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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 September 30, 2008

or



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

For the transition period from to
 to

Commission file number 0-17876





WELLS REAL ESTATE FUND II-OW

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Georgia                                                        |  | 58-1754703                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|6200 The Corners Parkway, 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, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated file, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈                 Accelerated filer   ̈

Non-accelerated filer  x (Do not check if a smaller reporting
company)                 Smaller reporting company   ̈

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









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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund II-OW (the Partnership or the Registrant) 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, 2007 along with Item 1A. of Part II of
this report for a discussion of some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.



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WELLS REAL ESTATE FUND II-OW



TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                               |  |         
|-------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                               |  | Page No.
|         |  |                      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                          |  |         
|         |  |                       | 
|         |  |                       |  | Balance Sheets  September 30, 2008 (unaudited) and December 31, 2007                                                         |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Nine Months Ended September 30, 2008 (unaudited) and 2007 (unaudited)       |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2007 and the Nine Months Ended September 30, 2008 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Nine Months Ended September 30, 2008 (unaudited) and 2007 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to 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                                                                    |  | 22      
|         |  |                       | 
|         |  | Item 4T.              |  | Controls and Procedures                                                                                                       |  | 22      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                             |  | 23      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                                  |  | 23      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |  | 23      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                               |  | 24      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 24      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                             |  | 24      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                      |  | 24      



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|PART I. | FINANCIAL INFORMATION
|------- | ---------------------



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

The information furnished in the
Partnerships accompanying balance sheets and 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, 2007. The Partnerships results of operations for the three months and nine months ended September 30, 2008 are not necessarily indicative of the operating results expected for the full year.



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WELLS REAL ESTATE FUND II-OW



BALANCE SHEETS

ASSETS



|                                             |  |                   |         |                  |   |        
|-------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                             |  | (Unaudited)       |         |                 
|                                             |  | September 30,2008 |         | December 31,2007
|Investment in Fund II and Fund II-OW         |  | $                 | 387,685 |                  | $ | 416,446
|Due from Fund II and Fund II-OW              |  |                   | 137,000 |                  |   | 191,963
|Cash and cash equivalents                    |  |                   | 194     |                  |   | 5,184  
|                                             |  |                   |         |                  |   |        
|Total assets                                 |  | $                 | 524,879 |                  | $ | 613,593
|                                             |  |                   |         |                  |   |        
|PARTNERS CAPITAL                           
|Limited partners:                            |  |                   |         |                  |   |        
|Class A  6,062 units issued and outstanding |  | $                 | 524,879 |                  | $ | 613,593
|Class B  1,626 units issued and outstanding |  |                   | 0       |                  |   | 0      
|General partners                             |  |                   | 0       |                  |   | 0      
|                                             |  |                   |         |                  |   |        
|Total partners capital                      |  | $                 | 524,879 |                  | $ | 613,593
|                                             |  |                   |         |                  |   |        

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF OPERATIONS



|                                         |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  
|---------------------------------------- |  | ------------------------------------------ | ------- | - | ----------------------------------------- | - | ------ | ---- |  | - | -------- | - |  | - | ------- | -
|                                         |  | (Unaudited)Three Months EndedSeptember 30, |         |   | (Unaudited)Nine Months EndedSeptember 30, |  
|                                         |  | 2008                                       |         |   | 2007                                      |   |        | 2008 |  |   | 2007     |  
|EQUITY IN LOSS OF FUND II AND FUND II-OW |  | $                                          | (16,952 | ) |                                           | $ | (4,192 | )    |  | $ | (88,714  | ) |  | $ | (12,730 | )
|                                         |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  
|                                         |  |                                            |         |  
|NET LOSS                                 |  | $                                          | (16,952 | ) |                                           | $ | (4,192 | )    |  | $ | (88,714  | ) |  | $ | (12,730 | )
|                                         |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  
|                                         |  |                                            |         |  
|NET LOSS ALLOCATED TO LIMITED PARTNERS:  |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  
|CLASS A                                  |  | $                                          | (16,952 | ) |                                           | $ | (4,192 | )    |  | $ | (88,714  | ) |  | $ | (12,730 | )
|                                         |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  
|CLASS B                                  |  | $                                          | 0       |   |                                           | $ | 0      |      |  | $ | 0        |   |  | $ | 0       |  
|                                         |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  
|                                         |  |                                            |         |  
|NET LOSS PER LIMITED PARTNER UNIT:       |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  
|CLASS A                                  |  |                                            | $(2.80  | ) |                                           |   | $(0.69 | )    |  |   | $(14.63  | ) |  |   | $(2.10  | )
|                                         |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  
|CLASS B                                  |  |                                            | $ 0.00  |   |                                           |   | $ 0.00 |      |  |   | $   0.00 |   |  |   | $ 0.00  |  
|                                         |  |                                            |         |   |                                           |   |        |      |  |   |          |   |  |   |         |  

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF PARTNERS CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2007

AND NINE MONTHS ENDED SEPTEMBER 30,
2008 (UNAUDITED)



|                            |  |                  |  |                 |         |                       |       |       |        |    |  |    |  |   |         |  
|--------------------------- |  | ---------------- |  | --------------- | ------- | --------------------- | ----- | ----- | ------ | -- |  | -- |  | - | ------- | -
|                            |  | Limited Partners |  | GeneralPartners |         | TotalPartnersCapital |      
|                            |  | Class A          |  |                 | Class B |                       |      
|                            |  | Units            |  | Amount          |         |                       | Units |       | Amount |    | 
|BALANCE, December 31, 2006  |  | 6,062            |  | $               | 635,186 |                       |       | 1,626 |        | $0 |  | $0 |  | $ | 635,186 |  
|                            |  |                  |  |                 |         |                      
|Net loss                    |  | 0                |  |                 | (21,593 | )                     |       | 0     |        | 0  |  | 0  |  |   | (21,593 | )
|                            |  |                  |  |                 |         |                       |       |       |        |    |  |    |  |   |         |  
|BALANCE, December 31, 2007  |  | 6,062            |  |                 | 613,593 |                       |       | 1,626 |        | 0  |  | 0  |  |   | 613,593 |  
|                            |  |                  |  |                 |         |                      
|Net loss                    |  | 0                |  |                 | (88,714 | )                     |       | 0     |        | 0  |  | 0  |  |   | (88,714 | )
|                            |  |                  |  |                 |         |                       |       |       |        |    |  |    |  |   |         |  
|BALANCE, September 30, 2008 |  | 6,062            |  | $               | 524,879 |                       |       | 1,626 |        | $0 |  | $0 |  | $ | 524,879 |  
|                            |  |                  |  |                 |         |                       |       |       |        |    |  |    |  |   |         |  

