,821       |  | $87,215          
|Interest receivable          |  | 23,165        |  | 0                
|Prepaid association dues     |  | 16,415        |  | 0                
|Prepaid insurance            |  | 6,055         |  | 4,631            
|                             |  |               |  |                  
|Total                        |  | $99,456       |  | $91,846          
|                             |  |               |  |                  

Refundable security deposits represent cash deposits received from tenants. Pursuant to the
respective leases, the Partnership may apply such balances toward unpaid receivable balances or property damages, where applicable, and is obligated to refund any residual balances to the tenants upon the expiration of the related lease terms.
Prepaid insurance and prepaid association dues are recognized over the periods to which the respective contract or membership relates. Interest receivable represents interest earned during the period presented, which will be received in the
following month. Balances without a future economic benefit, if any, are written off as they are identified.

Distribution of Net Cash from Operations

As more fully described in the partnership agreement, net cash from operations, if available, is generally distributed quarterly to the
limited partners as follows:



| |  |  | First, to the Class A limited partners until such limited partners have received distributions equal to a 9% per annum return on their respective
adjusted capital contributions, as defined.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Second, to the Class B limited partners until such limited partners have received distributions equal to a 9% per annum return on their respective
adjusted capital contributions, as defined.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Third, to the General Partners until they have received 10% of total distributions for such year.
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Fourth, to the limited partners and the General Partners allocated on a basis of 90% and 10%, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------

Distribution of Net Sale Proceeds

As more fully
described in the partnership agreement, after satisfying all debts and liabilities and establishing reserves deemed reasonably necessary in the sole discretion of the General Partners, net proceeds from the sale of the Partnerships properties
are to be distributed to partners in accordance with their respective positive capital account balances after the allocation of any gain on sale.

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 is generally
allocated each year in the same proportion that net cash from operations is distributed to the partners.

As more fully described in the
partnership agreement, net loss, depreciation, and amortization deductions for each fiscal year will be allocated as follows: (a) 99% to the Class B limited partners 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.



Page 11



---

##### Table of Contents

As more fully described in the partnership agreement, gain on the sale or exchange of the
Partnerships properties is generally allocated as follows: (a) first, to partners having negative capital accounts, if any, until all negative capital accounts have been restored to zero; (b) then, to the limited partners, in
proportion to and to the extent of, the amount by which (i) the excess of each limited partners capital contribution over all prior distributions to such limited partner under certain partnership agreement provisions, plus an amount equal
to such limited partners cumulative distribution, less the sum of all prior distributions of cash available for distribution previously made to such limited partner, exceeds (ii) such limited partners adjusted capital account
balance as of the sale date; (c) then, to the General Partners, in proportion to and to the extent of, the amount by which (i) the excess of each of the General Partners adjusted capital contribution over all prior distributions to
such General Partner under certain partnership agreement provisions, exceeds (ii) such General Partners adjusted capital account balance as of the sale date; and (d) thereafter, 85% to the limited partners and 15% to the General
Partners.

Impairment of Real Estate Assets

The Partnership continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate assets owned, either directly or through the Partnerships investment in Fund I and Fund II
Tucker, may not be recoverable. When indicators of potential impairment are present, management assesses whether the respective carrying values will be recovered with the undiscounted future operating cash flows expected from the use of the asset
and its eventual disposition for assets held for use, or with the estimated fair values, less costs to sell, for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value,
less costs to sell, for assets held for sale do not exceed the respective asset carrying value, management adjusts such assets to the respective estimated fair values, 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.

Reclassifications

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



Page 12



---

##### Table of Contents

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

Impairment
of Real Estate Assets

Fund I and Fund II Tucker considers real estate assets to be held for sale, as defined by SFAS No. 144, at
the point at which a sale contract is executed. During first quarter 2006, Fund I and Fund II Tucker executed a contract to sell the office component of Heritage Place for a gross sale price of $4,215,000. Upon entering into this contract, Fund I
and Fund II Tucker determined that the carrying value of the related real estate assets was not recoverable as compared to the gross sale price, less estimated costs to sell. Accordingly, Fund I and Fund II Tucker reduced the carrying value of such
real estate assets to the estimated fair value by recognizing an impairment loss of approximately $795,000 during the first quarter in 2006, of which approximately $413,000 is allocable to the Partnership. This impairment loss is included in income
(loss) from discontinued operations for the six months ended June 30, 2006 in the table below.

