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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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(Mark One)



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



For the quarterly period ended September 30, 2004 or



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



For the transition period from
to



Commission file number 0-17876



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WELLS REAL ESTATE FUND II-OW

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58-1754703                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|6200 The Corners Pkwy., Norcross, Georgia                      |  | 30092-3365                             
|(Address of principal executive offices)                       |  | (Zip Code)                             
|                                                               | 
|Registrants telephone number, including area code             |  | (770) 449-7800                         



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



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



Yes  x     No ̈



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



Yes ̈No  x



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



Certain statements contained in this Form 10-Q of Wells Real Estate Fund II-OW (the
Partnership) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in
particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated.
Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as may, will,
expect, intend, anticipate, estimate, believe, continue, or other similar words. Specifically, among others, we consider statements concerning projections of future operating
results and cash flows, our ability to meet future obligations, and the amount and timing of future distributions to limited partners to be forward-looking statements.



Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that this report is
filed with the Securities and Exchange Commission. Neither the Partnership nor the general partners make any representations or warranties (expressed or implied) about the accuracy of any such forward-looking statements. Actual results could differ
materially from any forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.



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



General economic risks



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



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



Real estate risks inherent in properties owned through joint ventures



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



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



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



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



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



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



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



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



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



Other operational risks



| |  |  | Dependency on Wells Capital, Inc. (Wells Capital), our corporate general partner, its key personnel, and its affiliates for various administrative services;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | Ability to demonstrate compliance with any governmental, tax, real estate, environmental, and zoning law or regulation in the event that any such position is questioned by the
respective authority; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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WELLS REAL ESTATE FUND II-OW



TABLE OF CONTENTS

|         |  |                       |  |                                                                                                                               |  |         
|-------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                               |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                          |  |         
|         |  |                       | 
|         |  |                       |  | Balance SheetsSeptember 30, 2004 (unaudited) and December 31, 2003                                                           |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three and Nine Months Ended September 30, 2004 (unaudited) and 2003 (unaudited)              |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2003 and the Nine Months Ended September 30, 2004 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Nine Months Ended September 30, 2004 (unaudited) and 2003 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                           |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 14      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risks                                                                   |  | 20      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                       |  | 20      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  | 21                                                                                                                           





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WELLS REAL ESTATE FUND II-OW



BALANCE SHEETS



ASSETS



|                                              |  |                                |           |                  |   |        
|--------------------------------------------- |  | ------------------------------ | --------- | ---------------- | - | -------
|                                              |  | (unaudited) September 30, 2004 |           | December 31,2003
|Investment in Fund II and Fund II-OW (Note 2) |  | $                              | 603,620   |                  | $ | 728,828
|Cash and cash equivalents                     |  |                                | 6,411     |                  |   | 6,161  
|Due from Fund II and Fund II-OW               |  |                                | 401,612   |                  |   | 258,553
|                                              |  |                                |           |                  |   |        
|Total assets                                  |  | $                              | 1,011,643 |                  | $ | 993,542
|                                              |  |                                |           |                  |   |        
|                                             
|LIABILITIES AND PARTNERS CAPITAL            
|Liabilities:                                  |  |                                |           |                  |   |        
|Accounts payable                              |  | $                              | 871       |                  | $ | 871    
|                                              |  |                               
|Partners capital:                            |  |                                |           |                  |   |        
|Limited partners:                             |  |                                |           |                  |   |        
|Class A6,062 units outstanding               |  |                                | 972,798   |                  |   | 992,671
|Class B1,626 units outstanding               |  |                                | 37,974    |                  |   | 0      
|General partners                              |  |                                | 0         |                  |   | 0      
|                                              |  |                                |           |                  |   |        
|Total partners capital                       |  |                                | 1,010,772 |                  |   | 992,671
|                                              |  |                                |           |                  |   |        
|Total liabilities and partners capital       |  | $                              | 1,011,643 |                  | $ | 993,542
|                                              |  |                                |           |                  |   |        



See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF OPERATIONS

(unaudited)



|                                                           |  |                                 |        |      |                                |        |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------- |  | ------------------------------- | ------ | ---- | ------------------------------ | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                           |  | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |       
|                                                           |  | 2004                            |        | 2003 |                                |        | 2004 |  |   | 2003    |  
|EQUITY IN INCOME (LOSS) OF FUND II AND FUND II-OW (Note 2) |  | $                               | 37,974 |      | $                              | (7,940 | )    |  | $ | 17,851  |   |  | $ | (17,251 | )
|OTHER INCOME                                               |  |                                 | 0      |      |                                | 2      |      |  |   | 250     |   |  |   | 78      |  
|                                                           |  |                                 |        |      |                                |        |      |  |   |         |   |  |   |         |  
|NET INCOME (LOSS)                                          |  | $                               | 37,974 |      | $                              | (7,938 | )    |  | $ | 18,101  |   |  | $ | (17,173 | )
|                                                           |  |                                 |        |      |                                |        |      |  |   |         |   |  |   |         |  
|NET LOSS ALLOCATED TO CLASS A LIMITED PARTNERS             |  | $                               | 0      |      | $                              | (7,938 | )    |  | $ | (19,873 | ) |  | $ | (17,173 | )
|                                                           |  |                                 |        |      |                                |        |      |  |   |         |   |  |   |         |  
|NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS           |  | $                               | 37,974 |      | $                              | 0      |      |  | $ | 37,974  |   |  | $ | 0       |  
|                                                           |  |                                 |        |      |                                |        |      |  |   |         |   |  |   |         |  
|NET INCOME (LOSS) PER LIMITED PARTNER UNIT:                |  |                                 |        |      |                                |        |      |  |   |         |   |  |   |         |  
|CLASS A                                                    |  | $                               | 0.00   |      | $                              | (1.31  | )    |  | $ | (3.28   | ) |  | $ | (2.83   | )
|                                                           |  |                                 |        |      |                                |        |      |  |   |         |   |  |   |         |  
|CLASS B                                                    |  | $                               | 23.35  |      | $                              | 0.00   |      |  | $ | 23.35   |   |  | $ | 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, 2003

