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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



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

For the quarterly period ended March 31, 2007 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                         

N/A

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

Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

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

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund II-OW (the Partnership or the Registrant) other than historical facts
may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in particular, statements about our plans,
strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended
to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as may, will, expect, intend,
anticipate, estimate, believe, continue, or other similar words. Specifically, we consider, among others, statements concerning future operating results and cash flows, our ability to meet future
obligations, and the amount and timing of any future distributions to limited partners to be forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this
report is filed with the Securities and Exchange Commission. We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update
or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any such forward-looking statements are
subject to unknown risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or
impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide distributions to
partners, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A. in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2006 for a discussion of some of the risks and
uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.



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WELLS REAL ESTATE FUND II-OW



TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                            |  |         
|-------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                            |  | Page No.
|         |  |                      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                           
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                       |  |         
|         |  |                       | 
|         |  |                       |  | Balance Sheets  March 31, 2007 (unaudited) and December 31, 2006                                                          |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months Ended March 31, 2007 (unaudited) and 2006 (unaudited)                        |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2006 and the Three Months Ended March 31, 2007 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Three Months Ended March 31, 2007 (unaudited) and 2006 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                        |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                      |  | 15      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  | 21      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                    |  | 21      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                           
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                          |  | 21      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                               |  | 21      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                |  | 21      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                            |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                        |  | 22      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                          |  | 22      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                   |  | 22      



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



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

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

The accompanying financial statements should be read in conjunction with the notes to the Partnerships
financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included both in this report on Form 10-Q and in the Partnerships Annual Report on Form 10-K for the year ended
December 31, 2006. The Partnerships results of operations for the three months ended March 31, 2007 are not necessarily indicative of the operating results expected for the full year.



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WELLS REAL ESTATE FUND II-OW



BALANCE SHEETS

ASSETS



|                                     |  |                          |         |                  |   |        
|------------------------------------ |  | ------------------------ | ------- | ---------------- | - | -------
|                                     |  | (Unaudited)March 31,2007 |         | December 31,2006
|Investment in Fund II and Fund II-OW |  | $                        | 434,335 |                  | $ | 442,125
|Due from Fund II and Fund II-OW      |  |                          | 192,644 |                  |   | 187,877
|Cash and cash equivalents            |  |                          | 5,184   |                  |   | 5,184  
|                                     |  |                          |         |                  |   |        
|Total assets                         |  | $                        | 632,163 |                  | $ | 635,186
|                                     |  |                          |         |                  |   |        

LIABILITIES AND PARTNERS CAPITAL



|                                             |  |   |         |  |   |        
|-------------------------------------------- |  | - | ------- |  | - | -------
|PARTNERS CAPITAL:                           |  |   |         |  |   |        
|Limited partners:                            |  |   |         |  |   |        
|Class A  6,062 units issued and outstanding |  | $ | 632,163 |  | $ | 635,186
|Class B  1,626 units issued and outstanding |  |   | 0       |  |   | 0      
|General partners                             |  |   | 0       |  |   | 0      
|                                             |  |   |         |  |   |        
|Total partners capital                      |  |   | 632,163 |  |   | 635,186
|                                             |  |   |         |  |   |        
|Total liabilities and partners capital      |  | $ | 632,163 |  | $ | 635,186
|                                             |  |   |         |  |   |        

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF OPERATIONS



|                                         |  |                                          |        |   |      |   |         |  
|---------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ------- | -
|                                         |  | (Unaudited) Three Months Ended March 31, |       
|                                         |  | 2007                                     |        |   | 2006 |  
|                                         |  |                                         
|EQUITY IN LOSS OF FUND II AND FUND II-OW |  | $                                        | (3,023 | ) |      | $ | (23,100 | )
|                                         |  |                                          |        |   |      |   |         |  
|                                         |  |                                         
|NET LOSS                                 |  | $                                        | (3,023 | ) |      | $ | (23,100 | )
|                                         |  |                                          |        |   |      |   |         |  
|                                         |  |                                         
|NET LOSS ALLOCATED TO LIMITED PARTNERS:  |  |                                          |        |   |      |   |         |  
|CLASS A                                  |  | $                                        | (3,023 | ) |      | $ | (22,974 | )
|                                         |  |                                          |        |   |      |   |         |  
|CLASS B                                  |  | $                                        | 0      |   |      | $ | (126    | )
|                                         |  |                                          |        |   |      |   |         |  
|                                         |  |                                         
|NET LOSS PER LIMITED PARTNER UNIT:       |  |                                          |        |   |      |   |         |  
|CLASS A                                  |  |                                          | $(0.50 | ) |      |   | $(3.79  | )
|                                         |  |                                          |        |   |      |   |         |  
|CLASS B                                  |  |                                          | $ 0.00 |   |      |   | $(0.08  | )
|                                         |  |                                          |        |   |      |   |         |  

See accompanying notes.