Summary of Financial Information

Condensed financial information for Fund I and Fund II Tucker for the three months and six months ended June 30, 2006 and 2005, respectively, is
presented below:



|                          |  |                    |  |                                |  |                                           |  |                    |  |            |  |         |  |            |  |        
|------------------------- |  | ------------------ |  | ------------------------------ |  | ----------------------------------------- |  | ------------------ |  | ---------- |  | ------- |  | ---------- |  | -------
|                          |  | Total Revenues     |  | Loss FromContinuing Operations |  | Income (Loss) FromDiscontinued Operations |  | Net Income (Loss) 
|                          |  | Three Months Ended |  | Three Months Ended             |  | Three Months Ended                        |  | Three Months Ended
|                          |  | June 30,           |  | June 30,                       |  | June 30,                                  |  | June 30,          
|                          |  | 2006               |  | 2005                           |  | 2006                                      |  | 2005               |  | 2006       |  | 2005    |  | 2006       |  | 2005   
|Fund I and Fund II Tucker |  | $1,259             |  | $2,313                         |  | $(8,537)                                  |  | $(519)             |  | $(9,799)   |  | $6,670  |  | $(18,336)  |  | $6,151 
|                          |  |                    |  |                                |  |                                           |  |                    |  |            |  |         |  |            |  |        
|                          |  |                    |  |                               
|                          |  | Total Revenues     |  | Loss FromContinuing Operations |  | Income (Loss) FromDiscontinued Operations |  | Net Income (Loss) 
|                          |  | Six Months Ended   |  | Six Months Ended               |  | Six Months Ended                          |  | Six Months Ended  
|                          |  | June 30,           |  | June 30,                       |  | June 30,                                  |  | June 30,          
|                          |  | 2006               |  | 2005                           |  | 2006                                      |  | 2005               |  | 2006       |  | 2005    |  | 2006       |  | 2005   
|Fund I and Fund II Tucker |  | $2,189             |  | $2,313                         |  | $(10,804)                                 |  | $(1,042)           |  | $(810,142) |  | $17,145 |  | $(820,946) |  | $16,103
|                          |  |                    |  |                                |  |                                           |  |                    |  |            |  |         |  |            |  |        

The Partnership allocates operating income (loss) and gain (loss) on 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
results are provided below:



|                          |  |                                |  |                                |  |              |  |            |  |                 |  |                 |  |             |  |        
|------------------------- |  | ------------------------------ |  | ------------------------------ |  | ------------ |  | ---------- |  | --------------- |  | --------------- |  | ----------- |  | -------
|                          |  | Six Months Ended June 30, 2006 |  | Six Months Ended June 30, 2005
|                          |  | OperatingLoss                  |  | Impairment Loss                |  | Loss on Sale |  | Total      |  | OperatingIncome |  | Impairment Loss |  | Gainon Sale |  | Total  
|Fund I and Fund II Tucker |  | $(6,097)                       |  | $(794,812)                     |  | $(9,233)     |  | $(810,142) |  | $17,145         |  | $0              |  | $0          |  | $17,145
|                          |  |                                |  |                                |  |              |  |            |  |                 |  |                 |  |             |  |        



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

Management
and Leasing Fees

Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners, is entitled
to compensation for the management and leasing of the Partnerships properties, owned directly or through the Joint Ventures, equal to (a) of the gross revenues collected monthly, 3% for management services and 3% for leasing services,
plus a separate fee for the one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar
properties, or (b) in the case of commercial properties 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.



Page 13



---

##### Table of Contents

From March 1987 through December 2004, Wells Management elected to defer the receipt of management and
leasing fees and initial lease-up costs due from the Partnership with respect to the properties owned by the Partnership directly and through its interest in the Joint Ventures. Accordingly, as of December 31, 2004, the Partnership owed
aggregate management and leasing fees to Wells Management of $3,032,773, of which $2,254,037 was recorded as due to affiliates; the remaining $778,736 was due from Fund I and Fund II Tucker. In March 2005, these amounts due were paid to Wells
Management. The Partnership began paying management and leasing fees to Wells Management from current operating cash flow in the first quarter of 2005. The Partnerships share of management and leasing fees and lease acquisition costs incurred
from properties owned directly and through Fund I and Fund II Tucker is $16,891 and $18,775 for the three months ended June 30, 2006 and 2005, respectively, and $35,022 and $36,728 for the six months ended June 30, 2006 and 2005,
respectively.

Administration Reimbursements

Wells Capital and Wells Management perform certain administrative services for the Partnership, relating to accounting, property management, and other partnership administration, and incur the related expenses. Such expenses are allocated
among other entities affiliated with the General Partners based on estimates of the amount of time spent on the respective entities by individual 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 $24,262 and $37,506 for the three months ended June 30, 2006 and 2005, respectively, and $50,772 and $77,646 for the six months ended
June 30, 2006 and 2005, respectively.

Due to Affiliates

As of June 30, 2006 and December 31, 2005, due to affiliates was comprised of the following amounts:



|                                                                           |  |               |  |                  
|-------------------------------------------------------------------------- |  | ------------- |  | -----------------
|                                                                           |  | June 30, 2006 |  | December 31, 2005
|Administrative reimbursements due to Wells Management and/or Wells Capital |  | $11,370       |  | $17,650          
|Property management fees due to Wells Management                           |  | 221           |  | 439              
|                                                                           |  |               |  |                  
|                                                                           |  | $11,591       |  | $18,089          
|                                                                           |  |               |  |                  

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.