AND NINE MONTHS ENDED SEPTEMBER 30, 2004 (unaudited)



|                            |  |                  |  |                  |           |                         |       |       |         |   |        |  |   |   |  |   |           |  
|--------------------------- |  | ---------------- |  | ---------------- | --------- | ----------------------- | ----- | ----- | ------- | - | ------ |  | - | - |  | - | --------- | -
|                            |  | Limited Partners |  | General Partners |           | Total Partners Capital |      
|                            |  | Class A          |  |                  | Class B   |                         |      
|                            |  | Units            |  | Amounts          |           |                         | Units |       | Amounts |   |       
|BALANCE, December 31, 2002  |  | 6,062            |  | $                | 1,021,212 |                         |       | 1,626 |         | $ | 0      |  | $ | 0 |  | $ | 1,021,212 |  
|                            |  |                  |  |                  |           |                        
|Net loss                    |  | 0                |  |                  | (28,541   | )                       |       | 0     |         |   | 0      |  |   | 0 |  |   | (28,541   | )
|                            |  |                  |  |                  |           |                         |       |       |         |   |        |  |   |   |  |   |           |  
|BALANCE, December 31, 2003  |  | 6,062            |  |                  | 992,671   |                         |       | 1,626 |         |   | 0      |  |   | 0 |  |   | 992,671   |  
|                            |  |                  |  |                  |           |                        
|Net income (loss)           |  | 0                |  |                  | (19,873   | )                       |       | 0     |         |   | 37,974 |  |   | 0 |  |   | 18,101    |  
|                            |  |                  |  |                  |           |                         |       |       |         |   |        |  |   |   |  |   |           |  
|BALANCE, September 30, 2004 |  | 6,062            |  | $                | 972,798   |                         |       | 1,626 |         | $ | 37,974 |  | $ | 0 |  | $ | 1,010,772 |  
|                            |  |                  |  |                  |           |                         |       |       |         |   |        |  |   |   |  |   |           |  



See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                          |  |                                |         |   |      |   |         |  
|----------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                          |  | Nine Months EndedSeptember 30, |        
|                                                                                          |  | 2004                           |         |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |  |                                |         |   |      |   |         |  
|Net income (loss)                                                                         |  | $                              | 18,101  |   |      | $ | (17,173 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                |         |   |      |   |         |  
|Equity in (income) loss of Fund II and Fund II-OW                                         |  |                                | (17,851 | ) |      |   | 17,251  |  
|Changes in operating assets and liabilities:                                              |  |                                |         |   |      |   |         |  
|Due from Fund II and Fund II-OW                                                           |  |                                | 0       |   |      |   | (78     | )
|Accounts payable                                                                          |  |                                | 0       |   |      |   | (1,166  | )
|                                                                                          |  |                                |         |   |      |   |         |  
|Total adjustments                                                                         |  |                                | (17,851 | ) |      |   | 16,007  |  
|                                                                                          |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) operating activities                                       |  |                                | 250     |   |      |   | (1,166  | )
|                                                                                          |  |                               
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |  |                                |         |   |      |   |         |  
|Investment in Fund II and Fund II-OW                                                      |  |                                | 0       |   |      |   | (15,903 | )
|                                                                                          |  |                                |         |   |      |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      |  |                                | 250     |   |      |   | (17,069 | )
|                                                                                          |  |                               
|CASH AND CASH EQUIVALENTS, beginning of period                                            |  |                                | 6,161   |   |      |   | 23,110  |  
|                                                                                          |  |                                |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                                  |  | $                              | 6,411   |   |      | $ | 6,041   |  
|                                                                                          |  |                                |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:                    |  |                                |         |   |      |   |         |  
|Net sale proceeds due from Fund II and Fund II-OW                                         |  | $                              | 131,413 |   |      | $ | 81,797  |  
|                                                                                          |  |                                |         |   |      |   |         |  



See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



CONDENSED NOTES TO FINANCIAL STATEMENTS



SEPTEMBER 30, 2004 (unaudited)



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



|(a) |  | General
|--- |  | -------



Wells Real Estate Fund II-OW (the Partnership) is a Georgia public limited partnership with Leo F. Wells, III and Wells Capital, a Georgia corporation, serving as its general partners (collectively, the
General Partners). 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 gross offering
proceeds of $1,922,000 for 7,688 Class A and Class B limited partner units at $250 per unit from 219 limited partners.



