##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---

(Mark One)



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

For the quarterly period ended September 30, 2006 or



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

For the transition period from
 to

Commission file number 0-17876



---

WELLS REAL ESTATE FUND II-OW

(Exact name of registrant as specified in its
charter)



---



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

N/A

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

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

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

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  x

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



---



---

##### Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund 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, 2005 for a discussion
of some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.



Page 2



---

##### Table of Contents

WELLS REAL ESTATE FUND II-OW



TABLE OF
CONTENTS



|         |  |                       |  |                                                                                                                               |  |         
|-------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                               |  | Page No.
|         |  |                      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                          |  | 4       
|         |  |                       | 
|         |  |                       |  | Balance SheetsSeptember 30, 2006 (unaudited) and December 31, 2005                                                           |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Nine Months Ended September 30, 2006 (unaudited) and 2005 (unaudited)       |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2005 and the Nine Months Ended September 30, 2006 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Nine Months Ended September 30, 2006 (unaudited) and 2005 (unaudited)                        |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                           |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                         |  | 16      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                    |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                       |  | 22      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                              
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                             |  | 22      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                                  |  | 22      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |  | 22      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                               |  | 23      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 23      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                             |  | 23      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                      |  | 23      



Page 3



---

##### Table of Contents

|PART I. | FINANCIAL STATEMENTS
|------- | --------------------

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

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



Page 4



---

##### Table of Contents

WELLS REAL ESTATE FUND II-OW



BALANCE SHEETS

ASSETS



|                                             |  |                                |         |                   |   |        
|-------------------------------------------- |  | ------------------------------ | ------- | ----------------- | - | -------
|                                             |  | (Unaudited) September 30, 2006 |         | December 31, 2005
|Investment in Fund II and Fund II-OW         |  | $                              | 446,775 |                   | $ | 593,240
|Due from Fund II and Fund II-OW              |  |                                | 512,804 |                   |   | 392,134
|Cash and cash equivalents                    |  |                                | 5,184   |                   |   | 5,184  
|                                             |  |                                |         |                   |   |        
|Total assets                                 |  | $                              | 964,763 |                   | $ | 990,558
|                                             |  |                                |         |                   |   |        
|                                            
|LIABILITIES AND PARTNERS CAPITAL           
|                                             |  |                               
|PARTNERS CAPITAL:                           |  |                                |         |                   |   |        
|Limited partners:                            |  |                                |         |                   |   |        
|Class A  6,062 units issued and outstanding |  | $                              | 964,763 |                   | $ | 990,432
|Class B  1,626 units issued and outstanding |  |                                | 0       |                   |   | 126    
|General partners                             |  |                                | 0       |                   |   | 0      
|                                             |  |                                |         |                   |   |        
|Total partners capital                      |  |                                | 964,763 |                   |   | 990,558
|                                             |  |                                |         |                   |   |        
|Total liabilities and partners capital      |  | $                              | 964,763 |                   | $ | 990,558
|                                             |  |                                |         |                   |   |        

See accompanying notes.