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.



Page 14



---

##### Table of Contents

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

Dismissal
of the Johnston Action

On January 17, 2003, the Partnership was served with a putative class action (Roy Johnston v. Wells Real
Estate Fund I,Superior Court of Gwinnett County, Georgia, Civil Action No. 03-A00525-6, the Johnston Action) by a limited partner holding Class B Units on behalf of all limited partners holding Class B Units as of
January 15, 2003. The plaintiff alleged that the terms of the partnership agreement were inconsistent with the original intent of the parties thereto such that the alleged original intent would have provided the limited partners holding Class B
Units with a priority in the allocation and payment of net property sale proceeds. On May 7, 2004, the Court granted summary judgment in favor of the Partnership on grounds of statutes of limitation and laches. By an order entered on
December 14, 2004, the court granted the plaintiffs motion to withdraw the notice of appeal, which had previously been filed by the plaintiff. On March 31, 2005, the Court entered an Order Denying Intervenors Counsels
Motion for Award of Attorney Fees and Reimbursement of Expenses. Accordingly, no reserves have been provided for in the accompanying consolidated financial statements.

On April 20, 2006, the Court held a hearing addressing only the liability aspects of the Partnerships motion for attorneys fees and expenses. By Order entered May 24, 2006, the Court denied the
Partnerships motion to recover its attorneys fees and expenses of litigation. The Johnston Action is concluded, and no unresolved issues are pending in connection with this litigation.

Hendry Action

As a matter of background, on or about
March 12, 2004, a putative class action complaint (the Original Complaint) was filed by four individuals (the plaintiffs) against the Partnership, and Wells Capital and Leo F. Wells, III, the General Partners of the
Partnership, as well as Wells Management and Wells Investment Securities, Inc. (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04-A-2791-2). The plaintiffs filed the Original
Complaint purportedly on behalf of all limited partners holding Class B Units of the Partnership as of January 15, 2003. On June 3, 2004, the Court granted the plaintiffs motion to permit voluntary dismissal, and the Original
Complaint was dismissed without prejudice. On June 18, 2004, the defendants filed a motion to recover their attorneys fees and costs from the plaintiffs and their counsel. The Court held a hearing on part, but not all, of the issues
raised in that motion on August 3, 2004, and took the matter under advisement without ruling on any part of the motion. On June 24, 2005, the Court held another hearing on the defendants motion to recover their attorneys fees.
By Order entered May 24, 2006, the Court denied the Partnerships motion to recover its attorneys fees and expenses of litigation. This action is concluded, and no unresolved issues are pending in connection with the action
represented by the Original Complaint.

On or about November 24, 2004, the plaintiffs filed a second putative class action complaint
(Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04A-13051-6, the Hendry Action) against the Partnership, the General Partners, and Wells Management. The Hendry Action
is described in detail in Part II, Item 1 Legal Proceedings, and the current status is noted here. The Court has entered judgments granting the Wells defendants motions to dismiss and for summary judgment on all counts in
plaintiffs complaint, and on June 21, 2006, plaintiffs filed a notice of appeal from those judgments. The Court also has entered an order denying motions by the Wells defendants to recover their attorneys fees and expenses of
litigation, and on July 5, 2006, the Wells defendants filed a notice of cross appeal with respect to that order. The Hendry Action states that the Partnership is named only as an allegedly necessary party defendant and that the plaintiffs seek
no money from or relief at the expense of the Partnership. The indemnification provisions of the partnership agreement require the Partnership to indemnify the General Partners for their costs of defending the Hendry Action under certain
circumstances upon the conclusion of this litigation. At this time, management is unable to determine whether the likelihood of an unfavorable outcome is either probable or remote. Accordingly, no reserves have been provided for in the accompanying
consolidated financial statements.



Page 15



---

##### Table of Contents



|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 consolidated financial statements and notes thereto. See also Cautionary Note Regarding
Forward-Looking Statements preceding Part I, as well as the notes to our consolidated 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 raised 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.

Portfolio Overview

We are currently in the
disposition-and-liquidation phase of our life cycle. We have now sold four assets with the sale of the office component of Heritage Place during the second quarter of 2006. We are continuing the disposition process, marketing both Paces Pavilion and
Black Oak Plaza for sale. We continue to aggressively pursue leasing opportunities that will increase occupancy at Black Oak Plaza that we believe will result in the best disposition pricing for our limited partners.