The Partnership owns indirect interests in all of its real estate assets through a joint venture with Fund II and Fund II-OW, which 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):



|                                                                      |  |                                                                                                     |  |                                                                                                                                              
|--------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                         |  | Joint Venture Partners                                                                              |  | Properties                                                                                                                                   
|Fund II and Fund II-OW (Fund II-IIOW Associates)                    |  |    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
(Fund I-II Tucker Associates)             |  |    Wells Real
Estate Fund I    Fund II-IIOW Associates                                            |  | 2. Heritage Place(1) A retail and commercial office complex
located in Tucker, Georgia                                                       
|Fund II and Fund III Associates (Fund II-III Associates )           |  |    Fund II-IIOW Associates    Wells Real Estate Fund III, L.P.                                    |  | 3. Boeing at the Atrium A
four-story office building located in Houston, Texas 4. Brookwood Grill(2) A restaurant located in Roswell,
Georgia
|Fund II, III, VI and VII
Associates (Fund II-III-VI-VII Associates) |  |    Fund II-III
Associates    Wells Real Estate Fund VI, L.P.    Wells Real Estate Fund VII, L.P. |  | 5. Holcomb Bridge Property(2) An office/retail center located in
Roswell, Georgia                                                            



|(1) |  | The retail portion of Heritage Place was sold in April 2003.
|--- |  | ------------------------------------------------------------

|(2) |  | Properties were sold in July 2004.
|--- |  | ----------------------------------



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Each of the aforementioned properties was acquired on an all-cash basis. 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. For further information regarding the Joint Ventures and foregoing properties, refer to the
Partnerships Form 10-K for the year ended December 31, 2003.



On April 7,
2003, Fund I-II Tucker Associates sold the retail portion of Heritage Place, which comprises approximately 30% of the total premises, to an unrelated third party for a gross selling price of $3,400,000. As a result of this sale, net sale proceeds of
approximately $82,000 and a gain of approximately $7,000 were allocated to the Partnership.



On July 1, 2004, Fund II-III Associates and Fund II-III-VI-VII Associates, collectively, sold Brookwood Grill and the Holcomb Bridge Property to an unrelated third party for a gross sale price of $9,500,000. As a
result of the sale of Brookwood Grill, net proceeds of approximately $77,000 and a gain of approximately $26,000 were allocated to the Partnership. As a result of the sale of the Holcomb Bridge Property, the Partnership received net sale proceeds of
approximately $54,000, recognized an immediate gain of approximately $15,000, and recorded a deferred gain of approximately $1,000. The deferred gain represents the Partnerships pro rata allocation of maximum exposure under an eighteen-month
rental guarantee provided to the purchaser in connection with the sale. As of September 30, 2004, the Partnership had recognized approximately $60 of the deferred gain. Gains on the sales of Brookwood Grill and the Holcomb Bridge Property may be
adjusted as additional information becomes available in subsequent periods.



|(b) |  | Basis of Presentation
|--- |  | ---------------------



The financial statements of the Partnership have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including the
instructions to Form 10-Q and Article 10 of Regulation S-X, and in accordance with such rules and regulations, do not include all of the information and footnotes required by accounting principles generally accepted in the United States
(GAAP) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly
present the results for 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 Form 10-K for the year
ended December 31, 2003.



|(c) |  | Allocations of Net Income, Net Loss, and Gain on Sale
|--- |  | -----------------------------------------------------



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



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



Gain on the sale or exchange of the Partnerships properties will be allocated 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) the limited partners adjusted capital contribution, plus a cumulative 12% per annum return on their respective adjusted capital contribution, less
the sum of all prior distributions of cash flow from operations previously made to such limited partners, over (ii) such limited partners capital account balances 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



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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) the General Partners adjusted capital contribution, less the sum of all prior distributions of cash flow from operations previously made to such General Partners, over (ii) such General
Partners capital account balances as of the sale date; and (d) thereafter, 85% to the limited partners and 15% to the General Partners.



|(d) |  | Distributions of Net Cash from Operations
|--- |  | -----------------------------------------



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



|(e) |  | Reclassifications
|--- |  | -----------------



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



|2. |  | INVESTMENTS IN JOINT VENTURES
|-- |  | -----------------------------



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



The Partnership does not have control over the operations of the Joint Ventures; however, it does exercise significant influence. Approval by the Partnership as well as
the other joint venture partners is required for any major decision or any action that would materially affect the Joint Ventures or their real property investments. Accordingly, the Partnerships investment in Fund II-IIOW Associates is
recorded using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for contributions, distributions, and net income (loss) attributable to the Partnership. For further information, refer to
the financial statements and footnotes included in the Partnerships Form 10-K for the year ended December 31, 2003.



|(b) |  | Summary of OperationsFund II-IIOW Associates
|--- |  | ---------------------------------------------



The following information summarizes the operations of the Fund II-IIOW Associates for the three and nine months ended September 30, 2004 and 2003, respectively:



|                        |  |                                  |        |                                  |   |        |  |   |         |     |  |   |          |  
|----------------------- |  | -------------------------------- | ------ | -------------------------------- | - | ------ |  | - | ------- | --- |  | - | -------- | -
|                        |  | Total Revenues                   |        | Net Income (loss)                |  
|                        |  | Three Months Ended September 30, |        | Three Months Ended September 30, |  
|                        |  | 2004                             |        | 2003                             |   | 2004   |  |   | 2003    |    
|Fund II-IIOW Associates |  | $                                | 13,203 |                                  | $ | 10,336 |  | $ | 697,315 | (1) |  | $ | (149,526 | )
|                        |  |                                  |        |                                  |   |        |  |   |         |     |  |   |          |  