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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF PARTNERS CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2006

AND THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)



|                                                                                                 |  |                  |  |        |                 |   |                        |       |        |   |          |   |  |   |   |  |   |          |  
|------------------------------------------------------------------------------------------------ |  | ---------------- |  | ------ | --------------- | - | ---------------------- | ----- | ------ | - | -------- | - |  | - | - |  | - | -------- | -
|                                                                                                 |  | Limited Partners |  |        | GeneralPartners |   | TotalPartners Capital |      
|                                                                                                 |  | Class A          |  |        | Class B         |   |                        |      
|                                                                                                 |  | Units            |  | Amount |                 |   | Units                  |       | Amount |   |          |  
|BALANCE, December 31, 2005                                                                       |  | 6,062            |  | $      | 990,432         |   |                        | 1,626 |        | $ | 126      |   |  | $ | 0 |  | $ | 990,558  |  
|                                                                                                 |  |                  |  |        |                 |  
|Net income (loss)                                                                                |  | 0                |  |        | (355,246        | ) |                        | 0     |        |   | 324,874  |   |  |   | 0 |  |   | (30,372  | )
|Distributions of net sale proceeds($0.00 and $199.88 per Class A and Class B Unit, respectively) |  | 0                |  |        | 0               |   |                        | 0     |        |   | (325,000 | ) |  |   | 0 |  |   | (325,000 | )
|                                                                                                 |  |                  |  |        |                 |   |                        |       |        |   |          |   |  |   |   |  |   |          |  
|BALANCE, December 31, 2006                                                                       |  | 6,062            |  |        | 635,186         |   |                        | 1,626 |        |   | 0        |   |  |   | 0 |  |   | 635,186  |  
|                                                                                                 |  |                  |  |        |                 |  
|Net loss                                                                                         |  | 0                |  |        | (3,023          | ) |                        | 0     |        |   | 0        |   |  |   | 0 |  |   | (3,023   | )
|                                                                                                 |  |                  |  |        |                 |   |                        |       |        |   |          |   |  |   |   |  |   |          |  
|BALANCE, March 31, 2007                                                                          |  | 6,062            |  | $      | 632,163         |   |                        | 1,626 |        | $ | 0        |   |  | $ | 0 |  | $ | 632,163  |  
|                                                                                                 |  |                  |  |        |                 |   |                        |       |        |   |          |   |  |   |   |  |   |          |  

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF CASH FLOWS



|                                                                                |  |                                          |        |   |      |   |         |  
|------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                |  | (Unaudited) Three Months Ended March
31, |       
|                                                                                |  | 2007                                     |        |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                                          |        |   |      |   |         |  
|Net loss                                                                        |  | $                                        | (3,023 | ) |      | $ | (23,100 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                          |        |   |      |   |         |  
|Equity in loss of Fund II and Fund II-OW                                        |  |                                          | 3,023  |   |      |   | 23,100  |  
|                                                                                |  |                                          |        |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                                          | 0      |   |      |   | 0       |  
|                                                                                |  |                                          |        |   |      |   |         |  
|CHANGE IN CASH AND CASH EQUIVALENTS                                             |  |                                          | 0      |   |      |   | 0       |  
|                                                                                |  |                                         
|CASH AND CASH EQUIVALENTS, beginning of period                                  |  |                                          | 5,184  |   |      |   | 5,184   |  
|                                                                                |  |                                          |        |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                        |  | $                                        | 5,184  |   |      | $ | 5,184   |  
|                                                                                |  |                                          |        |   |      |   |         |  

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



CONDENSED NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2007 (unaudited)



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

Wells Real Estate Fund II-OW (the
Partnership) is a Georgia public limited partnership with Leo F. Wells, III and Wells Capital, 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.