The General Partners are currently reserving operating cash flows to limited partners in order to fund any additional legal costs or indemnification
obligations in connection with the litigation discussed herein, and the costs anticipated in connection with capital improvements and re-leasing costs at Paces Pavilion and Black Oak Plaza. The General Partners also have announced their intention to
distribute net sale proceeds from the sales of Cherokee Commons, Heritage Place, and Peachtree Place of approximately $3,400,000 in November of 2006. (See Contractual Obligations and Commitments below.)

Property Summary

As we move further into the
disposition-and-liquidation phase, we continue to focus on re-leasing vacant space and space that may become vacant upon the expiration of our current leases. In doing so, we seek to maximize



Page 16



---

##### Table of Contents

returns to the limited partners by negotiating long-term leases at market rental rates while attempting to minimize down time, re-leasing expenditures,
ongoing property level costs, and portfolio costs. As the remaining properties are positioned for sale, our attention will shift to locating suitable buyers and negotiating purchase-sale contracts that will attempt to maximize the total return to
the limited partners and minimize contingencies and our post-closing involvement with the buyer.

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



| |  |  | Crowes Crossing was sold on January 11, 2001.
| | - |  | ----------------------------------------------



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



| |  |  | Heritage Place originally included both an office component and a retail shopping center. The retail center, which represented approximately 30% of the premises,
was sold on April 7, 2003. The remaining office component was sold on May 10, 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Peachtree Place originally included two buildings. One building was sold on August 31, 2000, and the remaining building sold on June 18, 2004.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Paces Pavilion continues to operate at an approximate 90% occupancy level.
| | - |  | --------------------------------------------------------------------------



| |  |  | Black Oak Plaza is approximately 61% leased, and leasing efforts at this property continue.
| | - |  | -------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Overview

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

Short-Term Liquidity

We used net cash flows from
operating activities, including operating distributions received from the Joint Ventures, of approximately $37,000 and $2,190,000 for the six months ended June 30, 2006 and 2005, respectively. The additional net cash flow used in 2005 is
primarily a result of repaying deferred management and leasing fees of approximately $2,254,000 to Wells Management in March 2005 (See Note 4 to the accompanying consolidated financial statements).

We do not expect to receive future operating distributions from Fund I and Fund II Tucker, as the remaining portion of Heritage Place was sold in May
2006. Future operating distributions paid to limited partners will be largely dependent upon the amount of cash generated from the directly owned properties, our expectations of future cash flows and determination of near-term cash needs for tenant
re-leasing costs, and other capital improvements for properties owned directly by the Partnership should the proposed sale not close.

We
believe that the cash on hand, including net proceeds from the sale of properties, is sufficient to cover our working capital needs, including liabilities of approximately $279,000 as of June 30, 2006. We anticipate that we



Page 17



---

##### Table of Contents

will be able to fund any additional legal costs or indemnification obligations in connection with the litigation discussed herein and the costs anticipated
with capital improvements and re-leasing costs at Black Oak Plaza and Paces Pavilion using current and future operating cash flow and net sale proceeds currently being reserved.

Long-Term Liquidity

We expect that our future sources of capital will be primarily derived from net
proceeds generated from the sale of properties and operating cash flows generated from our remaining properties. Our future long-term liquidity requirements will include, but not be limited to, funding tenant improvements, renovations, expansions,
and other significant capital improvements necessary for properties owned directly.

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, or interest therein, on an all-cash basis that are pre-leased to creditworthy tenants.

We fund capital expenditures primarily related to tenant improvements for the purpose of readying properties for re-leasing, and building improvements for the purpose of maintaining the quality of our properties and readying properties for
sale. As leases expire, we attempt to re-lease space to existing tenants or market the space to prospective new tenants. Generally, tenant improvements funded in connection with lease renewals require less capital than those funded in connection
with new leases. However, external conditions, such as the supply of and demand for comparable space available within a given market, drive capital costs as well as rental rates. Any capital or other expenditures not provided for out of operating
cash flows will be required to be funded by the Partnership and the respective joint venture partners in proportion to their respective ownership interests.

Our cash management policy typically includes first utilizing current period operating cash flows 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.