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|                        |  |                                 |        |                                 |   |        |  |   |         |     |  |   |          |  
|----------------------- |  | ------------------------------- | ------ | ------------------------------- | - | ------ |  | - | ------- | --- |  | - | -------- | -
|                        |  | Total Revenues                  |        | Net Income (Loss)               |  
|                        |  | Nine Months Ended September 30, |        | Nine Months Ended September 30, |  
|                        |  | 2004                            |        | 2003                            |   | 2004   |  |   | 2003    |    
|Fund II-IIOW Associates |  | $                               | 34,790 |                                 | $ | 29,234 |  | $ | 318,355 | (1) |  | $ | (324,869 | )



|(1) |  | Effective July 1, 2004, the Fund II-IIOW Associates extended the weighted average composite useful life for all building assets from 25 years to 40 years, which
resulted in an increase to Fund II-IIOW Associates net income for the three and nine months ended September 30, 2004 of approximately $56,211.Management believes that this change more appropriately reflects the estimated useful lives
of real estate assets and is consistent with prevailing industry practice.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | Summary of OperationsFund II-IIOW Associates Investments
|--- |  | ----------------------------------------------------------



The following information summarizes the operations of the joint ventures in which the Partnership holds interests through its ownership in Fund II-IIOW Associates for
the three and nine months ended September 30, 2004 and 2003, respectively:



|                            |  |                                 |           |                                         |   |           |                                    |   |                                 |   |  |      |          |      |  |      |           |  |      |         |  |   |           |      |  |   |         |  
|--------------------------- |  | ------------------------------- | --------- | --------------------------------------- | - | --------- | ---------------------------------- | - | ------------------------------- | - |  | ---- | -------- | ---- |  | ---- | --------- |  | ---- | ------- |  | - | --------- | ---- |  | - | ------- | -
|                            |  | Total Revenues                  |           | Income (Loss) FromContinuing Operations |   |           | Income FromDiscontinued Operations |   | Net Income (Loss)               |  
|                            |  | Three Months EndedSeptember 30, |           | Three Months EndedSeptember 30,         |   |           | Three Months EndedSeptember 30,    |   | Three Months EndedSeptember 30, |  
|                            |  | 2004                            |           | 2003                                    |   | 2004      |                                    |   | 2003                            |   |  | 2004 |          | 2003 |  | 2004 |           |  | 2003 |        
|Fund I-II Tucker Associates |  | $                               | 183,552   |                                         | $ | 184,486   |                                    | $ | 35,136                          |   |  | $    | (20,893  | )    |  | $    | 0         |  | $    | 0       |  | $ | 35,136    | (2)  |  | $ | (20,893 | )
|Fund II-III Associates      |  |                                 | 441,564   |                                         |   | 434,390   |                                    |   | 102,220                         |   |  |      | 17,412   |      |  |      | 1,204,795 |  |      | 55,797  |  |   | 1,307,015 | (2)  |  |   | 73,209  |  
|                            |  |                                 |           |                                         |   |           |                                    |   |                                 |   |  |      |          |      |  |      |           |  |      |         |  |   |           |      |  |   |         |  
|                            |  | $                               | 625,116   |                                         | $ | 618,876   |                                    | $ | 137,356                         |   |  | $    | (3,481   | )    |  | $    | 1,204,795 |  | $    | 55,797  |  | $ | 1,342,151 |      |  | $ | 52,316  |  
|                            |  |                                 |           |                                         |   |           |                                    |   |                                 |   |  |      |          |      |  |      |           |  |      |         |  |   |           |      |  |   |         |  
|                            |  |                                 |           |                                        
|                            |  | Total Revenues                  |           | Income (Loss) FromContinuing Operations |   |           | Income FromDiscontinued Operations |   | Net Income (Loss)               |  
|                            |  | Nine Months EndedSeptember 30,  |           | Nine Months EndedSeptember 30,          |   |           | Nine Months EndedSeptember 30,     |   | Nine Months EndedSeptember 30,  |  
|                            |  | 2004                            |           | 2003                                    |   | 2004      |                                    |   | 2003                            |   |  | 2004 |          | 2003 |  | 2004 |           |  | 2003 |        
|Fund I-II Tucker Associates |  | $                               | 537,054   |                                         | $ | 598,877   |                                    | $ | (18,731                         | ) |  | $    | (159,926 | )    |  | $    | 0         |  | $    | 478,333 |  | $ | (18,731   | )(2) |  | $ | 318,407 |  
|Fund II-III Associates      |  |                                 | 1,333,772 |                                         |   | 1,265,547 |                                    |   | 128,480                         |   |  |      | (8,390   | )    |  |      | 1,340,576 |  |      | 188,255 |  |   | 1,469,056 | (2)  |  |   | 179,865 |  
|                            |  |                                 |           |                                         |   |           |                                    |   |                                 |   |  |      |          |      |  |      |           |  |      |         |  |   |           |      |  |   |         |  
|                            |  | $                               | 1,870,826 |                                         | $ | 1,864,424 |                                    | $ | 109,749                         |   |  | $    | (168,316 | )    |  | $    | 1,340,576 |  | $    | 666,588 |  | $ | 1,450,325 |      |  | $ | 498,272 |  
|                            |  |                                 |           |                                         |   |           |                                    |   |                                 |   |  |      |          |      |  |      |           |  |      |         |  |   |           |      |  |   |         |  