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF CASH FLOWS



|                                                                                |  |                               |         |   |      |   |         |  
|------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                |  | (Unaudited) Nine Months Ended |        
|                                                                                |  | September 30,                 |        
|                                                                                |  | 2008                          |         |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                               |         |   |      |   |         |  
|Net loss                                                                        |  | $                             | (88,714 | ) |      | $ | (12,730 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                               |         |   |      |   |         |  
|Equity in loss of Fund II and Fund II-OW                                        |  |                               | 88,714  |   |      |   | 12,730  |  
|                                                                                |  |                               |         |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                               | 0       |   |      |   | 0       |  
|                                                                                |  |                              
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                               |         |   |      |   |         |  
|Investment in Fund II and Fund II-OW                                            |  |                               | (4,990  | ) |      |   | 0       |  
|                                                                                |  |                               |         |   |      |   |         |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                       |  |                               | (4,990  | ) |      |   | 0       |  
|                                                                                |  |                              
|CASH AND CASH EQUIVALENTS, beginning of period                                  |  |                               | 5,184   |   |      |   | 5,184   |  
|                                                                                |  |                               |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                        |  | $                             | 194     |   |      | $ | 5,184   |  
|                                                                                |  |                               |         |   |      |   |         |  

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



CONDENSED NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 (unaudited)



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

Wells Real Estate Fund II-OW (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. (WREF). Leo F. Wells, III is the president and sole director of Wells Capital and the president, sole director, and sole owner of WREF. The
Partnership was formed on October 13, 1987 for the purpose of acquiring, developing, constructing, owning, operating, improving, leasing, and managing income-producing 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) 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 generally has equal voting
rights regardless of class.

On November 6, 1987, the Partnership commenced a public offering of its limited partnership units pursuant to a
Registration Statement filed on Form S-11 under the Securities Act of 1933. The Partnership terminated its offering on September 7, 1988, upon receiving total limited partner capital contributions of $1,922,000 for 7,688 Class A and
Class B limited partner units at $250 per unit.

The Partnership owns interests in all of its real estate assets through its interest in Fund II and Fund
II-OW, a joint venture between the Partnership and Wells Real Estate Fund II. Fund II and Fund II-OW owns interests in real estate assets both directly and through joint ventures with other entities affiliated with the General Partners. During the
periods presented, the Partnership owned interests in the following joint ventures (the Joint Ventures) and properties:



|                                                           |  |                                                               |  |                                                                                                                           
|---------------------------------------------------------- |  | ------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                              |  | Joint Venture Partners                                        |  | Properties                                                                                                                
|Fund II and Fund II-OW                                     |  |   Wells Real Estate Fund II   Wells Real Estate Fund II-OW  |  | 1. Louis Rose Building A two-story office building located in Charlotte, North Carolina                                   
|Fund I and Fund II Tucker*                                 |  |   Wells Real Estate Fund I   Fund II and Fund II-OW         |  | No properties were owned by this joint venture during the periods presented.                                              
|Fund II and Fund III Associates (Fund II-III Associates) |  |   Fund II and Fund II-OW   Wells Real Estate Fund III, L.P. |  | 2. 2100 Space Park Drive (formerly known as Boeing at the
Atrium) A four-story office building located in Houston, Texas



| | * | This joint venture was liquidated and dissolved in February 2008.
| | - | -----------------------------------------------------------------

Wells Real Estate Fund II and Wells Real Estate Fund III, L.P. are affiliated with the Partnership common general partners. Wells Real Estate Fund I was affiliated with the Partnership through common general partners prior to its
dissolution. 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, 2007.



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

Basis of
Presentation

The financial statements of the Partnership have been prepared in accordance with the rules and regulations of the Securities and Exchange
Commission (SEC), 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 such periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the financial statements and footnotes included in the
Partnerships Annual Report on Form 10-K for the year ended December 31, 2007.

Investment in Fund II and Fund II-OW

The Partnership has evaluated the Joint Ventures and concluded that none are variable interest entities under the provisions of Financial Accounting Standards Board
Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities, which supersedes FIN No. 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 Fund II and Fund II-OW; 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 (SOP) No. 78-9, Accounting for Investments In Real Estate Ventures, the Partnership accounts for its investments in Fund
II and Fund II-OW 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.

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 through the Partnerships investment in the Joint Ventures
may not be recoverable. When indicators of potential impairment are present which suggest 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 respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their 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 the real estate assets to the respective estimated fair values, pursuant to the provisions of 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, in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of future
cash flows, including estimated salvage value.

Distribution of Net Cash from Operations

Net cash from operations, if available, is generally distributed to limited partners quarterly. In accordance with the partnership agreement, such distributions are paid
first to each limited partner holding Class A Units until he has received an 8% per annum return on his adjusted capital contribution, as defined. Net cash from operations is then distributed to each limited partner holding Class B Units
until he has received an 8% per annum return on



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his adjusted capital contribution, as defined. Any excess net cash from operations would then be distributed to the General Partners until they have received
10% of the total distributions for the year. Thereafter, net cash from operations is distributed 90% to limited partners and 10% to the General Partners.

Distribution of Net Sale Proceeds

Under the terms of the partnership agreement, as amended effective January 1, 2000, after satisfying
all debts and liabilities and establishing such reserves as the General Partners in their sole discretion deem reasonably necessary, net sale proceeds from the sale of the Partnerships properties, unless reserved, are to be distributed to
partners in the following order:



| |  |  | To limited partners holding Class B Units until they have received an amount equal to the net cash available for distribution previously received by limited
partners holding Class A Units on a per-unit basis;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners on a per-unit basis until limited partners have received 100% of their respective net capital contributions, as defined in the partnership
agreement, plus a cumulative 12% per annum return on their respective net capital contributions (less the sum of all prior distributions to such limited partner); and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Thereafter, 85% to the limited partners on a per-unit basis and 15% to the General Partners.
| | - |  | --------------------------------------------------------------------------------------------

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

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

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

Gains on the sale or exchange of the
Partnerships properties will be 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 excess of (i) each limited partners adjusted capital contribution, plus a cumulative 12% per annum return on his adjusted capital contribution, less the sum of all prior distributions of cash flow from
operations previously made to such limited partner, over (ii) such limited partners capital account balance as of the sale date, subject to the requirement to initially allocate gain on sale to limited partners holding Class B Units until
they have been allocated an amount equal to the net cash from operations previously received by limited partners holding Class A Units on a per-unit basis; (c) then, to the General Partners in proportion to and to the extent of the excess
of (i) each general partners adjusted capital contribution, over (ii) such general partners capital account balance as of the sale date; and (d) thereafter, 85% to the limited partners and 15% to the General Partners.