Page 5



---

##### Table of Contents

WELLS REAL ESTATE FUND II-OW



STATEMENTS OF OPERATIONS



|                                                 |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------ |  | -------------------------------------------- | ------ | - | ------------------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                 |  | (Unaudited) Three Months Ended September 30, |        |   | (Unaudited) Nine Months Ended September 30, |  
|                                                 |  | 2006                                         |        |   | 2005                                        |   |        | 2006 |  |   | 2005    |  
|EQUITY IN LOSS OF FUND II AND FUND II-OW         |  | $                                            | (1,203 | ) |                                             | $ | (8,072 | )    |  | $ | (25,795 | ) |  | $ | (12,720 | )
|                                                 |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  
|                                                 |  |                                              |        |  
|NET LOSS                                         |  | $                                            | (1,203 | ) |                                             | $ | (8,072 | )    |  | $ | (25,795 | ) |  | $ | (12,720 | )
|                                                 |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  
|                                                 |  |                                              |        |  
|NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS: |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  
|CLASS A                                          |  | $                                            | (1,203 | ) |                                             | $ | 0      |      |  | $ | (25,669 | ) |  | $ | 10,504  |  
|                                                 |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  
|CLASS B                                          |  | $                                            | 0      |   |                                             | $ | (8,072 | )    |  | $ | (126    | ) |  | $ | (23,224 | )
|                                                 |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  
|                                                 |  |                                              |        |  
|NET INCOME (LOSS) PER LIMITED PARTNER UNIT:      |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  
|CLASS A                                          |  | $                                            | (0.20  | ) |                                             | $ | 0.00   |      |  | $ | (4.23   | ) |  | $ | 1.73    |  
|                                                 |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  
|CLASS B                                          |  | $                                            | 0.00   |   |                                             | $ | (4.96  | )    |  | $ | (0.08   | ) |  | $ | (14.28  | )
|                                                 |  |                                              |        |   |                                             |   |        |      |  |   |         |   |  |   |         |  

See accompanying notes.



Page 6



---

##### Table of Contents

WELLS REAL ESTATE FUND II-OW



STATEMENTS OF PARTNERS CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2005

AND NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)



|                            |         |                  |        |         |                  |       |                         |        |  |   |         |   |  |   |   |  |   |           |  
|--------------------------- | ------- | ---------------- | ------ | ------- | ---------------- | ----- | ----------------------- | ------ |  | - | ------- | - |  | - | - |  | - | --------- | -
|                            |         | Limited Partners |        |         | General Partners |       | Total Partners Capital |       
|                            | Class A |                  |        | Class B |                  |       |                        
|                            | Units   |                  | Amount |         |                  | Units |                         | Amount |  |   |        
|BALANCE, December 31, 2004  |         | 6,062            |        | $       | 974,710          |       |                         | 1,626  |  | $ | 30,343  |   |  | $ | 0 |  | $ | 1,005,053 |  
|                            |         |                  |        |         |                  |      
|Net income (loss)           |         | 0                |        |         | 15,722           |       |                         | 0      |  |   | (30,217 | ) |  |   | 0 |  |   | (14,495   | )
|                            |         |                  |        |         |                  |       |                         |        |  |   |         |   |  |   |   |  |   |           |  
|BALANCE, December 31, 2005  |         | 6,062            |        |         | 990,432          |       |                         | 1,626  |  |   | 126     |   |  |   | 0 |  |   | 990,558   |  
|                            |         |                  |        |         |                  |      
|Net loss                    |         | 0                |        |         | (25,669          | )     |                         | 0      |  |   | (126    | ) |  |   | 0 |  |   | (25,795   | )
|                            |         |                  |        |         |                  |       |                         |        |  |   |         |   |  |   |   |  |   |           |  
|BALANCE, September 30, 2006 |         | 6,062            |        | $       | 964,763          |       |                         | 1,626  |  | $ | 0       |   |  | $ | 0 |  | $ | 964,763   |  
|                            |         |                  |        |         |                  |       |                         |        |  |   |         |   |  |   |   |  |   |           |  

See accompanying notes.



Page 7



---

##### Table of Contents

WELLS REAL ESTATE FUND II-OW



STATEMENTS OF CASH FLOWS



|                                                                                |  |                                             |         |   |      |   |         |  
|------------------------------------------------------------------------------- |  | ------------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                |  | (Unaudited) Nine Months Ended September 30, |        
|                                                                                |  | 2006                                        |         |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                                             |         |   |      |   |         |  
|Net loss                                                                        |  | $                                           | (25,795 | ) |      | $ | (12,720 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                             |         |   |      |   |         |  
|Equity in loss of Fund II and Fund II-OW                                        |  |                                             | 25,795  |   |      |   | 12,720  |  
|                                                                                |  |                                             |         |   |      |   |         |  
|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   |   |      |   | 5,342   |  
|                                                                                |  |                                             |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                        |  | $                                           | 5,184   |   |      | $ | 5,342   |  
|                                                                                |  |                                             |         |   |      |   |         |  

See accompanying notes.