|(2) |  | Effective July 1, 2004, Fund I-II Tucker Associates and Fund II-III Associates extended the weighted-average composite useful life for all building assets from 25
years to 40 years, which resulted in an increase (decrease) to net income (loss) for the three and nine months ended September 30, 2004 of approximately $24,623 and $72,131, respectively.Management believes that this change more
appropriately reflects the estimated useful lives of real estate assets and is consistent with prevailing industry practice.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(d) |  | Summary of OperationsFund II-III Associates Investments
|--- |  | ---------------------------------------------------------



The following information summarizes the operations of the joint venture in which the Partnership holds an interest through its ownership in Fund II-III Associates for
the three and nine months ended September 30, 2004 and 2003, respectively:



|                              |  |                                  |   |                                  |   |                                    |  |                                  |         |   |      |   |      |  |      |           |      |   |        |  |   |           |  |   |       
|----------------------------- |  | -------------------------------- | - | -------------------------------- | - | ---------------------------------- |  | -------------------------------- | ------- | - | ---- | - | ---- |  | ---- | --------- | ---- | - | ------ |  | - | --------- |  | - | ------
|                              |  | Total Revenues                   |   | Loss FromContinuing Operations   |   | Income FromDiscontinued Operations |  | Net Income                      
|                              |  | Three Months Ended September 30, |   | Three Months Ended September 30, |   | Three Months Ended September 30,   |  | Three Months Ended September 30,
|                              |  | 2004                             |   | 2003                             |   | 2004                               |  |                                  | 2003    |   | 2004 |   | 2003 |  | 2004 |           | 2003
|Fund II-III-VI-VII Associates |  | $                                | 0 |                                  | $ | 0                                  |  | $                                | (18,376 | ) |      | $ | 0    |  | $    | 1,869,206 |      | $ | 66,670 |  | $ | 1,850,830 |  | $ | 66,670
|                              |  |                                  |   |                                  |   |                                    |  |                                  |         |   |      |   |      |  |      |           |      |   |        |  |   |           |  |   |       
|                              |  |                                  |   |                                 
|                              |  | Total Revenues                   |   | Loss FromContinuing Operations   |   | Income FromDiscontinued Operations |  | Net Income                      
|                              |  | Nine Months EndedSeptember 30,   |   | Nine Months EndedSeptember 30,   |   | Nine Months Ended September 30,    |  | Nine Months EndedSeptember 30,  
|                              |  | 2004                             |   | 2003                             |   | 2004                               |  |                                  | 2003    |   | 2004 |   | 2003 |  | 2004 |           | 2003
|Fund II-III-VI-VII Associates |  | $                                | 0 |                                  | $ | 0                                  |  | $                                | (26,534 | ) |      | $ | 0    |  | $    | 2,085,086 |      | $ | 95,598 |  | $ | 2,058,552 |  | $ | 95,598
|                              |  |                                  |   |                                  |   |                                    |  |                                  |         |   |      |   |      |  |      |           |      |   |        |  |   |           |  |   |       



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



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



Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners, is entitled to compensation for the management and leasing of the
Partnerships properties owned through the Joint Ventures equal to (a) of the gross revenues collected monthly, 3% of the gross revenues for management and 3% of the gross revenues for leasing (aggregate maximum of 6%) plus a separate fee for
the one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for similar properties or (b) in the case
of commercial properties which are leased on a long-term net basis (ten or more years), 1% of the gross revenues except for initial leasing fees equal to 3% of the gross revenues over the first five years of the lease term. The Partnerships
share of management and leasing fees and lease acquisition costs incurred through the Joint Ventures was $1,958 and $2,397 for the three months ended September 30, 2004 and 2003, respectively, and $7,194 and $7,865 for the nine months ended
September 30, 2004 and 2003, respectively.



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



Wells Capital, one of the General Partners, and its affiliates perform certain administrative services for the Partnership and the Joint Ventures, such as accounting and
other partnership administration, and incur the related expenses. Such expenses are allocated among various other entities affiliated with the General Partners (the Wells Real Estate Funds) based on time spent on each fund by individual
administrative personnel. In the opinion of management, this allocation is a reasonable estimation of such expenses. Fund II-IIOW Associates reimbursed Wells Capital $72,025 and $53,254 for the three months ended September 30, 2004 and 2003,
respectively, and $225,853 and $177,193 for the nine months ended September 30, 2004 and 2003, respectively.



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



The General Partners are also general partners of other Wells Real Estate Funds. In addition, Wells Capital sponsors and advises two affiliated real estate investment
trusts (the REITs) in which it retains a residual interest. As such, there may exist conflicts of interest where the General Partners in their capacity as general partners of other Wells Real Estate Funds, or as the advisor to the REITs,
may be in competition with the Partnership in connection with property acquisitions or for tenants in similar geographic markets.



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##### Table of Contents

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



The following discussion and analysis should be read in conjunction with the Partnerships accompanying financial statements and notes
thereto.