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



|                                                           |  |                                                               |  |                                                                                        
|---------------------------------------------------------- |  | ------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|Joint Venture                                              |  | Joint Venture Partners                                        |  | Properties                                                                             
|Fund II and Fund II-OW                                     |  |   Wells Real Estate Fund II   Wells Real Estate Fund II-OW  |  | 1. Louis Rose Building A two-story office building located in Charlotte, North Carolina
|Fund I and Fund II Tucker                                  |  |   Wells Real Estate Fund I   Fund II and Fund II-OW         |  | 2. Heritage Place(1) A commercial office complex located in
Tucker, Georgia            
|Fund II and Fund III Associates (Fund II-III Associates) |  |   Fund II and Fund II-OW   Wells Real Estate Fund III, L.P. |  | 3. Boeing at the Atrium A four-story office building located in Houston, Texas         



| | (1) | The retail portion of this property (approximately 30%) was sold in April 2003 and the remaining
office component of this property was sold in May 2006.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

Wells Real Estate Fund I, Wells Real Estate Fund II, and Wells Real Estate
Fund III, L.P. are affiliated with the Partnership through one or more common general partners. Each of the properties described above was acquired on an all-cash basis. For further information regarding the Joint Ventures and foregoing
properties, refer to the Partnerships Annual Report on Form 10-K for the year ended December 31, 2006.

On May 10, 2006, Fund I and Fund II
Tucker sold the office component of Heritage Place to an unrelated third party for a gross sale price of $4,215,000. As a result of the sale, Fund I and Fund II Tucker received net sale proceeds of approximately $4,028,000, of which approximately
$103,000 was distributed to the Partnership. As



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of March 31, 2006, Fund I and Fund II Tucker recognized an impairment loss of approximately $795,000 in order to reduce the carrying value of Heritage
Place to its estimated fair value, less costs to sell, and recognized an additional loss on sale of approximately $10,000. Approximately $20,000 and $300 of the impairment loss and loss on sale were allocable to the Partnership, respectively.



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

Basis of
Presentation

The financial statements of the Partnership have been prepared in accordance with the rules and regulations of the Securities and Exchange
Commission (SEC), including the instructions to Form 10-Q and Article 10 of Regulation S-X, and in accordance with such rules and regulations, do not include all of the information and footnotes required by U.S. generally accepted
accounting principles (GAAP) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and
necessary to fairly and consistently present the results for such periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the financial statements and footnotes included in the
Partnerships Annual Report on Form 10-K for the year ended December 31, 2006.

Investment in Fund II and Fund II-OW

The Partnership has evaluated the Joint Ventures and concluded that none are variable interest entities under the provisions of Financial Accounting Standards Board
Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities, which supersedes FIN No. 46 and is an interpretation of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial
Statements. The Partnership does not have control over the operations of Fund II and Fund II-OW; however, it does exercise significant influence. Approval by the Partnership as well as the other joint venture partners is required for any
major decision or any action that would materially affect the Joint Ventures, or their real property investments. Accordingly, upon applying the provisions of Statement of Financial Accounting Standard (SFAS) No. 94,
Consolidation of All Majority-Owned Subsidiaries, ARB No. 51, and Statement of Position No. 78-9, Accounting for Investments In Real Estate Ventures, the Partnership accounts for its investments in Fund II and Fund II-OW
using the equity method of accounting, whereby original investments are recorded at cost and subsequently adjusted for contributions, distributions, and net income (loss) attributable to the Partnership. Pursuant to the terms of the joint venture
agreements, all income (loss) and distributions are allocated to joint venture partners in accordance with their respective ownership interests. Distributions of net cash from operations, if available, are generally distributed to the joint venture
partners on a quarterly basis.

Impairment of Real Estate Assets

The Partnership continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate assets owned through the Partnerships investment in the Joint Ventures
may not be recoverable pursuant to Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.When indicators of potential impairment are present, management assesses whether the respective carrying values will be recovered with the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition
for assets held for use, or with the estimated fair values for assets held for sale. In the event that the expected undiscounted future cash flows for assets held for use or the estimated fair value, less costs to sell, for assets held for sale do
not exceed the respective asset carrying value, management adjusts such assets to the respective estimated fair values, as defined by SFAS No. 144, and recognizes an impairment loss. Estimated fair values are calculated based on the following
information, dependent upon availability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscounted cash flows, including estimated salvage
value.



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Distribution of Net Cash from Operations

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

Distribution of Net Sale Proceeds

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



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



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



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

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

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

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

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



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Reclassifications

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

Recent Accounting
Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value, and expands disclosures required for fair value measurements under GAAP, including amending SFAS No. 144. SFAS No. 157 emphasizes that fair value is a market-based
measurement, as opposed to an entity-specific measurement. SFAS No. 157 will be effective for the Partnership beginning January 1, 2008. The Partnership is currently assessing provisions and evaluating the financial impact of SFAS
No. 157 on its financial statements, however, does not believe the adoption of this pronouncement will have a material impact on its financial statements.