Page 18



---

##### Table of Contents

As of June 30, 2006, we had received, used, 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 Sale Proceeds Allocated to the Partnership |  | Use of Net Sale Proceeds |  | Net Sale ProceedsDistributed toPartners as
of June 30, 2006 |  | Undistributed NetSale Proceeds Currently Being Reserved as
of June 30, 2006
|                                           |  |                   |  | Amount                                |  | Purpose                                        |  |                         
|                                           |  |                   |  |                                       |  |                                                | 
|Peachtree Place(partial sale in2000)       |  | $   704,496       |  | 90.0%                                 |  | $     633,695                                  |  | $   633,695              |  |   Payment of deferred management fee                       |  | $              0                                                            |  | $              0
|                                           |  |                   |  |                                       |  |                                                | 
|Crowes Crossing(sold in 2001)             |  | 6,486,652         |  | 100%                                  |  | 6,486,652                                      |  | 1,481,087                |  |   Payment of deferred management fee                       |  | 5,005,565                                                                   |  | 0               
|                                           |  |                   |  |                                       |  |                                                | 
|Cherokee Commons(sold in 2001)             |  | 8,414,089         |  | 25.3%                                 |  | 2,126,109                                      |  | 23,331                   |  |   Payment of deferred management fee                       |  | 994,435                                                                     |  | 1,108,343       
|                                           |  |                   |  |                                       |  |                                                | 
|Heritage Placeretail portion(sold in 2003) |  | 3,207,708         |  | 51.9%                                 |  | 1,665,121                                      |  | 266,967                  |  |   Payment of deferred management fee                       |  | 0                                                                           |  | 1,398,154       
|                                           |  |                   |  |                                       |  |                                                | 
|Peachtree Place(remaindersold in 2004)     |  | 953,670           |  | 90.0%                                 |  | 857,826                                        |  | 253,200                  |  |   Payment of deferred management fee                       |  | 0                                                                           |  | 604,626         
|                                           |  |                   |  |                                       |  |                                                | 
|Heritage Placeoffice portion(sold in 2006) |  | 4,028,983         |  | 51.9%                                 |  | 2,091,445                                      |  | 0                        |  |                                                             |  | 0                                                                           |  | 2,091,445       
|                                           |  |                   |  |                                       |  |                                                |  |                          |  |                                                             |  |                                                                             |  |                 
|                                           |  |                   |  |                                       |  |                                                | 
|Total                                      |  |                   |  |                                       |  | $13,860,848                                    |  | $2,658,280               |  |                                                             |  | $6,000,000                                                                  |  | $5,202,568      
|                                           |  |                   |  |                                       |  |                                                |  |                          |  |                                                             |  |                                                                             |  |                 

Upon evaluating the capital needs of the properties in which we currently hold an interest, our
General Partners have determined that reserves of net sale proceeds of approximately $1.8 million should be sufficient to fund any additional legal costs or indemnification obligations in connection with the litigation discussed herein and the costs
anticipated in connection with capital improvements and re-leasing costs at Paces Pavilion and Black Oak Plaza. Accordingly, our General Partners anticipate distributing residual net sale proceeds of approximately $3.4 million in November 2006, as
further discussed below.

Contractual Obligations and Commitments

In June 2006, our General Partners announced their intention to distribute net sale proceeds from sales of Cherokee Commons, Heritage Place, and Peachtree Place of approximately $3.4 million 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 $1.8 million in reserve in order to fund any additional legal costs or indemnification obligations in connection with the litigation discussed herein and the costs anticipated in connection with capital improvements and
re-leasing costs at Paces Pavilion and Black Oak Plaza.

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 for the Partnership in the sole discretion of the General Partners. Thus, should a change in circumstances prior to
the intended distribution date require the General Partners to reevaluate the Partnerships reserve requirements, it is possible that this distribution may not occur or that such distribution could be made at a lower amount.



Page 19



---

##### Table of Contents

Results of Operations

Comparison of the three months ended June 30, 2005 versus the three months ended June 30, 2006

Rental income and
reimbursement income remained relatively stable at $252,724 and $32,733, respectively, for the three months ended June 30, 2005 to $256,060 and $34,319, respectively, for the three months ended June 30, 2006. Rental income and
reimbursement income are expected to decrease in future periods as a result of the decrease in occupancy at Black Oak Plaza.

Interest and
other income increased from $36,252 for the three months ended June 30, 2005 to $58,488 for the three months ended June 30, 2006, primarily as a result of an increase in the daily interest yield. Future levels of interest income will be
largely dependent upon the timing of future dispositions, net sale proceeds distributions to the investors, and utilizing net sale proceeds for any additional legal costs or indemnification obligations in connection with the litigation discussed
herein and the costs anticipated in connection with capital improvements and re-leasing costs at Paces Pavilion and Black Oak Plaza.

Legal
and accounting costs increased from $61,359 for the three months ended June 30, 2005 to $99,853 for the three months ended June 30, 2006, primarily due to attempts to resolve certain aspects of the litigation discussed in Part II,
Item 1, during the second quarter of 2006. Legal and accounting costs are expected to increase in future periods as a result of implementing and complying with additional reporting and regulatory requirements.

Property operating costs decreased from $116,471 for the three months ended June 30, 2005 to $84,450 for the three months ended June 30, 2006,
primarily due to (i) a reduction in association dues during 2006 as a result of a successful appeal for real estate taxes related to previous years at Paces Pavilion, and (ii) a reduction in property insurance costs at Black Oak Plaza
resulting from a decrease in insurance premiums. Reimbursement income did not fluctuate commensurate with the decline in property operating costs, primarily due to limitations and/or conditions included in the majority of affected leases under which
such costs are reimbursable from tenants. Future property operating costs are expected to decrease in future periods as a result of the decrease in occupancy at Black Oak Plaza.