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



We believe that we will operate through the following five key life cycle phases. The time expected to be spent in each phase is dependent upon various economic, industry, market, and other internal/external factors.
Some overlap naturally exists in the transition from one phase to the next.



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

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



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

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



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

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



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

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



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

The period
during which the Partnership positions and markets its real estate investments for sale, sells its real estate investments and distributes net sale proceeds to the partner.



Portfolio Overview



We have moved from the positioning-for-sale phase into the disposition and liquidation phase of our life cycle. The Partnership invested in the Joint Ventures, which
originally acquired six properties, of which three and a portion of another have since been sold. Our focus on the remaining assets in the Joint Ventures involves leasing and marketing efforts that we believe will result in the best disposition
pricing for our investors.



Through the recent sale of the Holcomb Bridge and
Brookwood Grill properties, in which we held approximate equity interests of 1% and 3%, respectively, we were able to capitalize on current strong investor demand for retail shopping centers in the market.



Operating cash flows have declined to a low level due to the sale of properties. As a result,
our General Partners are currently reserving operating cash flows and net sale proceeds held by Fund II-IIOW Associates in order to fund the re-leasing costs anticipated to be required in connection with the re-leasing of the Louis Rose Building and
Heritage Place properties, and anticipate continuing to hold operating distributions until the Louis Rose Building is fully re-leased and the related re-leasing costs are funded. As we move into 2005 and the outcome of our re-leasing efforts become
more certain, our General Partners will further evaluate the availability of net sale proceeds for distributions to limited partners.



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Operating distributions to Class A Unit holders have been reserved for the third quarter of 2004. However, as of
September 30, 2004, Class A Unit holders have received cumulative net operating cash flow distributions of approximately $1.3 million since inception, which equates to approximately 84% of the $1.5 million originally invested. Limited partners who
have held Class B Units since inception have cumulatively received $248.68 per unit in allocated tax losses through December 31, 2003, plus operating distributions of $1.32 per unit. No operating distributions have been made to our General Partners.



Property Summary



Information related to the properties owned by the Joint Ventures follows:



| |  |  | The Louis Rose Building is currently vacant. We are aggressively working on re-leasing this property;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | 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 in 2003,
and approximately $82,000 of the net sale proceeds was allocated to the Partnership. These proceeds have been reserved to fund the anticipated re-leasing costs for the Louis Rose Building. The remaining office component at Heritage Place is
currently approximately 57% leased and our leasing efforts continue;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Cherokee Commons property was sold in 2001, and approximately $240,000 of the net sale proceeds was allocated to the Partnership. A portion of the proceeds (approximately
$64,000) was used to fund the Partnerships pro-rata share of re-leasing costs at Boeing at the Atrium in 2002 and 2003. The remaining net sale proceeds of approximately $176,000 have been reserved to fund anticipated re-leasing costs for the
Louis Rose Building, which is currently vacant;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Boeing at the Atrium is currently 100% occupied by the Boeing/Shuttle Division of The Boeing Company;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | The Brookwood Grill was sold on July 1, 2004, and approximately $77,000 in net sale proceeds was allocated to the Partnership. Our General Partners are reviewing costs anticipated
to re-lease the Louis Rose Building and Heritage Place to determine if all, or some portion, of these net sale proceeds can be distributed in 2005; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Holcomb Bridge Property was sold on July 1, 2004, and approximately $54,000 in net sale proceeds was allocated to the Partnership. Our General Partners are reviewing costs
anticipated to re-lease the Louis Rose Building and Heritage Place to determine if all, or some portion, of these net sale proceeds can be distributed in 2005.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We will focus our efforts on re-leasing the Louis Rose Building, which has remained vacant following the expiration of Louis Roses
lease on April 30, 2001. Softening of the Charlotte office market and related Northeast submarket over the past three years has made the re-leasing of this building challenging.



As we move further into the disposition and liquidation phase, our attention will shift to locating suitable buyers, negotiating
purchase-sale contracts that will attempt to maximize the total return to the limited partners and minimize contingencies and our post-closing involvement with the buyer.



Industry Factors



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



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##### Table of Contents

General Economic and Real Estate Market Commentary



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



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



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



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



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



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



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



Equity in Income (Loss) of Joint Ventures



Equity in income (loss) of Fund II-IIOW Associates was $37,974 and $(7,940) for the three months ended September 30, 2004 and 2003, respectively, and $17,851 and
$(17,251) for the nine months ended September 30, 2004 and 2003, respectively. The 2004 increases are primarily attributable to (i) gains recognized from the sale of Brookwood Grill and the Holcomb Bridge Property, and (ii) a decline in depreciation
expense as a result of changing the useful life for all buildings owned through the Joint Ventures from 25 years to 40 years effective July 1, 2004, partially offset by (iii) reduced rental income resulting from the sale of the two aforementioned
properties, and (iv) an increase in administrative expenses recorded by Fund II-IIOW Associates related to increased reporting and regulatory requirements. We anticipate additional increases related to implementing and adhering to such reporting and
regulatory requirements going forward. Fund II-IIOW Associates pays for and recognizes all partnership expenses.