In July 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes, which clarifies the relevant criteria and approach for the recognition,
derecognition, and measurement of uncertain tax positions. FIN No. 48 was effective for the Partnership beginning January 1, 2007. The adoption of this pronouncement has not had a material impact on the Partnerships financial statements.



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

Summary of Financial
Information

Condensed financial information for Fund II and Fund II-OW for the three months ended March 31, 2007 and 2006, respectively, is
presented below:



|                   |  |                    |  |           |  |           
|------------------ |  | ------------------ |  | --------- |  | ----------
|Total Revenues     |  | Net Loss          
|Three Months Ended |  | Three Months Ended
|March 31,          |  | March 31,         
|2007               |  | 2006               |  | 2007      |  | 2006      
|$41,665            |  | $78,015            |  | $(56,929) |  | $(435,028)
|                   |  |                    |  |           |  |           

Fund I and Fund II Tucker reevaluated the recoverability of the carrying value of Heritage Place pursuant to the
Partnerships policy for evaluating and accounting for the impairment of real estate assets described above. Fund I and Fund II Tucker determined that the carrying value of the related real estate assets of Heritage Place was not recoverable as
compared to the estimated fair value, primarily as a result of reducing the estimated holding period of such assets. Accordingly, Fund I and Fund II Tucker reduced the carrying value of such real estate assets to the estimated fair value by
recognizing an impairment loss of approximately $795,000 in the first quarter of 2006, of which approximately $20,000 is allocable to the Partnership. This impairment loss is included in loss from discontinued operations from Fund I and Fund II
Tucker for the three months ended March 31, 2006 in the table below.



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##### Table of Contents

Effective July 1, 2006, the first day of the quarter following the completion of the sale of all real estate assets,
Fund I and Fund II Tucker adopted the liquidation basis of accounting, under which assets and liabilities are stated at their estimated net realizable values and net settlement amounts, respectively, and statements of operations and statements of
cash flows are no longer presented. Accordingly, condensed financial information for Fund I and Fund II Tucker for the three months ended March 31, 2006 is presented below:



|                          |  |                    |  |                                |  |                                  |  |                   
|------------------------- |  | ------------------ |  | ------------------------------ |  | -------------------------------- |  | ------------------
|                          |  | Total Revenues     |  | Loss FromContinuing Operations |  | Loss FromDiscontinued Operations |  | Net Loss          
|                          |  | Three Months Ended |  | Three Months Ended             |  | Three Months Ended               |  | Three Months Ended
|                          |  | March 31, 2006     |  | March 31, 2006                 |  | March 31, 2006                   |  | March 31, 2006    
|Fund I and Fund II Tucker |  | $929               |  | $(2,267)                       |  | $(800,343)                       |  | $(802,610)        
|                          |  |                    |  |                                |  |                                  |  |                   



Condensed financial information for Fund
II-III Associates for the three months ended March 31, 2007 and 2006, respectively, is presented below:



|                       |  |                    |  |                                  |  |                                   |  |                    |  |      |  |        |  |          |  |        
|---------------------- |  | ------------------ |  | -------------------------------- |  | --------------------------------- |  | ------------------ |  | ---- |  | ------ |  | -------- |  | -------
|                       |  | Total Revenues     |  | Income FromContinuing Operations |  | Income FromDiscontinuedOperations |  | Net Income        
|                       |  | Three Months Ended |  | Three Months Ended               |  | Three Months Ended                |  | Three Months Ended
|                       |  | March 31,          |  | March 31,                        |  | March 31,                         |  | March 31,         
|                       |  | 2007               |  | 2006                             |  | 2007                              |  | 2006               |  | 2007 |  | 2006   |  | 2007     |  | 2006   
|Fund II-III Associates |  | $522,595           |  | $460,687                         |  | $130,478                          |  | $84,696            |  | $978 |  | $1,553 |  | $131,456 |  | $86,249
|                       |  |                    |  |                                  |  |                                   |  |                    |  |      |  |        |  |          |  |        

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



|                          |  |                |  |                 |  |             |  |           
|------------------------- |  | -------------- |  | --------------- |  | ----------- |  | ----------
|                          |  | March 31, 2006
|                          |  | Operatingloss  |  | Impairment Loss |  | Gain onSale |  | Total     
|Fund I and Fund II Tucker |  | $(5,531)       |  | $(794,812)      |  | $0          |  | $(800,343)
|                          |  |                |  |                 |  |             |  |           



|                       |  |                 |     |                |   |       |  |                 |     |             |   |       |  |   |   |  |   |      
|---------------------- |  | --------------- | --- | -------------- | - | ----- |  | --------------- | --- | ----------- | - | ----- |  | - | - |  | - | -----
|                       |  | March 31, 2007  |     | March 31, 2006
|                       |  | OperatingIncome |     | Gain onSale    |   | Total |  | OperatingIncome |     | Gain onSale |   | Total
|Fund II-III Associates |  | $               | 978 |                | $ | 0     |  | $               | 978 |             | $ | 1,553 |  | $ | 0 |  | $ | 1,553
|                       |  |                 |     |                |   |       |  |                 |     |             |   |       |  |   |   |  |   |      