Depreciation expense remained relatively stable at $66,630 for the three months ended June 30, 2005, as compared to $66,629 for the three months ended June 30, 2006. Future depreciation
expense is expected to increase as a result of the anticipated capital expenditures at Paces Pavilion and Black Oak Plaza.

Bad debt
expense increased from $0 for the three months ended June 30, 2005 to $22,753 for the three months ended June 30, 2006, primarily as a result of reserving receivables that are deemed uncollectible at Black Oak Plaza. Bad debt expense is
expected to decrease as a result of this tenant vacating the premises. We continue to aggressively pursue leasing opportunities that will increase occupancy at Black Oak Plaza.

Equity in income (loss) of Joint Ventures decreased from $3,193 for the three months ended June 30, 2005 to $(9,518) for the three months ended June 30, 2006, primarily as a result of
recognizing a loss on the sale of Heritage Place in May 2006. Future equity in income (loss) of Joint Ventures is expected to decrease as a result of the aforementioned sale.

Comparison of the six months ended June 30, 2005 versus the six months ended June 30, 2006

Rental income and reimbursement income remained relatively stable at $515,090 and $72,234, respectively, for the six months ended June 30, 2005 to $515,137 and $78,480, respectively, for the six months ended June 30, 2006. Rental
income and reimbursement income are expected to decrease in future periods as a result of the decrease in occupancy at Black Oak Plaza.

Interest and other income increased from $69,137 for the six months ended June 30, 2005 to $98,928 for the six months ended June 30, 2006, primarily as a result of an increase in the daily interest yield. Future levels of



Page 20



---

##### Table of Contents

interest income will be largely dependent upon the timing of future dispositions, net sale proceeds distributions to the investors, and utilizing net sale
proceeds to fund any additional legal costs or indemnification obligations in connection with the litigation discussed herein and the costs anticipated in connection with capital improvements and re-leasing costs at Paces Pavilion and Black Oak
Plaza.

Legal and accounting costs increased from $140,428 for the six months ended June 30, 2005 to $221,736 for the six months ended
June 30, 2006, primarily due to attempts to resolve certain aspects of the litigation discussed in Part II, Item 1, during the first six months of 2006. Legal and accounting costs are expected to increase in future periods as a result
of implementing and complying with additional reporting and regulatory requirements.

Property operating costs decreased from $236,175 for
the six months ended June 30, 2005 to $197,365 for the six months ended June 30, 2006, primarily due to (i) a reduction in association dues during 2006 as a result of a successful appeal for real estate taxes related to previous years
at Paces Pavilion, and (ii) a reduction in property insurance costs resulting from a decrease in insurance premiums at Black Oak Plaza. Reimbursement income did not fluctuate commensurate with the decline in property operating costs, primarily
due to limitations and/or conditions included in the majority of affected leases under which such costs are reimbursable from tenants. Future property operating costs are expected to decrease in future periods as a result of the decrease in
occupancy at Black Oak Plaza.

Depreciation expense increased from $133,557 for the six months ended June 30, 2005 to $136,265 for the
six months ended June 30, 2006, primarily due to the additional capital expenditures placed in service in December 2005 and April 2006 at Black Oak Plaza. Future depreciation expense is expected to increase as a result of the anticipated
capital expenditures at Paces Pavilion and Black Oak Plaza.

Bad debt expense increased from $0 for the six months ended June 30, 2005
to $32,280 for the six months ended June 30, 2006, primarily as a result of reserving receivables that are deemed uncollectible at Black Oak Plaza. Bad debt expense is expected to decrease as a result of this tenant vacating the premises. We
continue to aggressively pursue leasing opportunities that will increase occupancy at Black Oak Plaza.

Equity in income (loss) of Joint
Ventures decreased from $8,359 for the six months ended June 30, 2005 to $(426,152) for the six months ended June 30, 2006, primarily as a result of (i) recognizing an impairment loss at Heritage Place (See Note 3 of the accompanying
consolidated financial statements); and (ii) recognizing a loss from the sale of Heritage Place in May 2006. Future equity in income (loss) of Joint Ventures is expected to decrease as a result of the aforementioned sale.

Inflation

We are exposed to inflation risk as income
from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that would protect us from the impact of inflation. These provisions include rent steps, reimbursement billings
for operating expense pass-through charges, real estate tax and insurance reimbursements on a per-square-foot basis, or in some cases, annual reimbursement of operating expenses above a certain per-square-foot allowance. However, due to the
long-term nature of our leases, the leases may not readjust their reimbursement rates frequently enough to cover inflation.

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



Page 21



---

##### Table of Contents

revenue and expenses during the reporting periods. If managements judgment or interpretation of the facts and circumstances relating to various
transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that
may impact comparability of our results of operations to those of companies in similar businesses.