Recent Accounting Pronouncement

In September 2006,
the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures required for fair value
measurements under GAAP, including amending SFAS No. 144, Accounting



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for the Impairment or Disposal on Long-Lived Assets. SFAS No. 157 emphasizes that fair value is a market-based measurement, as opposed to an
entity-specific measurement. In February 2008, the FASB issued Staff Position No. SFAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement under Statement 13 (FSP 157-1). FSP 157-1, which is effective upon the initial adoption of SFAS No.157, excludes SFAS No. 13, Accounting for Leases, as well as other
accounting pronouncements that address fair value measurements on lease classification or measurement under SFAS No. 13, from the scope of SFAS No. 157. In February 2008, the FASB issued Staff Position No. SFAS 157-2, Effective Date of
FASB Statement No. 157(FSP 157-2). FSP 157-2 delays the effective date of SFAS No. 157 for all nonrecurring nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. On
October 10, 2008, the FASB issued Staff Position No. SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (FSP 157-3). FSP 157-3 includes guidance for how
companies should value illiquid assets under the fair value accounting method prescribed in SFAS No. 157, Fair Value Measurements, however, does not change any of the provisions of SFAS No. 157. FSP 157-3 is effective upon issuance
on October 10, 2008, and retrospective application is prohibited. FSP 157-2 will be effective for the Partnership beginning January 1, 2009, and the remaining aspects of SFAS No. 157 were effective for the Partnership beginning
January 1, 2008. SFAS No. 157 has not had a material impact on the Partnerships financial statements to date; however, the Partnership is currently assessing the provisions and evaluating the potential impact of FSP 157-2 on its
financial statements.



|3. | INVESTMENT IN FUND II AND FUND II-OW
|-- | ------------------------------------

Impairment of Real Estate
Assets

The Louis Rose Building was purchased in May 1988 and has remained vacant since April 30, 2001. After careful consideration of the impact
that market conditions in Charlotte, North Carolina were having on the value of properties similar to the Louis Rose Building, management concluded that selling the Louis Rose Building in its current condition would be in the best economic interests
of the limited partners. Fund II and Fund II-OW entered into a contract to sell the Louis Rose Building for a sale price of $3,476,000 and reduced the carrying value of the Louis Rose Building to this amount, less estimated costs to sell, as of
June 30, 2008. Fund II and Fund II-OW recognized a corresponding impairment loss of $931,000 in the second quarter of 2008, of which $49,000 is allocable to the Partnership. In the third quarter of 2008, the contract to sell the Louis Rose
Building was terminated by the prospective buyer as a result of the prospective buyers inability to secure third-party financing. While Fund II and Fund II-OW intends to continue marketing the Louis Rose Building for sale, a near-term sale of
this property at commercially reasonable terms is considered unlikely at this point due to the recent turbulence in the credit markets. Consequently, management is in the process of revaluating the intended holding period for the Louis Rose
Building, however, believes that the carrying value of this asset is materially recoverable as of September 30, 2008.

Summary of Financial
Information

Condensed financial information for Fund II and Fund II-OW for the three months and nine months ended September 30, 2008 and 2007,
respectively, is presented below:



|                                |  |                                 |  |                                |  |                                |  |         |  |          |  |              |  |           
|------------------------------- |  | ------------------------------- |  | ------------------------------ |  | ------------------------------ |  | ------- |  | -------- |  | ------------ |  | ----------
|Total Revenues                  |  | Net Loss                        |  | Total Revenues                 |  | Net Loss                      
|Three Months EndedSeptember 30, |  | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|2008                            |  | 2007                            |  | 2008                           |  | 2007                           |  | 2008    |  | 2007     |  | 2008         |  | 2007      
|$16,285                         |  | $44,153                         |  | $(319,248)                     |  | $(78,950)                      |  | $64,232 |  | $129,425 |  | $(1,670,688) |  | $(239,740)
|                                |  |                                 |  |                                |  |                                |  |         |  |          |  |              |  |           



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Condensed financial information for the Joint Ventures in which the Partnership held interests through its equity
interest in Fund II and Fund II-OW for the three months and nine months ended September 30, 2008 and 2007, respectively, is presented below:



|                          |  |                    |         |                                         |   |           |                                           |   |          |                    |  |      |         |      |  |   |       |  |   |        |   |  |   |          |   |  |   |         |  
|------------------------- |  | ------------------ | ------- | --------------------------------------- | - | --------- | ----------------------------------------- | - | -------- | ------------------ |  | ---- | ------- | ---- |  | - | ----- |  | - | ------ | - |  | - | -------- | - |  | - | ------- | -
|                          |  | Total Revenues     |         | Income (Loss) FromContinuing Operations |   |           | Income FromDiscontinued Operations        |   |          | Net Income (Loss)  | 
|                          |  | Three Months Ended |         | Three Months Ended                      |   |           | Three Months Ended                        |   |          | Three Months Ended | 
|                          |  | September 30,      |         | September 30,                           |   |           | September 30,                             |   |          | September 30,      | 
|                          |  | 2008               |         | 2007                                    |   | 2008      |                                           |   | 2007     |                    |  | 2008 |         | 2007 |  |   | 2008  |  |   | 2007   |  
|Fund I and Fund II Tucker |  | $                  | 0       |                                         | $ | 0         |                                           | $ | 0        |                    |  | $    | 0       |      |  |   | $0    |  | $ | 0      |   |  | $ | 0        |   |  | $ | 0       |  
|Fund II-III Associates    |  |                    | 292,857 |                                         |   | 556,709   |                                           |   | (286,555 | )                  |  |      | 138,619 |      |  |   | 0     |  |   | 335    |   |  |   | (286,555 | ) |  |   | 138,954 |  
|                          |  |                    |         |                                         |   |           |                                           |   |          |                    |  |      |         |      |  |   |       |  |   |        |   |  |   |          |   |  |   |         |  
|                          |  | $                  | 292,857 |                                         | $ | 556,709   |                                           | $ | (286,555 | )                  |  | $    | 138,619 |      |  |   | $0    |  | $ | 335    |   |  | $ | (286,555 | ) |  | $ | 138,954 |  
|                          |  |                    |         |                                         |   |           |                                           |   |          |                    |  |      |         |      |  |   |       |  |   |        |   |  |   |          |   |  |   |         |  
|                          |  |                    |         |                                        
|                          |  | Total Revenues     |         | Income (Loss) FromContinuing Operations |   |           | Income (Loss) FromDiscontinued Operations |   |          | Net Income (Loss)  | 
|                          |  | Nine Months Ended  |         | Nine Months Ended                       |   |           | Nine Months Ended                         |   |          | Nine Months Ended  | 
|                          |  | September 30,      |         | September 30,                           |   |           | September 30,                             |   |          | September 30,      | 
|                          |  | 2008               |         | 2007                                    |   | 2008      |                                           |   | 2007     |                    |  | 2008 |         | 2007 |  |   | 2008  |  |   | 2007   |  
|Fund I and Fund II Tucker |  | $                  | 0       |                                         | $ | 0         |                                           | $ | 0        |                    |  | $    | (2,263  | )    |  | $ | 0     |  | $ | (1,899 | ) |  | $ | 0        |   |  | $ | (4,162  | )
|Fund II-III Associates    |  |                    | 656,573 |                                         |   | 1,553,500 |                                           |   | (437,044 | )                  |  |      | 344,298 |      |  |   | 7,999 |  |   | 2,245  |   |  |   | (429,045 | ) |  |   | 346,543 |  
|                          |  |                    |         |                                         |   |           |                                           |   |          |                    |  |      |         |      |  |   |       |  |   |        |   |  |   |          |   |  |   |         |  
|                          |  | $                  | 656,573 |                                         | $ | 1,553,500 |                                           | $ | (437,044 | )                  |  | $    | 342,035 |      |  | $ | 7,999 |  | $ | 346    |   |  | $ | (429,045 | ) |  | $ | 342,381 |  
|                          |  |                    |         |                                         |   |           |                                           |   |          |                    |  |      |         |      |  |   |       |  |   |        |   |  |   |          |   |  |   |         |  

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



|                          |  |                                     |       |                                     |    |       |   |                       |  |   |             |   |       |    |  |   |        |  
|------------------------- |  | ----------------------------------- | ----- | ----------------------------------- | -- | ----- | - | --------------------- |  | - | ----------- | - | ----- | -- |  | - | ------ | -
|                          |  | Nine Months EndedSeptember 30, 2008 |       | Nine Months EndedSeptember 30, 2007 |   
|                          |  | OperatingIncome                     |       | Gainon Sale                         |    | Total |   | OperatingIncome(Loss) |  |   | Gainon Sale |   | Total |   
|Fund I and Fund II Tucker |  | $                                   | 0     |                                     | $0 |       | $ | 0                     |  | $ | (1,899      | ) |       | $0 |  | $ | (1,899 | )
|Fund II-III Associates    |  |                                     | 7,999 |                                     | 0  |       |   | 7,999                 |  |   | 2,245       |   |       | 0  |  |   | 2,245  |  
|                          |  |                                     |       |                                     |    |       |   |                       |  |   |             |   |       |    |  |   |        |  
|                          |  | $                                   | 7,999 |                                     | $0 |       | $ | 7,999                 |  | $ | 346         |   |       | $0 |  | $ | 346    |  
|                          |  |                                     |       |                                     |    |       |   |                       |  |   |             |   |       |    |  |   |        |  

Due from Fund II and Fund II-OW

As presented in the accompanying balance sheets, due from Fund II and Fund II-OW represents the following cash flows generated by Fund II and Fund II-OW, which are attributable to the Partnership as of
September 30, 2008 and December 31, 2007:



|                     |  |                         |  |                       
|-------------------- |  | ----------------------- |  | ----------------------
|                     |  | As ofSeptember 30, 2008 |  | As ofDecember 31, 2007
|Operating cash flows |  | $            0          |  | $  41,687             
|Net sale proceeds    |  | 137,000                 |  | 150,276               
|                     |  |                         |  |                       
|                     |  | $137,000                |  | $191,963              
|                     |  |                         |  |                       



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

Management and Leasing Fees

In accordance with the property management and leasing agreement, 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 through Fund II and Fund II-OW equal to (a) 3% for management services and 3% for leasing services of the gross revenues
collected monthly, 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, which is assessed periodically based on market studies, or (b) in the case of commercial properties leased on a long-term net basis (ten or more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term. Management and leasing fees are paid by the Joint Ventures and, accordingly, are included in equity in loss of Fund II and Fund II-OW in the accompanying statements of
operations. The Partnerships share of management and leasing fees and lease acquisition costs incurred through the Joint Ventures is $140 and $1,476 for the three months ended September 30, 2008 and 2007, respectively, and $535 and $3,135
for the nine months ended September 30, 2008 and 2007, respectively.

Administrative Reimbursements

Wells Capital, one of the General Partners, and Wells Management perform certain administrative services for the Partnership and the Joint Ventures, relating to
accounting and other partnership administration, and incur the related expenses. Such expenses are allocated among various other entities affiliated with the General Partners based on time spent on each fund by individual administrative personnel.
In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The administrative charges related to the Partnership are recorded by Fund II and Fund II-OW and, therefore, are included in equity in loss of
Fund II and Fund II-OW in the accompanying statements of operations. The Partnerships share of administrative costs incurred by Fund II and Fund II-OW and payable to Wells Capital and Wells Management is $2,021 and $2,450 for
the three months ended September 30, 2008 and 2007, respectively, and $7,017 and $7,828 for the nine months ended September 30, 2008 and 2007, respectively.

Economic Dependency

The Partnership has engaged Wells Capital and Wells Management to provide certain essential
services, including supervision of the management and leasing of its properties, asset acquisition and disposition services, as well as other administrative responsibilities, 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, the Partnership is dependent upon Wells Capital and Wells Management.

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

Future net income generated by WREF will be largely dependent upon the
amount of fees earned by Wells Capital 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 well as anticipated dividend income earned from its holdings of common stock of Piedmont Office Realty Trust, Inc. (Piedmont REIT), which was acquired in connection with
the Piedmont REIT internalization transaction (see Assertion of Legal Actions Against Related-Parties below). In addition, WREF guarantees debt of another WREF-sponsored product in the



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amount of approximately $76.1 million as of October 31, 2008. 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.