Due from Fund II and Fund II-OW

As presented in the accompanying balance sheets, due from Fund II and Fund II-OW represents the following cash flows generated by Fund II and Fund II-OW, which are attributable to the Partnership as of March 31,
2007 and December 31, 2006:



|                     |  |                     |         |                        |   |        
|-------------------- |  | ------------------- | ------- | ---------------------- | - | -------
|                     |  | As of March 31,2007 |         | As of December 31,2006
|Operating cash flows |  | $                   | 42,368  |                        | $ | 37,601 
|Net sale proceeds    |  |                     | 150,276 |                        |   | 150,276
|                     |  |                     |         |                        |   |        
|                     |  | $                   | 192,644 |                        | $ | 187,877
|                     |  |                     |         |                        |   |        



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##### Table of Contents

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

Management and Leasing Fees

In accordance with the property management and leasing agreement, Wells Management Company, Inc. (Wells Management), an affiliate of
the General Partners, is entitled to compensation for the management and leasing of the Partnerships properties owned through Fund II and Fund II-OW equal to (a) the gross revenues collected monthly, 3% for management services and 3% for
leasing services, plus a separate fee for the one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area
for similar properties, which is assessed periodically based on market studies, or (b) in the case of commercial properties leased on a long-term net basis (ten or more years), 1% of the gross revenues except for initial leasing fees equal to
3% of the gross revenues over the first five years of the lease term. Management and leasing fees are paid by the Joint Ventures and, accordingly, included in equity in loss of Fund II and Fund II-OW in the accompanying statements of operations. The
Partnerships share of management and leasing fees and lease acquisition costs incurred through the Joint Ventures is $970 and $1,230 for the three months ended March 31, 2007 and 2006, respectively.

Administrative Reimbursements

Wells Capital, one of the General
Partners, and Wells Management perform certain administrative services for the Partnership and the Joint Venture, relating to accounting and other partnership administration, and incur the related expenses. Such expenses are allocated among various
other entities affiliated with the General Partners based on time spent on each fund by individual administrative personnel. In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The administrative
charges related to the Partnership are recorded by Fund II and Fund II-OW and, therefore, are included in equity in loss of Fund II and Fund II-OW in the accompanying statements of operations. The Partnerships share of administrative
costs reimbursed to Wells Capital and Wells Management recorded by Fund II and Fund II-OW is $2,329 and $2,088 for the three months ended March 31, 2007 and 2006, respectively. In addition, Wells Capital pays for certain operating expenses of
the Partnership (bill-backs) directly and invoices Fund II and Fund II-OW for the reimbursement thereof.

Economic Dependency

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

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

Future net income generated by WREF will be largely dependent upon the amount of fees earned by Wells Capital and Wells Management based on, among other things, the
level of investor proceeds raised from the sale of common stock for certain WREF-sponsored programs and the volume of future acquisitions and dispositions of real estate assets by WREF-sponsored programs. As of March 31, 2007, the General
Partners believe that WREF generates adequate cash flow from operations and has adequate liquidity available in the form of cash on hand and current receivables necessary to meet its current and future obligations as they become due.



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Assertion of Legal Action Against Related-Parties

On March 12, 2007, a stockholder of Wells Real Estate Investment Trust, Inc. (Wells REIT), filed a purported class action and derivative complaint, Washtenaw County Employees Retirement
System v. Wells Real Estate Investment Trust, Inc., et al. in the United States District Court for the District of Maryland against, among others, Wells REIT, Leo. F. Wells, III and Wells Capital, our General Partners, certain affiliates
of WREF, the directors of Wells REIT, and certain individuals who formerly served as officers and directors of Wells REIT prior to the closing of the internalization transaction on April 16, 2007. The complaint alleges violations of the federal
proxy rules based on allegations that the proxy statement of Wells REIT filed with the SEC on February 26, 2007 contains false and misleading statements and omits to state material facts and breaches of fiduciary duty arising from the Wells
REIT internalization transaction and the related proxy statement. The complaint seeks, among other things, unspecified monetary damages. On April 9, 2007, the District Court denied the plaintiffs motion for an order enjoining the
internalization transaction. On April 17, 2007, the Court granted the defendants motion to transfer venue to the Northern District of Georgia, and the case was docketed in the Northern District of Georgia on April 24, 2007. Our
General Partners intend to vigorously defend this action. Any financial loss incurred by Wells Capital or its affiliates could hinder their ability to successfully manage our operations and our portfolio of investments.