Page 8



---

##### Table of Contents

WELLS REAL ESTATE FUND II-OW



CONDENSED NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2006 (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         
|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. |  | No properties owned during the periods presented.                                      



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



Page 9



---

##### Table of Contents

On May 10, 2006, Fund I and Fund II Tucker sold the office component of Heritage Place to an
unrelated third party for a gross sale price of $4,215,000. As a result of the sale, Fund I and Fund II Tucker received net sale proceeds of approximately $4,029,000, of which approximately $103,000 was distributed to the Partnership. As of
March 31, 2006, Fund I and Fund II Tucker recognized an impairment loss of approximately $795,000 in order to reduce the carrying value of Heritage Place to its estimated fair value, less costs to sell, and recognized an additional loss on sale
of approximately $9,000. Approximately $20,000 and $200 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, 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, 2005.

Investment in Joint Ventures

The Partnership has evaluated the Joint Ventures and concluded that none are variable interest entities under the provisions of
Financial Accounting Standards Board Interpretation (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.

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.



Page 10



---

##### Table of Contents

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
reasonable 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.

Impairment of Real Estate Assets

The Partnership continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate assets owned
through the Partnerships investment in the Joint Ventures may not be recoverable. When indicators of potential impairment are present, 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,
Accounting for the Impairment or Disposal of Long-Lived Assets, and recognizes an impairment loss. Estimated fair values are calculated based



Page 11



---

##### Table of Contents

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.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board 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. 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.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements(SAB No. 108), which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of
a materiality assessment. SAB No. 108 is effective for fiscal years ending after November 15, 2006, and will be effective for the Partnership beginning December 31, 2006. The Partnership is currently assessing provisions and
evaluating the financial statement impact of SAB No. 108 on its financial statements.



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

Impairment of Real Estate Assets

Fund I and Fund II Tucker considers real estate assets to be held for sale, as defined by
SFAS No. 144, at the point at which a sale contract is executed. During first quarter 2006, Fund I and Fund II Tucker executed a contract to sell the office component of Heritage Place for a gross sale price of $4,215,000. Upon entering into
this contract, Fund I and Fund II Tucker determined that the carrying value of the related real estate assets was not recoverable as compared to the gross sale price, less estimated costs to sell. Accordingly, Fund I and Fund II Tucker reduced the
carrying value of such real estate assets to the estimated fair value by recognizing an impairment loss of approximately $795,000 during the first quarter of 2006, of which approximately $20,000 is allocable to the Partnership. This impairment loss
is included in income (loss) from discontinued operations for the nine months ended September 30, 2006 in the table below.

Summary of Financial
Information  Fund II and Fund II-OW

Condensed financial information for Fund II and Fund II-OW for the three months and nine
months ended September 30, 2006 and 2005, respectively, is presented below:



|                                 |  |                                 |  |          |                                |  |                                |   |  |          |  |          |  |           |   |  |           |  
|-------------------------------- |  | ------------------------------- |  | -------- | ------------------------------ |  | ------------------------------ | - |  | -------- |  | -------- |  | --------- | - |  | --------- | -
|Total Revenues                   |  | Net Loss                        |  |          | Total Revenues                 |  | Net Loss                       |  
|Three Months Ended September 30, |  | Three Months EndedSeptember 30, |  |          | Nine Months EndedSeptember 30, |  | Nine Months EndedSeptember 30, |  
|2006                             |  | 2005                            |  | 2006     |                                |  | 2005                           |   |  | 2006     |  | 2005     |  | 2006      |   |  | 2005      |  
|$123,264                         |  | $52,886                         |  | $(22,653 | )                              |  | $(152,013                      | ) |  | $302,479 |  | $131,391 |  | $(485,773 | ) |  | $(239,543 | )
|                                 |  |                                 |  |          |                                |  |                                |   |  |          |  |          |  |           |   |  |           |  