The Partnership is also dependent upon the ability of its current tenants to pay their contractual rent amounts as they become due. The inability of a tenant to pay future rental amounts would be likely to have a negative impact on the
Partnerships results of operations. The Partnership is not currently aware of any reason why its existing tenants will not be able to pay their contractual rental amounts as they become due in all material respects. Situations preventing the
tenants from paying contractual rents could result in a material adverse impact on the Partnerships results of operations.

Assertion of Legal
Actions Against Related-Parties

On March 12, 2007, a stockholder of Piedmont REIT, filed a putative class action and derivative complaint,
presently styled In re Wells Real Estate Investment Trust, Inc. Securities Litigation, in the United States District Court for the District of Maryland against, among others, Piedmont REIT; Leo F. Wells, III and Wells Capital, our
General Partners; Wells Management, our property manager; certain affiliates of WREF; the directors of Piedmont REIT; and certain individuals who formerly served as officers or directors of Piedmont REIT prior to the closing of the internalization
transaction on April 16, 2007. The complaint alleges, among other things, violations of the federal proxy rules and breaches of fiduciary duty arising from the Piedmont REIT internalization transaction and the related proxy statement filed with
the SEC on February 26, 2007, as amended. The complaint seeks, among other things, unspecified monetary damages and nullification of the Piedmont REIT internalization transaction. On April 9, 2007, the District Court denied the
plaintiffs motion for an order enjoining the internalization transaction. On April 17, 2007, the Court granted the defendants motion to transfer venue to the United States District Court for the Northern District of Georgia, and the
case was docketed in the Northern District of Georgia on April 24, 2007. On June 7, 2007, the Court granted a motion to designate the class lead plaintiff and class co-lead counsel. On June 27, 2007, the plaintiff filed an amended
complaint, which attempts to assert class action claims on behalf of those persons who received and were entitled to vote on the Piedmont REIT proxy statement filed with the SEC on February 26, 2007 and derivative claims on behalf of Piedmont
REIT. On July 9, 2007, the Court denied the plaintiffs motion for expedited discovery related to an anticipated motion for a preliminary injunction. On August 13, 2007, the defendants filed a motion to dismiss the amended complaint.
On March 31, 2008, the Court granted in part the defendants motion to dismiss the amended complaint. The Court dismissed five of the seven counts of the amended complaint in their entirety. The Court dismissed the remaining two counts
with the exception of allegations regarding the failure to disclose in the Piedmont REIT proxy statement details of certain expressions of interest in acquiring Piedmont REIT. On April 21, 2008, the plaintiff filed a second amended complaint,
which alleges violations of the federal proxy rules based upon allegations that the proxy statement to obtain approval for the Piedmont REIT internalization transaction omitted details of certain expressions of interest in acquiring Piedmont
REIT. The second amended complaint seeks, among other things, unspecified monetary damages, to nullify and rescind the internalization transaction, and to cancel and rescind any stock issued to the defendants as consideration for the
internalization transaction. On May 12, 2008, the defendants answered and raised certain defenses to the second amended complaint. On June 23, 2008, the plaintiff filed a motion for class certification. As of the date of this filing,
the time for the defendants to respond to the plaintiffs motion for class certification has not yet passed. The parties are presently engaged in discovery. Mr. Wells, Wells Capital, and Wells Management intend to vigorously defend
this action. Any financial loss incurred by Wells Capital, Wells Management, or their affiliates could hinder their ability to successfully manage our operations and our portfolio of investments.

On August 24, 2007, two stockholders of Piedmont REIT filed a derivative complaint, styledDonald and Donna Goldstein, Derivatively on behalf of Defendant
Wells Real Estate Investment Trust, Inc. v. Leo F. Wells, III, et al.,in the Superior Court of Fulton County, Georgia, on behalf of Piedmont REIT against, among others, Leo F. Wells, III and Wells Capital, our
General Partners, and a number of individuals who currently or formerly served as officers or directors of Piedmont REIT. The complaint alleges, among other



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things, that the consideration paid by Piedmont REIT as part of the internalization transaction was excessive; that the defendants breached their fiduciary
duties to Piedmont REIT; and that the internalization transaction unjustly enriched the defendants. The complaint seeks, among other things, a judgment declaring that the defendants committed breaches of their fiduciary duties and were unjustly
enriched at the expense of Piedmont REIT; monetary damages equal to the amount by which Piedmont REIT was damaged by the defendants; an order awarding Piedmont REIT restitution from the defendants and ordering disgorgement of all profits and
benefits obtained by the defendants from their wrongful conduct and fiduciary breaches; an order rescinding the internalization transaction; and the establishment of a constructive trust upon any benefits improperly received by the defendants as a
result of their wrongful conduct. On October 19, 2007, the Court verbally granted the defendants motion for a protective order (and entered a written order on October 24, 2007) staying discovery until the Court rules on the
defendants motion to dismiss the complaint. On October 31, 2007, the defendants filed their motion to dismiss the plaintiffs derivative complaint. On December 19, 2007, the Court entered an order allowing the plaintiffs to
take limited written discovery on the issue of derivative demand, but the order staying discovery entered in October 2007 otherwise remains in effect. The defendants responded to the limited discovery requested by the plaintiffs. On
January 10, 2008, the plaintiffs filed an amended complaint, which contains substantially the same counts against the same defendants as the original complaint with certain additional factual allegations based primarily on events occurring
after the original complaint was filed. In addition, the plaintiffs responded to the defendants motion to dismiss this lawsuit. A hearing on the motion to dismiss was held on February 22, 2008. On March 13, 2008, the Court
granted the defendants motion to dismiss. On April 11, 2008, the plaintiffs filed a notice to appeal the Courts judgment granting the defendants motion to dismiss. The appeal is currently pending in the Georgia Court of
Appeals.



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

From time to time, the Partnership
and its General Partners are party to legal proceedings which arise in the ordinary course of our business. The Partnership is not currently involved in any litigation for which the outcome would, in the judgment of the General Partners based on
information currently available, have a materially adverse impact on the results of operations or financial condition of the Partnership, nor is management aware of any such litigation threatened against us.