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

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



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

The following discussion and analysis should be read in conjunction with the accompanying financial statements and notes thereto. See also Cautionary Note Regarding Forward-Looking Statements preceding
Part I, as well as the notes to our financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended December 31, 2006.

Overview

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



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

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



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

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



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

The period
during which the Partnership owns and operates its real estate assets during the initial lease terms of the tenants;



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

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



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

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

Portfolio Overview

We are currently in the disposition-and-liquidation phase of our life cycle. Of the six assets in
which we originally owned interests, we have sold four assets. In the fourth quarter of 2006, the majority tenant of Boeing at the Atrium, the Boeing/Shuttle Division (Boeing), exercised the option to reduce the square footage leased by
approximately 46% effective September 18, 2007. We continue to aggressively pursue leasing opportunities for the Louis Rose Building and the upcoming vacancy at Boeing at the Atrium that we believe will ultimately result in the best disposition
pricing for our limited partners.

With a number of properties sold, our General Partners are currently reserving operating distributions to limited
partners in order to fund our pro-rata share of anticipated re-leasing costs and capital expenditures for the Louis Rose Building and Boeing at the Atrium. Further, the General Partners anticipate continuing to reserve operating distributions
primarily due to the fact that the Louis Rose Building remains vacant and Boeing exercised its option to reduce the square footage. Once the outcome of the re-leasing efforts is known, the General Partners will evaluate if distributions of net sale
proceeds are appropriate.

Property Summary

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

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



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



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



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



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



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



| |  |  | The Boeing at the Atrium property is currently 99% occupied by the Boeing. The existing Boeing lease extends through March 2008. Boeing exercised the option to
reduce the square footage by approximately 46% effective September 18, 2007, which consists of the first two floors. We have begun our marketing efforts for this space.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Overview

Our operating strategy entails funding expenditures related to the recurring operations of the Joint Ventures properties and the portfolio with operating cash
flows, including current and prior period operating distributions received from the Joint Ventures, and assessing the amount of remaining cash flows that will be required to fund known future re-leasing costs and other capital improvements. Any
residual operating cash flows are generally



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considered available for distribution to the Class A limited partners and, unless reserved, are generally paid 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 our tenants to honor lease payments and
our ability to re-lease space on favorable terms as leases expire or space otherwise becomes vacant. In the event of either situation, cash flows and, consequently, our ability to provide funding for capital needs could be adversely affected.

Short-Term Liquidity

We did not generate cash flow
from operating activities during the three months ended March 31, 2007, as Fund II and Fund II-OW has continued to hold operating distributions received from the Joint Ventures and otherwise payable to the Partnership to provide funding for
anticipated re-leasing costs and capital expenditures for the Louis Rose Building and Boeing at the Atrium. Accordingly, no operating distributions were paid to limited partners during the three months ended March 31, 2007. 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. 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 our proportionate share of anticipated capital improvements and re-leasing costs at the Louis Rose Building and Boeing at the Atrium. Future cash flows from operating activities will be primarily affected by distributions received from the
Joint Ventures, which are dependent upon the net operating income generated by the Joint Ventures properties, less reserves for known capital expenditures.

We have encountered difficulties in re-leasing the Louis Rose Building, primarily due to the softening of the Charlotte office market and related Northeast submarket of Charlotte during the period following the expiration of the sole
tenants lease on April 30, 2001. The Northeast submarket of Charlotte continues to present challenges to landlords, primarily due to the increasing availability of office space for lease, and low rental rates and concessions offered to
prospective tenants. As of March 31, 2007, the vacancy rate for the Northeast submarket of Charlotte is 20.3%, compared to the vacancy rate for Charlotte as a whole of 12.5%. Accordingly, we are uncertain as to when the Louis Rose Building will
be re-leased, the level of rental rates which may be achieved in connection with such re-leasing, or the amount of re-leasing costs we will be required to fund in connection with the potential leasing of this property.