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

Investment in Real Estate Assets

We will be required
to make subjective assessments as to the useful lives of our depreciable assets. We will consider the period of future benefit of the assets to determine the appropriate useful lives. These assessments have a direct impact on net income. The
estimated useful lives of the Partnerships and Fund I and Fund II Tuckers assets by class are as follows:



|                      |  |                                       
|--------------------- |  | --------------------------------------
|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 we use inappropriate useful lives or methods for depreciation, our net income
would be misstated.

Valuation of Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which we have an ownership interest, either directly or through investments in Fund
I and Fund II Tucker, 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 assets and their 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, 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. As of June 30, 2006, Fund I and Fund II Tucker recorded an impairment loss for the office component of Heritage Place of approximately $795,000, of which approximately $413,000 was allocated to the Partnership.

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 owned by the Partnership or Fund I and Fund II Tucker and net income
of the Partnership.

Related-Party Transactions

We have entered into agreements with Wells Capital, Wells Management, an affiliate of our General Partners, and their affiliates, whereby we pay certain fees and expense reimbursements to Wells Capital, Wells



Page 22



---

##### Table of Contents

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.

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.



Page 23



---

##### Table of Contents

PART II.    OTHER INFORMATION



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

Dismissal of Johnston Action

On January 17, 2003, the Partnership was served with a putative class action (Roy Johnston v. Wells Real Estate Fund I,Superior Court of
Gwinnett County, Georgia, Civil Action No. 03-A00525-6, the Johnston Action) by a limited partner holding Class B Units on behalf of all limited partners holding Class B Units as of January 15, 2003. The plaintiff alleged that
the terms of the partnership agreement were inconsistent with the original intent of the parties thereto such that the alleged original intent would have provided the limited partners holding Class B Units with a priority in the allocation and
payment of net property sale proceeds. On May 7, 2004, the Court granted summary judgment in favor of the Partnership on grounds of statutes of limitation and laches. By an order entered on December 14, 2004, the court granted the
plaintiffs motion to withdraw the notice of appeal, which had previously been filed by the plaintiff. On March 31, 2005, the Court entered an Order Denying Intervenors Counsels Motion for Award of Attorney Fees and
Reimbursement of Expenses. Accordingly, no reserves have been provided for in the accompanying consolidated financial statements.

On
April 20, 2006, the Court held a hearing addressing only the liability aspects of the Partnerships motion for attorneys fees and expenses. By Order entered May 24, 2006, the Court denied the Partnerships motion to recover
its attorneys fees and expenses of litigation. The Johnston Action is concluded, and no unresolved issues are pending in connection with this litigation.

Hendry Action

As a matter of background, on or about March 12, 2004, a putative class action complaint (the
Original Complaint) was filed by four individuals (the plaintiffs) against the Partnership, and Wells Capital and Leo F. Wells, III, the General Partners of the Partnership, as well as Wells Management and Wells Investment
Securities, Inc. (Hendry et al. v. Leo F. Wells, III et al., Superior Court of Gwinnett County, Georgia, Civil Action No. 04-A-2791-2). The plaintiffs filed the Original Complaint purportedly on behalf of all limited partners
holding Class B Units of the Partnership as of January 15, 2003. On June 3, 2004, the Court granted the plaintiffs motion to permit voluntary dismissal, and the Original Complaint was dismissed without prejudice. On June 18,
2004, the defendants filed a motion to recover their attorneys fees and costs from the plaintiffs and their counsel. The Court held a hearing on part, but not all, of the issues raised in that motion on August 3, 2004, and took the matter
under advisement without ruling on any part of the motion. On June 24, 2005, the Court held another hearing on the defendants motion to recover their attorneys fees. By Order entered May 24, 2006, the Court denied the
Partnerships motion to recover its attorneys fees and expenses of litigation. This action is concluded, and no unresolved issues are pending in connection with the action represented by the Original Complaint.

On or about November 24, 2004, the plaintiffs filed a second putative class action complaint (Hendry et al. v. Leo F. Wells, III et al.,
Superior Court of Gwinnett County, Georgia, Civil Action No. 04A-13051-6, the Hendry Action) against the Partnership, the General Partners, and Wells Management. The Hendry Action states that the Partnership is named only as an
allegedly necessary party defendant and that the plaintiffs seek no money from or relief at the expense of the Partnership. As of June 30, 2006, Wells Capital had incurred approximately $721,000 in legal fees, costs, and expenses related to
defending against the Hendry Action. The indemnification provisions of the partnership agreement require the Partnership to indemnify the General Partners for their costs of defending the Hendry Action under certain circumstances upon the conclusion
of this litigation. At this time, management is unable to determine whether the likelihood of an unfavorable outcome is either probable or remote. Accordingly, no reserves have been provided for in the accompanying consolidated financial statements.