Page 12



---

##### Table of Contents

Summary of Financial Information  Fund II and Fund II-OWs Investments

Condensed financial information for the Joint Ventures in which the Partnership holds interests through its ownership in Fund II and Fund II-OW for the
three months and nine months ended September 30, 2006 and 2005, respectively, is presented below:



|                          |  |                                  |  |                                          |  |           |                                            |  |           |                                  |  |           |   |  |          |   |  |           |   |  |           |  
|------------------------- |  | -------------------------------- |  | ---------------------------------------- |  | --------- | ------------------------------------------ |  | --------- | -------------------------------- |  | --------- | - |  | -------- | - |  | --------- | - |  | --------- | -
|                          |  | Total Revenues                   |  | Income (Loss) From Continuing Operations |  |           | Income (Loss) From Discontinued Operations |  |           | Net Income (Loss)                | 
|                          |  | Three Months Ended September 30, |  | Three Months Ended September 30,         |  |           | Three Months Ended September 30,           |  |           | Three Months Ended September 30, | 
|                          |  | 2006                             |  | 2005                                     |  | 2006      |                                            |  | 2005      |                                  |  | 2006      |   |  | 2005     |   |  | 2006      |   |  | 2005      |  
|Fund I and Fund II Tucker |  | $         97                     |  | $           0                            |  | $(10,991  | )                                          |  | $ (2,232  | )                                |  | $(6,136   | ) |  | $(34,943 | ) |  | $(17,127  | ) |  | $(37,175  | )
|Fund II-III Associates    |  | 461,910                          |  | 429,291                                  |  | 41,178    |                                            |  | 49,990    |                                  |  | 932       |   |  | (8,981   | ) |  | 42,110    |   |  | 41,009    |  
|                          |  |                                  |  |                                          |  |           |                                            |  |           |                                  |  |           |   |  |          |   |  |           |   |  |           |  
|                          |  | $462,007                         |  | $429,291                                 |  | $ 30,187  |                                            |  | $47,758   |                                  |  | $(5,204   | ) |  | $(43,924 | ) |  | $ 24,983  |   |  | $   3,834 |  
|                          |  |                                  |  |                                          |  |           |                                            |  |           |                                  |  |           |   |  |          |   |  |           |   |  |           |  
|                          |  |                                  |  |                                         
|                          |  | Total Revenues                   |  | Income (Loss) FromContinuing Operations  |  |           | Income (Loss) FromDiscontinued Operations  |  |           | Net Income (Loss)                | 
|                          |  | Nine Months Ended September 30,  |  | Nine Months Ended September 30,          |  |           | Nine Months Ended September 30,            |  |           | Nine Months Ended September 30,  | 
|                          |  | 2006                             |  | 2005                                     |  | 2006      |                                            |  | 2005      |                                  |  | 2006      |   |  | 2005     |   |  | 2006      |   |  | 2005      |  
|Fund I and Fund II Tucker |  | $       2,286                    |  | $       2,313                            |  | $ (21,795 | )                                          |  | $  (3,275 | )                                |  | $(816,278 | ) |  | $(17,798 | ) |  | $(838,073 | ) |  | $ (21,073 | )
|Fund II-III Associates    |  | 1,389,112                        |  | 1,376,588                                |  | 204,552   |                                            |  | 317,786   |                                  |  | 3,417     |   |  | (6,698   | ) |  | 207,969   |   |  | 311,088   |  
|                          |  |                                  |  |                                          |  |           |                                            |  |           |                                  |  |           |   |  |          |   |  |           |   |  |           |  
|                          |  | $1,389,398                       |  | $1,378,901                               |  | $182,757  |                                            |  | $314,511  |                                  |  | $(812,861 | ) |  | $(24,496 | ) |  | $(630,104 | ) |  | $290,015  |  
|                          |  |                                  |  |                                          |  |           |                                            |  |           |                                  |  |           |   |  |          |   |  |           |   |  |           |  