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

The following discussion and analysis should be read in conjunction with the accompanying financial statements and notes thereto. See also Cautionary Note Regarding Forward-Looking Statements preceding
Part I, as well as the notes to our financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended December 31, 2007.

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;



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##### Table of Contents

| |  |  | 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. Of the six assets in
which we originally owned interests, we have sold four assets. The lease with Boeing/Shuttle Division (Boeing), the sole tenant at 2100 Space Park Drive, expired on March 31, 2008. On April 24, 2008, Fund II-III Associates
entered into a 90-month lease agreement with Hoyer Global (USA), Inc. (Hoyer) to occupy approximately 19% of 2100 Space Park Drive. On July 3, 2008, Fund II-III Associates entered into a 63-month lease agreement with Lockheed Martin
Corporation (Lockheed) to occupy approximately 52% of 2100 Space Park Drive. Our focus at this time involves concentrating on leasing and marketing efforts that we believe will ultimately result in the best disposition pricing of our
assets for our limited partners.

The third quarter 2008 operating distributions to limited partners holding Class A Units were reserved as a result
of funding our pro rata share of capital improvements and re-leasing costs associated with the recently executed leases at 2100 Space Park Drive. Further, the General Partners anticipate continuing to reserve operating and net sale proceeds
distributions primarily because the Louis Rose Building remains vacant and we will be required to fund our pro rata share of anticipated re-leasing costs and capital improvements at 2100 Space Park Drive. Once the details surrounding leasing and/or
the potential sales of the Louis Rose Building and 2100 Space Park Drive become known, the General Partners will evaluate if distributions of net sale proceeds are appropriate.

Property Summary

As we move further into the disposition-and-liquidation phase, we will continue to focus on
re-leasing vacant space. In doing so, we seek to maximize returns to our limited partners by attempting to negotiate 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 our limited partners and
minimize contingencies and our post-closing involvement with buyers.

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



| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Brookwood Grill was sold on July 1, 2004.
| | - |  | -----------------------------------------



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



| |  |  | The Louis Rose Building, located in Charlotte, North Carolina, is vacant. We are aggressively working on re-leasing and/or selling this property.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The 2100 Space Park Drive property, located in Houston, Texas, is approximately 71% leased following the commencement of the Lockheed lease. We continue to market
the remaining vacant space for lease.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The Impact of Current Economic Conditions on our Portfolio

The fundamentals of the U.S. office real estate market continue to weaken due to dislocation in the financial services industry and have been recently exacerbated by the
global financial crisis. During the nine months ended September 30, 2008, national vacancy rates rose steadily by approximately 90 basis points to 14.1%. During October 2008, vacancy rates have continued to increase as have sublease inventory
levels. Rising sublease inventories will create additional competition for landlords with direct space and, thus, will result in downward pressure on the rents that landlords are able to achieve with new leases.

While some of the market conditions noted above may indicate expected changes in rental rates, the extent to which our portfolio may be affected is dependent upon the
contractual rental rates currently provided in existing leases at the properties we own. As the majority of our in-place leases are at properties that were acquired at times during which the market demanded higher rental rates, as compared with
today, new leasing activities in certain markets may result in a decrease in future rental rates. Additionally, the turbulence in the credit markets may adversely affect the ability of potential purchasers of our properties to obtain financing,
which could affect our timing and/or ability to complete the disposition-and-liquidation phase of our life cycle.

Less diversified real estate funds, such
as the Partnership, that own fewer properties, and those with current vacancies or near-term tenant rollover, may face a challenging leasing environment. The properties within these funds may be required to offer lower rental rates and higher
concession packages to potential tenants, the degree to which will depend heavily upon the specific property and market.

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

Liquidity and Capital Resources

Overview

Our operating strategy entails funding expenditures related to the recurring operations of the Joint Ventures properties and the portfolio with operating cash
flows, including current and prior period operating distributions received from the Joint Ventures, and assessing the amount of remaining cash flows that will be required to fund known future re-leasing costs and other capital improvements. Any
residual operating cash flows are generally considered available for distribution to the limited partners and, unless reserved, are generally paid quarterly. To the extent that operating cash flows are not sufficient to fund our recurring
operations, net sale proceeds will be utilized. To the extent that net sale proceeds are not sufficient to fund our recurring operations, the General Partners are pursuing other funding options, which may include deferring the payment of
administrative reimbursements and management and leasing fees to Wells Capital and Wells Management, a purchase money mortgage with a potential buyer, and/or infusion of cash by the General Partners. As a result, the ongoing monitoring of our cash
position is critical to ensuring that adequate liquidity and capital resources are available. Economic downturns in one or more of our core markets could adversely impact the ability of one or more of our tenants to honor lease payments and our
ability to re-lease space on favorable terms. In the event of either situation, cash flows and, consequently, our ability to provide funding for capital needs would be adversely affected.

Short-Term Liquidity

We did not generate cash flow from operating
activities during the nine months ended September 30, 2008, as Fund II and Fund II-OW continues to hold operating distributions received from the Joint Ventures and otherwise payable to the Partnership as a result of (i) its intention to
fund its pro rata share of anticipated re-leasing costs and capital improvements for 2100 Space Park Drive, (ii) absorbing the rental abatement periods associated with the recent leasing activity at 2100 Space Park Drive, and (iii) the
remaining vacancy at 2100 Space Park Drive and vacancy of the Louis Rose Building. Accordingly, no operating distributions were paid to limited partners during the nine months ended September 30, 2008. Future operating distributions to limited
partners will be



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##### Table of Contents

largely dependent upon the amount of cash generated from the Joint Ventures, our expectations of future cash flows, and determination of near-term cash needs
to fund our share of tenant re-leasing costs and other capital improvements for properties owned by the Joint Ventures.

During the nine months ended
September 30, 2008, we invested approximately $5,000 in Fund II and Fund II-OW primarily for investment in Fund II-III Associates in order to fund re-leasing costs and capital improvements at 2100 Space Park Drive.

We believe that the cash on hand, including net proceeds from the sale of properties, may not be sufficient to cover our working capital needs, including funding our pro
rata share of anticipated re-leasing costs and capital improvements for 2100 Space Park Drive and the Louis Rose Building. Therefore, the General Partners are pursuing other funding options, which may include deferring the payment of
administrative reimbursements and management and leasing fees to Wells Capital and Wells Management, a purchase money mortgage with a potential buyer, and/or infusion of cash by the General Partners.