The plaintiffs filed the Hendry Action purportedly on behalf of all limited partners of the Partnership holding Class B Units as of
January 9, 2002. The Hendry Action alleges, among other things, that the General Partners



Page 24



---

##### Table of Contents

breached their fiduciary duties to the limited partners by, among other things: (a) failing to timely disclose alleged inconsistencies between sales
literature and the partnership agreement relating to the distribution of net sale proceeds; (b) engaging in a scheme to fraudulently conceal alleged inconsistencies between sales literature and the partnership agreement relating to the
distribution of net sale proceeds; and (c) not accepting a settlement offer proposed by a holder of Class A Units and a holder of Class A and Class B Units in other litigation naming the Partnership as a defendant (Johnston),
in which the Court subsequently granted summary judgment in favor of the Partnership. The Hendry Action also alleges that misrepresentations and omissions in an April 2002 consent solicitation to the limited partners caused that consent solicitation
to be materially misleading. In addition, the Hendry Action alleges that the General Partners and Wells Management breached an alleged contract arising out of a June 2000 consent solicitation to the limited partners relating to an alleged waiver of
deferred management fees. The plaintiffs seek, among other remedies, the following: judgment against the General Partners of the Partnership, jointly and severally, in an amount to be proven at trial; punitive damages; disgorgement of fees earned by
the General Partners directly or through their affiliates; a declaration that the consent obtained as a result of an April 2002 consent solicitation is null and void; enforcement of an alleged contract arising out of the June 2000 consent
solicitation to allegedly waive Wells Managements deferred management fees; and an award to the plaintiffs of their attorneys fees, costs, and expenses.

On January 28, 2005, the defendants filed motions for summary judgment and motions to dismiss the plaintiffs claims. On March 31, 2005, the plaintiffs filed briefs in opposition to the defendants
motions. Pursuant to Orders entered July 1, 2005, the Court granted the defendants motions to dismiss and for summary judgment on all counts in the complaint. Thus, this action was at the time dismissed, subject to plaintiffs right
to file a notice of appeal within the required time period. On August 3, 2005, the plaintiffs filed a motion requesting the Court to vacate and re-enter the orders to give the plaintiffs an opportunity to file a motion for the reconsideration
or notice of appeal. After both sides had filed briefs in support of their respective positions, on February 15, 2006, the Court heard argument on plaintiffs motion to vacate and to re-enter the judgments previously entered on
July 1, 2005.

On or about August 8, 2005, the defendants filed a motion for attorneys fees and expenses of litigation. On
or about August 12, 2005, the plaintiffs filed a motion for attorneys fees and expenses of litigation as to one of the defenses asserted by defendants. On April 20, 2006, the Court held a hearing addressing only the liability aspects
on the defendants and plaintiffs motions for attorneys fees and expenses. By Orders entered May 24, 2006, the Court denied the plaintiffs and the defendants motions to recover attorneys fees and expenses of
litigation. Also by Orders entered May 24, 2006, the Court re-entered its July 1, 2005 judgments granting the Wells defendants motions to dismiss and for summary judgment on all counts in the complaint, so as to allow plaintiffs 30
days within which to file a notice of appeal. On or about June 21, 2006, plaintiffs filed a notice of appeal with respect to the Courts Order granting the defendants motions to dismiss and for summary judgment. On July 5, 2006,
the defendants filed a notice of cross appeal with respect to the Courts Order denying the defendants motion for attorneys fees and expenses of litigation.



|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.
|--- | ------------------------------------------------------------------------



Page 25



---

##### Table of Contents

|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.



Page 26



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                |  |  |  |                                                                                                    |  |                            
|--------------- |  |  |  | -------------------------------------------------------------------------------------------------- |  | ---------------------------
|                |  |  |  | Wells Real Estate Fund I (Registrant)                                                             
|                |  |  | 
|                |  |  |  | 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 Director of Wells Capital, Inc.
|                |  | 
|August 10, 2006 |  |  |  | /S/    DOUGLAS P.
WILLIAMS                                                                        
|                |  |  |  | Douglas P. Williams Principal Financial Officer of Wells Capital, Inc.                            



Page 27



---

##### Table of Contents

EXHIBIT INDEX

TO

SECOND QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND I



|            |  |                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                    
|            | 
|10.1        |  | Purchase and Sale Agreement for commercial office portion of Heritage Place (previously filed with the Commission as Exhibit 10.3 to the Form 10-Q of Wells Real Estate
Fund I for the period ending March 31, 2006, Commission File No. 0-14463, and hereby incorporated by this reference)                   
|            | 
|10.2        |  | First Amendment to Purchase and Sale Agreement for commercial office portion of Heritage Place (previously filed with the Commission as Exhibit 10.4 to the Form 10-Q of
Wells Real Estate Fund I for the period ending March 31, 2006, Commission File No. 0-14463, 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