Summary of Financial Information  Fund II-III Associates Investments

Condensed financial information for the joint venture in which the Partnership holds an interest through its ownership in Fund II-III Associates for
the three months and nine months ended September 30, 2006 and 2005, respectively, is presented below:



|                              |  |                                  |  |                                  |  |      |                                     |         |                                  |  |      |  |         |  |      |  |        
|----------------------------- |  | -------------------------------- |  | -------------------------------- |  | ---- | ----------------------------------- | ------- | -------------------------------- |  | ---- |  | ------- |  | ---- |  | -------
|                              |  | Total Revenues                   |  | Loss From Continuing Operations  |  |      | Income From Discontinued Operations |         | Net Income                      
|                              |  | Three Months Ended September 30, |  | Three Months Ended September 30, |  |      | Three Months Ended September 30,    |         | Three Months Ended September 30,
|                              |  | 2006                             |  | 2005                             |  | 2006 |                                     | 2005    |                                  |  | 2006 |  | 2005    |  | 2006 |  | 2005   
|Fund II-III-VI-VII Associates |  | $0                               |  | $0                               |  | $0   |                                     | $(1,720 | )                                |  | $0   |  | $3,668  |  | $0   |  | $1,948 
|                              |  |                                  |  |                                  |  |      |                                     |         |                                  |  |      |  |         |  |      |  |        
|                              |  |                                  |  |                                 
|                              |  | Total Revenues                   |  | Loss From Continuing Operations  |  |      | Income From Discontinued Operations |         | Net Income                      
|                              |  | Nine Months EndedSeptember 30,   |  | Nine Months EndedSeptember 30,   |  |      | Nine Months EndedSeptember 30,      |         | Nine Months EndedSeptember 30,  
|                              |  | 2006                             |  | 2005                             |  | 2006 |                                     | 2005    |                                  |  | 2006 |  | 2005    |  | 2006 |  | 2005   
|Fund II-III-VI-VII Associates |  | $0                               |  | $0                               |  | $0   |                                     | $(9,928 | )                                |  | $0   |  | $93,697 |  | $0   |  | $83,769
|                              |  |                                  |  |                                  |  |      |                                     |         |                                  |  |      |  |         |  |      |  |        



Page 13



---

##### Table of Contents

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:



|                              |  |                                      |   |  |                                      |   |  |              |   |  |           |   |  |                |   |  |                 |  |               |     |  |          |  
|----------------------------- |  | ------------------------------------ | - |  | ------------------------------------ | - |  | ------------ | - |  | --------- | - |  | -------------- | - |  | --------------- |  | ------------- | --- |  | -------- | -
|                              |  | Nine Months Ended September 30, 2006 |   |  | Nine Months Ended September 30, 2005 |  
|                              |  | Operating Income (Loss)              |   |  | Impairment Loss                      |   |  | Loss on Sale |   |  | Total     |   |  | Operating Loss |   |  | Impairment Loss |  | Gain on Sale  |     |  | Total    |  
|Fund I and Fund II Tucker     |  | $(12,233                             | ) |  | $(794,812                            | ) |  | $(9,233      | ) |  | $(816,278 | ) |  | $(17,798       | ) |  | $0              |  | $           0 |     |  | $(17,798 | )
|Fund II-III Associates        |  | 3,417                                |   |  | 0                                    |   |  | 0            |   |  | 3,417     |   |  | (6,698         | ) |  | 0               |  | 0             |     |  | (6,698   | )
|Fund II-III-VI-VII Associates |  | 0                                    |   |  | 0                                    |   |  | 0            |   |  | 0         |   |  | (6,489         | ) |  | 0               |  | 100,186       | (1) |  | 93,697   |  
|                              |  |                                      |   |  |                                      |   |  |              |   |  |           |   |  |                |   |  |                 |  |               |     |  |          |  
|                              |  | $  (8,816                            | ) |  | $(794,812                            | ) |  | $(9,233      | ) |  | $(812,861 | ) |  | $(30,985       | ) |  | $0              |  | $100,186      |     |  | $ 69,201 |  
|                              |  |                                      |   |  |                                      |   |  |              |   |  |           |   |  |                |   |  |                 |  |               |     |  |          |  