Capital Resources

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

The Joint Ventures fund capital expenditures primarily related to building improvements for the purpose of maintaining the quality of our properties, and tenant
improvements for the purpose of readying our properties for



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re-leasing. As leases expire, we typically attempt to re-lease space to an existing tenant or market the space to prospective new tenants. Generally, tenant
improvements funded in connection with lease renewals require less capital than those funded in connection with new leases. However, external conditions, such as the supply of and demand for comparable space available within a given market, drive
capital costs as well as rental rates. Any capital or other expenditures not provided for by the operations of the Joint Ventures will be required to be funded by the Partnership and 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 approximately one month following calendar
quarter-ends. However, the Joint Ventures will reserve operating distributions, or a portion thereof, as needed in order to fund known capital and other expenditures. Our cash management policy typically includes first utilizing current period
operating cash flows until depleted, at which point operating reserves are utilized to fund capital and other required expenditures. In the event that current and prior period accumulated operating cash flows are insufficient to fund such costs, net
property sale proceeds reserves would then be utilized.

As of March 31, 2007, Fund II and Fund II-OW received, used, and held net sale proceeds
allocated to the Partnership from the sale of properties as presented below:



|                                             |  |                         |  |                                       |        |                                                |         |                          |   |                                                                |  |                                                                                                                           |  |   |         |  |   |        
|-------------------------------------------- |  | ----------------------- |  | ------------------------------------- | ------ | ---------------------------------------------- | ------- | ------------------------ | - | -------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | - | ------- |  | - | -------
|                                             |  | Total Net Sale Proceeds |  | Partnerships Approximate Ownership % |        | Net Sale Proceeds Allocated to the Partnership |         | Use of Net Sale Proceeds |   | Net Sale Proceeds Distributed to Partners as
of March 31, 2007 |  | Undistributed Net Sale Proceeds Being Reserved as of March 31, 2007                                                      
|Property Sold                                |  |                         |  |                                       | Amount |                                                | Purpose |                          |  
|Cherokee Commons(sold in 2001)               |  | $8,414,089              |  | 2.9%                                  |        | $                                              | 239,776 |                          | $ | 77,421                                                         |  |   Re-leasing of Boeing at the Atrium (2002 and 2003)    Funding for Fund I and Fund II Tucker
operating expenses (2005) |  | $ | 162,355 |  | $ | 0      
|Heritage Place retail portion(sold in 2003) |  | $3,207,708              |  | 2.6%                                  |        |                                                | 81,797  |                          |   | 1,332                                                          |  |   Funding for Fund I and Fund II Tucker operating expenses (2005)                                                        |  |   | 80,465  |  |   | 0      
|Holcomb Bridge(sold in 2004)                 |  | $6,889,379              |  | 0.8%                                  |        |                                                | 53,737  |                          |   | 297                                                            |  |   Funding for Fund I and Fund II Tucker operating expenses (2005)                                                        |  |   | 33,851  |  |   | 19,589 
|Brookwood Grill(sold in 2004)                |  | $2,318,115              |  | 3.3%                                  |        |                                                | 76,730  |                          |   | 429                                                            |  |   Funding for Fund I and Fund II Tucker operating expenses (2005)                                                        |  |   | 48,329  |  |   | 27,972 
|Heritage Place office portion(sold in 2006) |  | $4,028,043              |  | 2.6%                                  |        |                                                | 102,715 |                          |   | 0                                                              |  |                                                                                                                           |  |   | 0       |  |   | 102,715
|                                             |  |                         |  |                                       |        |                                                |         |                          |   |                                                                |  |                                                                                                                           |  |   |         |  |   |        
|Total                                        |  |                         |  |                                       |        | $                                              | 554,755 |                          | $ | 79,479                                                         |  |                                                                                                                           |  | $ | 325,000 |  | $ | 150,276
|                                             |  |                         |  |                                       |        |                                                |         |                          |   |                                                                |  |                                                                                                                           |  |   |         |  |   |        

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



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##### Table of Contents

Results of Operations

Equity in loss of Fund II and Fund II-OW decreased from $23,100 for the three months ended March 31, 2006 to $3,023 for the three months ended March 31, 2007. The decrease in loss is primarily attributable to (i) an
impairment loss recognized by Fund I and Fund II Tucker, of which approximately $20,000 was allocated to the Partnership, in the first quarter of 2006, partially offset by (ii) a decline in interest income due to a decrease in the average net
proceeds held during the respective periods as a result of the November 2006 distribution. Absent leasing activity at the Louis Rose Building or Boeing at the Atrium, we expect additional equity in loss of Fund II and Fund II-OW in the future due to
a decrease in interest income as a result of distributing net sales proceeds in November 2006.