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



Our operating strategy entails funding expenses related to the recurring operations of the properties owned by the Joint Ventures with the rental revenues collected, and
assessing the amount of remaining cash flows that will be



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##### Table of Contents

required to fund portfolio expenses, known re-leasing costs and other capital improvements. Any residual operating cash
flows are distributed from the Joint Ventures to the Partnership, and are considered available for distribution to the limited partners. Distributions are generally paid to the limited partners quarterly. 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 the Joint Ventures tenants to honor lease payments
and our ability to assist the Joint Ventures in re-leasing space on favorable terms as leases expire or space otherwise becomes vacant. In the event of either situation, cash flows and, consequently, our ability to provide funding for capital needs
would be adversely affected.



Short-Term Liquidity



During the nine months ended September 30, 2004, we generated net operating cash flows of
approximately $250, as compared to cash used in operations of approximately $1,166, for the nine months ended September 30, 2003, primarily due to a change in the timing of accounts payable. Fund II-IIOW Associates continues to hold operating
distributions received from its investments in the Joint Ventures otherwise payable to the Partnership in order to provide funding for the costs anticipated in connection with re-leasing the Louis Rose Building and Heritage Place. Accordingly, no
operating distributions were paid to limited partners during the nine months ended September 30, 2004. The General Partners anticipate continuing to reserve operating distributions to limited partners until the Louis Rose Building is re-leased and
the related re-leasing costs are funded. Future operating distributions to limited partners will be largely dependent upon the amount of cash generated from the Joint Ventures, our expectations of future cash flows, and determination of near-term
cash needs for tenant re-leasing costs and other capital improvements for properties owned by the Joint Ventures.



We believe that the cash on hand and distributions due from the Joint Ventures are sufficient to cover our current working capital needs.



Long-Term Liquidity



We expect that our future sources of capital will be primarily derived from net proceeds
generated from the selective and strategic sale of properties and operating cash flows generated from the Joint Ventures. As of September 30, 2004, Fund II-IIOW Associates held net sale proceeds of approximately $389,000, which are attributable to
the Partnership. Our future long-term liquidity requirements will include, but not be limited to, funding tenant improvements, renovations, expansions, and other significant capital improvements necessary for properties owned through the Joint
Ventures. Specifically, we anticipate funding the Partnerships proportionate share of the costs necessary to re-lease the Louis Rose Building. We expect to reinstate operating distributions to limited partners following the re-leasing of the
Louis Rose Building and funding of related leasing costs and tenant improvements required in connection therewith. Future cash flows from operating activities will be primarily effected 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 problems re-leasing the Louis Rose Building primarily due to the softening of the Charlotte office market and related Northeast submarket during the
period following the expiration of Louis Roses lease on April 30, 2001. The Northeast submarket of Charlotte continues to face challenges as the result of new office product deliveries, offering attractive rental rates and other concessions to
potential tenants. Current vacancy in the submarket is 40.9%, compared to the vacancy rate for Charlotte as a whole of 17.0%. Accordingly, there is no guarantee when the Louis Rose Building will be re-leased or the level of rental rates which may be
achieved in connection therewith.



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



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##### Table of Contents

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



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



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



As of September 30, 2004, we have received,
used, and held net proceeds from the sale of properties as presented below:



|                                          |  |              |           |                                      |     |         |                                             |   |                                  |  |                                |        |                                                   |                                          |  |   |   |  |   |        
|----------------------------------------- |  | ------------ | --------- | ------------------------------------ | --- | ------- | ------------------------------------------- | - | -------------------------------- |  | ------------------------------ | ------ | ------------------------------------------------- | ---------------------------------------- |  | - | - |  | - | -------
|Property Sold                             |  | Net Proceeds |           | Partnerships ApproximateOwnership % |     |         | Net Proceeds Attributable to thePartnership |   | Cumulative Net Proceeds Invested |  | Distributed toPartners to date |        | Undistributed NetProceeds as ofSeptember 30, 2004
|                                          |  |              |           | Amount                               |     | Purpose |                                             |  
|Cherokee Commons (sold 2001)              |  | $            | 8,414,089 |                                      | 2.9 | %       |                                             | $ | 239,776                          |  | $                              | 63,746 |                                                   | Re-leasing of Boeingat the Atrium (2003) |  | $ | 0 |  | $ | 176,030
|Heritage Place-retail portion (sold 2003) |  |              | 3,207,708 |                                      | 2.6 | %       |                                             |   | 81,797                           |  |                                | 0      |                                                   |                                          |  |   | 0 |  |   | 81,797 
|Holcomb Bridge Property(sold 2004)        |  |              | 6,889,379 |                                      | 0.8 | %       |                                             |   | 53,737                           |  |                                | 0      |                                                   |                                          |  |   | 0 |  |   | 53,737 
|Brookwood Grill(sold 2004)                |  |              | 2,346,693 |                                      | 3.3 | %       |                                             |   | 77,676                           |  |                                | 0      |                                                   |                                          |  |   | 0 |  |   | 77,676 
|                                          |  |              |           |                                      |     |         |                                             |   |                                  |  |                                |        |                                                   |                                          |  |   |   |  |   |        
|Total                                     |  |              |           |                                      |     |         |                                             | $ | 452,986                          |  | $                              | 63,746 |                                                   |                                          |  | $ | 0 |  | $ | 389,240
|                                          |  |              |           |                                      |     |         |                                             |   |                                  |  |                                |        |                                                   |                                          |  |   |   |  |   |        



The net proceeds listed above will
continue to be held in reserve by Fund II-IIOW Associates as our General Partners evaluate the capital needs of the existing properties in which we hold an interest.