Long-Term Liquidity

We expect that our future sources of capital
will be primarily derived from net sale proceeds generated from the selective and strategic sale of properties, operating cash flows generated from the Joint Ventures, and the aforementioned funding options being pursued by the General Partners. Our
future long-term liquidity requirements will include, but not be limited to, funding our share of tenant improvements, renovations, expansions, and other significant capital improvements necessary for properties owned through the
Joint Ventures. Specifically, we anticipate funding our proportionate share of anticipated re-leasing costs and capital improvements at 2100 Space Park Drive. Future cash flows from operating activities will be primarily affected by
distributions received from the Joint Ventures, which are dependent upon the net operating income generated by the Joint Ventures properties, less reserves for known capital expenditures.

We have encountered difficulties in re-leasing the Louis Rose Building primarily due to the softening of the Charlotte office market and related Northeast submarket of
Charlotte following the expiration of the sole tenants lease on April 30, 2001. The Northeast submarket of Charlotte continues to present challenges to landlords, primarily due to the contraction of the financial services industry,
the availability of office space for lease, and low rental rates and concessions offered to prospective tenants. As of September 30, 2008, the vacancy rate for the Northeast submarket of Charlotte is 24.6%, compared to the vacancy
rate for Charlotte as a whole of 12.0%.

After careful consideration of the impact that market conditions in Charlotte, North Carolina were having on the
value of properties similar to the Louis Rose Building, management concluded that attempting to sell the Louis Rose Building in its current condition would be in the best economic interests of the limited partners. As a result, we intend to
continue to market this building for sale.

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 net offering proceeds available for investment. Thus, it is unlikely that we will acquire interests in any additional properties or joint ventures. Historically, our investment strategy has generally involved acquiring properties on an
all-cash basis that are pre-leased to creditworthy tenants through joint ventures with affiliated partnerships.

The Joint Ventures incur capital
expenditures primarily related to building improvements for the purpose of maintaining the quality of our properties, and tenant improvements for the purpose of readying our properties for re-leasing. As leases expire, we typically attempt to
re-lease space to an existing tenant or market the space to prospective new tenants. Generally, tenant improvements funded in connection with lease renewals require less capital than those funded in connection with new leases. However, external
conditions, such as the supply of and



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demand for comparable space available within a given market, drive capital costs as well as rental rates. Any capital or other expenditures not funded from
the operations of the Joint Ventures will be required to be funded by the Partnership and the other respective joint venture partners on a pro rata basis. In the event that the Partnership cannot fund its pro rata share of capital or other
expenditures, the General Partners will consider other funding options, which may include deferring the payment of administrative reimbursements and management and leasing fees to Wells Capital and Wells Management, a purchase money mortgage with a
potential buyer, and/or infusion of cash by the General Partners.

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 not sufficient to fund such costs, net sale
proceeds reserves would then be utilized. If net sale proceeds reserves are not sufficient to fund such costs, the General Partners are pursuing other funding options previously mentioned.

As of September 30, 2008, Fund II and Fund II-OW received, used, and held net sale proceeds allocated to the Partnership from the sale of properties as presented
below:



|                                              |  |                       |           |                                     |      |                                              |   |                         |  |                                                                 |        |                                                                      |                                                                                                                        |  |   |         |  |   |        
|--------------------------------------------- |  | --------------------- | --------- | ----------------------------------- | ---- | -------------------------------------------- | - | ----------------------- |  | --------------------------------------------------------------- | ------ | -------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |  | - | ------- |  | - | -------
|Property Sold                                 |  | TotalNet SaleProceeds |           | PartnershipsApproximateOwnership % |      | Net Sale ProceedsAllocated
toThe Partnership |   | Use ofNet Sale Proceeds |  | Net Sale ProceedsDistributed toPartners as ofSeptember 30, 2008 |        | Undistributed NetSale Proceeds BeingReserved as ofSeptember 30, 2008
|                                              |  |                       |           | Amount                              |      | Purpose                                      |   |                        
|Cherokee Commons(sold in 2001)                |  | $                     | 8,414,089 |                                     | 2.9% |                                              | $ | 239,776                 |  | $                                                               | 77,421 |                                                                      |   Re-leasing of2100 Space Park Drive(2002 and 2003)
  Funding for Fund I and Fund II Tuckeroperating expenses (2005) |  | $ | 162,355 |  | $ | 0      
|Heritage Place  retail portion(sold in 2003) |  | $                     | 3,207,708 |                                     | 2.6% |                                              |   | 81,797                  |  |                                                                 | 1,332  |                                                                      |   Funding for Fund I and Fund II Tuckeroperating expenses (2005)                                                      |  |   | 80,465  |  |   | 0      
|Brookwood Grill(sold in 2004)                 |  | $                     | 2,318,115 |                                     | 3.3% |                                              |   | 76,730                  |  |                                                                 | 8,237  |                                                                      |   Funding for Fund I and Fund II Tuckeroperating expenses (2005)                                                      |  |   | 48,329  |  |   | 20,164 
|Holcomb Bridge Property(sold in 2004)         |  | $                     | 6,889,379 |                                     | 0.8% |                                              |   | 53,737                  |  |                                                                 | 5,765  |                                                                      |   Funding for Fund I and Fund II Tuckeroperating expenses (2005)                                                      |  |   | 33,851  |  |   | 14,121 
|Heritage Place office portion(sold in 2006)   |  | $                     | 4,028,043 |                                     | 2.6% |                                              |   | 102,715                 |  |                                                                 | 0      |                                                                      |                                                                                                                       |  |   | 0       |  |   | 102,715
|                                              |  |                       |           |                                     |      |                                              |   |                         |  |                                                                 |        |                                                                      |                                                                                                                        |  |   |         |  |   |        
|Total                                         |  |                       |           |                                     |      |                                              | $ | 554,755                 |  | $                                                               | 92,755 |                                                                      |                                                                                                                        |  | $ | 325,000 |  | $ | 137,000
|                                              |  |                       |           |                                     |      |                                              |   |                         |  |                                                                 |        |                                                                      |                                                                                                                        |  |   |         |  |   |        

Upon evaluating the capital needs of our properties in which we currently hold an interest, our General Partners
have determined that substantially all of the undistributed net sale proceeds above will be required to fund our pro rata share of anticipated re-leasing costs and capital improvements at 2100 Space Park Drive and the Louis Rose Building.
Accordingly, the net sale proceeds listed above will continue to be held in reserve by Fund II and Fund II-OW.