Inflation

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

Application of Critical Accounting Policies

Summary

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP
requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of 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 our
depreciable assets. We will consider the period of future benefit of the assets to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of the Joint Ventures assets by class
are as follows:



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

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



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##### Table of Contents

Valuation of Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which we have an ownership interest through investments in the Joint Ventures may
not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate assets by determining whether
the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do
not exceed the carrying value, management adjusts the real estate assets to the fair value, as defined by SFAS No. 144, and recognizes an impairment loss. Estimated fair values are calculated based on the following information, dependent upon
availability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscounted cash flows, including estimated salvage value. In the first quarter of
2006, Fund I and Fund II Tucker recorded an impairment loss for the office component of Heritage Place of approximately $795,000, of which approximately $20,000 was allocated to the Partnership in order to reduce the carrying value of the property
to its fair value, less costs to sell, as a result of a change in managements intended holding period for this asset.

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

Related-Party Transactions

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

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

The American Jobs Creation Act of 2004 added Section 470 to the Internal Revenue Code, which provides for certain limitations on the utilization of losses by
investors that are attributable to leased property owned by a partnership having both taxable and tax-exempt partners such as the Partnership. If Section 470 were deemed to apply to the Partnership, passive losses allocable to limited partners
holding Class B Units could only be utilized to offset passive income generated from the same property or potentially from properties owned by the same partnership. In March 2005, the IRS announced that it would not apply Section 470 to
partnerships for the taxable year 2004 based solely on the fact that a partnership had both taxable and tax-exempt partners. In December 2005, the IRS extended the period for transitional relief through the 2005 tax year, and in December 2006, the
IRS again extended the period for transitional relief through all tax years beginning prior to January 1, 2007. In addition, pursuant to Section 403(ff) of the Gulf Opportunity Zone Act of 2005, the effective date provisions regarding the
applicability of Section 470 were amended to provide that, in the case of leased property treated as tax-exempt use property by reason of its being owned by a partnership having both taxable and tax-exempt partners, Section 470 will apply
only to property acquired after March 12, 2004. Since the Partnership acquired all of its properties prior to March 12, 2004, and is not expected to acquire interests in any additional properties in the future, we do not believe that the
provisions of Section 470 should apply to limit the utilization of losses attributable to the properties owned by the Partnership; however, due to the uncertainties and



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##### Table of Contents

lack of guidance relating to this provision, it is unclear as to whether the acquisition of a limited partnership interest in the Partnership after the
March 12, 2004 effective date may be deemed to be an acquisition of property within the meaning of the effective date provisions of Section 470.



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

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



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

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

There were no significant changes in our internal control over financial reporting during the
quarter ended March 31, 2007 that have materially affected, or are likely to materially affect, our internal control over financial reporting.



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



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

We are from time to time a party to legal
proceedings, which arise in the ordinary course of our business. We are not currently involved in any litigation the outcome of which would, in managements judgment based on information currently available, have a material adverse effect on
our results of operations or financial condition, nor is management aware of any such litigation threatened against us during the quarter ended March 31, 2007, requiring disclosure under Item 103 of Regulation S-K.



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

There have been no material changes from the risk
factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.



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



|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended March 31, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



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



|(c) | We did not redeem any securities during the quarter ended March 31, 2007.
|--- | -------------------------------------------------------------------------



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



|(a) | We were not subject to any indebtedness and, therefore, did not default with respect to any indebtedness during the quarter ended March 31, 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



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



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

No matters
were submitted to a vote of our limited partners during the quarter ended March 31, 2007.



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



|(a) | During the quarter ended March 31, 2007, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

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



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SIGNATURES

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



|             |  |  |  |                                                                                                   |  |                            
|------------ |  |  |  | ------------------------------------------------------------------------------------------------- |  | ---------------------------
|             |  |  |  | WELLS REAL ESTATE FUND II-OW (Registrant)                                                        
|             |  |  | 
|             |  |  |  | By:                                                                                               |  | WELLS CAPITAL, INC.        
|             |  |  |  |                                                                                                   |  | (Corporate General Partner)
|             |  | 
|May 11, 2007 |  |  |  | /S/    LEO F. WELLS,
III                                                                         
|             |  |  |  | Leo F. Wells, III President, Principal
Executive Officer,and Sole Director of Wells Capital, Inc.
|             |  | 
|May 11, 2007 |  |  |  | /S/    DOUGLAS P.
WILLIAMS                                                                       
|             |  |  |  | Douglas P. Williams Principal Financial
Officer of Wells Capital, Inc.                           



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##### Table of Contents

EXHIBIT INDEX

TO FIRST QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND II-OW



|            |  |                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                   
|            | 
|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