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



We have entered into agreements with Wells Capital and its affiliates, whereby we pay certain fees or reimbursements to Wells Capital or its affiliates for property
management and leasing fees, and reimbursement of operating and administrative costs. See Note 3 to our financial statements included in this report for a discussion of the various related-party transactions, agreements, and fees.



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



The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases which would
protect the Partnership



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##### Table of Contents

from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges,
real estate tax and insurance reimbursements on a per-square-foot basis, or in some cases, annual reimbursement of operating expenses above a certain per-square-foot allowance. There is no assurance, however, that we would be able to replace
existing leases with new leases at higher base rental rates.



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



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



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



Effective July 1, 2004, the Joint
Ventures extended the weighted -average composite useful life for all building assets from 25 years to 40 years, which resulted in an increase to our net income for the three and nine months ended September 30, 2004. We believe that this change more
appropriately reflects the estimated useful lives of real estate assets and is consistent with prevailing industry practice. In the event that the Joint Ventures utilize inappropriate useful lives or methods of depreciation, our net income would be
misstated.



Valuation of Real Estate Assets



We continually monitor events and changes in circumstances that could indicate that the
carrying amounts of the real estate assets in which we have an ownership interest, either directly or through investments in the Joint Ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the
carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future
operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and
recognizes an impairment loss. We have determined that there has been no impairment in the carrying value of real estate assets we held as of September 30, 2004.



Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of
current lease agreements, property operating expenses, discount rates, the number of



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months it takes to re-lease the property, and the number of years the property is held for investment. The use of
inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the propertys future cash flows and fair value, and could result in the overstatement of the carrying value of real estate assets held by the
Joint Ventures and net income of the Partnership.



|(g) |  | Economic Dependency
|--- |  | -------------------



We have engaged Wells Management to supervise the management and leasing of properties owned through the Joint Ventures, and Wells Capital to perform certain administrative services, including accounting, shareholder
communications, and investor relations. As a result of these relationships, we are dependent upon Wells Management, Wells Capital, and other affiliates thereof to provide certain services that are essential to the Partnerships operations,
including asset management and property management services, asset acquisition and disposition services, and other administrative responsibilities under agreements, some of which have terms of one year or less.



Wells Management and Wells Capital are owned and controlled by Wells Real Estate Funds, Inc.
(WREF). The operations of Wells Capital and Wells Management represent substantially all of the business of WREF. Due to their common ownership and importance to WREF, we focus 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, it may become necessary for the Partnership and/or the Joint Ventures to find alternative service
providers.



For the nine months ended September 30, 2004, WREFs operating
expenses exceeded operating revenues by approximately $11 million. During the first two quarters of 2004, WREF incurred net losses primarily due to the fact that revenues from acquisition, advisory, asset management services, and property management
services were less than the costs to provide such services. In planning for 2004, WREF anticipated incurring short-term losses and, accordingly, has reserved funds adequate to cover such a shortfall. WREF anticipated generating lower revenues in
2004, as compared to 2003, primarily due to the fact that the majority of its revenues are earned as a percentage of sales of affiliated investment products. The sale of shares of Wells Real Estate Investment Trust II, Inc. (REIT II), an
investment product sponsored by WREF whose offering commenced in December 2003, was anticipated to be significantly less in 2004 than the sale of shares of Wells Real Estate Investment Trust, Inc. (REIT I), another investment product
sponsored by WREF whose offering closed in December 2003. Consistent with sale of shares of REIT I during the beginning of its offering period, the sale of shares of REIT II was anticipated to remain relatively low in the beginning of its offering
period.



For the three months ended September 30, 2004, on a consolidated
basis, WREFs operating revenues exceeded operating expenses by approximately $6 million. WREF is also expecting operating revenues to exceed operating expenses during the fourth quarter of 2004. WREF believes that the cash availability
provided by both funds on hand and borrowing capacity through various credit facilities will be adequate to meet its obligations.



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



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



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



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

upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that
the Partnerships disclosure controls and procedures were effective.



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



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PART II.    OTHER INFORMATION



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



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



SIGNATURES



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



|                  |  |                              |  | 
|----------------- |  | ---------------------------- |  | 
|                  |  | WELLS REAL ESTATE FUND II-OW
|                  |  | (Registrant)                
|                  | 
|                  |  | By: WELLS CAPITAL, INC.     
|                  |  | (Corporate General Partner) 
|                  | 
|November 12, 2004 |  | /s/    LEO F. WELLS, III    
|                  |  | Leo F. Wells, III           
|                  |  | President                   
|                  | 
|November 12, 2004 |  | /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



|            |  |                                                                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                      
|            | 
|10.1        |  | Purchase and Sale Agreement for 880 Holcomb Bridge Road and Brookwood Grill (previously filed with the Commission as Exhibit 10.1 to the Form 10-Q of Wells Real Estate Fund II for the period
ending September 30, 2004, Commission File No. 0-16518, and hereby incorporated by this reference)
|            | 
|31.1        |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                           
|            | 
|31.2        |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                           
|            | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                   

|
|