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Results of Operations

Equity in loss of Fund II and Fund II-OW was $16,952 and $4,192 for the three months ended September 30, 2008 and 2007, respectively. This increase in loss is primarily attributable to the following activities at the 2100 Space
Park Drive property (i) repairing damage caused by Hurricane Ike, (ii) a decrease in rental income as a result of the Boeing lease expiration in March 2008, partially offset by (iii) an increase in rental income related to the
recently executed leases with Hoyer and Lockheed.

Equity in loss of Fund II and Fund II-OW was $88,714 and $12,730 for the nine months ended
September 30, 2008 and 2007, respectively. This increase in loss is primarily attributable to an impairment loss recognized by Fund II and Fund II-OW related to the Louis Rose Building in the second quarter of 2008, of which approximately
$49,000 was allocated to the Partnership, and repairing damage caused by Hurricane Ike at the 2100 Space Park Drive property.

We anticipate that equity in
loss of Fund II and Fund II-OW will decline in the near-term as a result of incurring repair costs in the third quarter of 2008 at 2100 Space Park Drive related to the damage caused by Hurricane Ike.

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 are intended to help 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 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 the Joint Ventures, which are considered to be critical in that they may require complex
judgment in their application or require estimates about matters that are inherently uncertain.

Investment in Real Estate Assets

We are required to make subjective assessments as to the useful lives of our depreciable assets. We 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 Joint Ventures assets are depreciated using the straight-line method over the following useful lives:



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



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

Valuation of Real Estate Assets

We
continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which we have an ownership interest through investments in the Joint Ventures may not be recoverable. When indicators
of potential impairment are present which suggest that the carrying amounts of real estate assets may not be recoverable, we assess the recoverability of the real estate assets by determining whether the respective carrying values will be recovered
through the estimated undiscounted future operating cash flows expected from the use of the assets and their 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 such expected undiscounted future cash flows for assets held for use, or the estimated fair values, less costs to sell, for assets held for sale, do not exceed the respective assets carrying values, we adjust the real estate assets to the
estimated fair values and recognize an impairment loss. Estimated fair values are calculated based on the following information, in order of preference, dependent upon availability: (i) recently quoted market prices, (ii) market prices for
comparable properties, or (iii) the present value of future cash flows, including estimated salvage value. In the second quarter of 2008, Fund II and Fund II-OW recorded an impairment loss at the Louis Rose Building of approximately $931,000,
of which approximately $49,000 was allocated to the Partnership, in order to reduce the carrying value of the property to its fair value less costs to sell, as a result of management refining its strategy for disposing of this building.

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

Related-Party Transactions

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



|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 currency exchange rate fluctuations, or the other market risks contemplated
by Item 305 of Regulation S-K.



|ITEM 4T. | 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 (the Exchange Act) as of the end of the quarterly 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 the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms,



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including providing a reasonable level of assurance that information required to be disclosed by us in the reports we file under the Exchange Act 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 changes in our internal control over financial reporting during the quarter ended September 30, 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.



|PART II. | OTHER INFORMATION
|-------- | -----------------



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

We are from time to time a party to legal
proceedings, which arise in the ordinary course of our business. We are not currently involved in any litigation the outcome of which would, in managements judgment based on information currently available, have a material adverse effect on
our results of operations or financial condition, nor is management aware of any such litigation threatened against us during the quarter ended September 30, 2008, requiring disclosure under Item 103 of Regulation S-K.



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

Item 1A. in our Annual Report on Form 10-K for
the year ended December 31, 2007 includes various risk factors applicable to the Partnership. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2007. Except as presented below, there have been no material changes from the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2007.

Current economic conditions and turmoil in the credit markets may cause market rental rates and property values to decline and may impede disposition of a property at
commercially reasonable terms.

Current economic conditions, the availability and cost of credit, the mortgage market, and declining real estate
markets have contributed to increased volatility and diminished expectations for real estate markets and the economy as a whole on a going-forward basis. Many economists are predicting continued deterioration in economic conditions in the United
States, along with significant increases in unemployment and vacancy rates at commercial properties. As a result, current economic conditions and the credit crisis may cause commercial real estate values and market rental rates to decline
significantly. Deteriorating economic conditions could adversely impact the ability of one or more of our tenants to honor their lease payments and our ability to re-lease space on favorable terms as leases expire or as space otherwise becomes
vacant at our properties. While we do not anticipate the need to access the credit markets, the impact of the current crisis in the credit markets may adversely affect the ability of potential purchasers of our properties to obtain financing.
Therefore, this may affect our timing and/or ability to sell a property at commercially reasonable terms. No assurances can be given that current economic conditions and the effects of the credit crisis will not have a material adverse effect on our
business, financial condition, and results of operations.



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



|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended September 30, 2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



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



|(c) | We did not redeem any securities during the quarter ended September 30, 2008.
|--- | -----------------------------------------------------------------------------



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|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 September 30, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|(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 September 30, 2008.



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



|(a) | During the quarter ended September 30, 2008, 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 Third Quarter Form 10-Q attached hereto.



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SIGNATURES

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



|                 |  |  |  |                                                                                                    |  |                                                
|---------------- |  |  |  | -------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|                 |  |  |  | WELLS REAL ESTATE FUND II-OW (Registrant)                                                         
|                 |  |  | 
|                 |  |  |  | By:                                                                                                |  | WELLS CAPITAL, INC. (Corporate General Partner)
|                 |  | 
|November 7, 2008 |  |  |  | /s/ LEO F. WELLS, III                                                                             
|                 |  |  |  | Leo F. Wells, III President, Principal Executive Officer, and Sole Director of Wells Capital, Inc.
|                 |  | 
|November 7, 2008 |  |  |  | /s/ DOUGLAS P. WILLIAMS                                                                           
|                 |  |  |  | Douglas P. Williams Principal Financial Officer of Wells Capital, Inc.                            



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EXHIBIT INDEX

TO THIRD QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND II-OW



|           |  |                                                                                                                                                                                                          
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                              
|           | 
|*10.1      |  | Office Lease with Lockheed Martin Corporation relating to 2100 Space Park Drive (Exhibit 10.2 to Form 10-Q of Wells Real Estate Fund II for the quarter ended June 30, 2008, Commission
File No. 0-16518)
|           | 
|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                                                                           



|* | previously filed and incorporated herein by reference
|- | -----------------------------------------------------