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

Due from Fund II and Fund II-OW

As presented in the accompanying balance sheets, due from Fund II and Fund II-OW represents
the following cash flows generated by Fund II and Fund II-OW, which are attributable to the Partnership as of September 30, 2006 and December 31, 2005:



|                    |  |                         |  |                       
|------------------- |  | ----------------------- |  | ----------------------
|                    |  | As of September 30,2006 |  | As of December 31,2005
|Operating cash flow |  | $  37,505               |  | $  18,629             
|Net sale proceeds   |  | 475,299                 |  | 373,505               
|                    |  |                         |  |                       
|                    |  | $512,804                |  | $392,134              
|                    |  |                         |  |                       



|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) of the gross revenues collected monthly,
3% for management services and 3% for leasing services, plus a separate fee for the one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering
similar services in the same geographic area for similar properties, 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 $1,008 and $1,302 for the three months ended September 30, 2006 and
2005, respectively, and $3,401 and $3,820 for the nine months ended September 30, 2006 and 2005, respectively.

Administration Reimbursements

Wells Capital, one of the General Partners, and Wells Management perform certain administrative services for the Partnership and Fund
II and Fund II-OW, 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



Page 14



---

##### Table of Contents

expenses. The administrative charges related to the Partnership are recorded by Fund II and Fund II-OW and, therefore, included in equity loss of Fund
II and Fund II-OW in the accompanying statements of operations. 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.
The Partnerships share of administrative costs and bill-backs reimbursed to Wells Capital and/or Wells Management by the Joint Ventures is $2,324 and $2,837 for the three months ended September 30, 2006 and 2005, respectively, and $7,026
and $9,967 for the nine months ended September 30, 2006 and 2005, respectively.

Economic Dependency

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

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

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



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

The Partnership and its General Partners are from time to time a party to legal proceedings, which arise in the ordinary course of its business. The Partnership is not currently involved in any legal proceedings of which the outcome is
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.



|6. | SUBSEQUENT EVENT
|-- | ----------------

The sales
of Cherokee Commons, Heritage Place, the Holcomb Bridge Property, and Brookwood Grill generated aggregate net sale proceeds to the Partnership of approximately $555,000, of which approximately $80,000 has previously been used to fund capital
expenditures, re-leasing costs, and operating expenses related to the properties owned through the Joint Ventures. Upon evaluating the capital needs of the existing properties in which the Partnership holds an interest, the General Partners have
determined that reserves of approximately $150,000 will be required to fund the Partnerships share of anticipated capital expenditures and re-leasing costs for the Louis Rose Building and Boeing at the Atrium. In accordance with the terms of
the partnership agreement, the General Partners distributed the net sale proceeds of approximately $325,000 in November 2006 to the limited partners of record as of September 30, 2006, which, under the terms of the partnership agreement, does
not include limited partners acquiring units after June 30, 2006.



Page 15



---

##### Table of Contents

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

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

Overview

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



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

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



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

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



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

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



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

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



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

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

Portfolio Overview

We are currently in the
disposition-and-liquidation phase of our life cycle. Of the six assets in which we originally owned interests, we have sold four assets including the office component of Heritage Place, which closed in May 2006. We continue to aggressively pursue
leasing opportunities that will increase occupancy at the Louis Rose Building and 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 the capital improvements and
re-leasing costs anticipated for the Louis Rose Building and Boeing at the Atrium. Further, the General Partners anticipate continuing to reserve operating distributions primarily since the Louis Rose Building remains vacant.

In November 2006, the General Partners completed the first distribution of net sale proceeds from the sales of Cherokee Commons, the Holcomb Bridge
Property, Brookwood Grill, and the retail portion of Heritage Place of approximately $325,000 to limited partners. Once the details surrounding the re-leasing efforts and future dispositions become known, the General Partners will evaluate if
further distributions of net sale proceeds are appropriate.



Page 16



---

##### Table of Contents

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



| |  |  | Boeing at the Atrium property is currently 100% occupied by the Boeing/Shuttle Division of The Boeing Company. The existing lease extends through March 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Overview

Our operating strategy entails funding expenditures related to the recurring operations of the Joint
Ventures properties and the portfolio with operating cash flows, including current and prior period operating distributions received from the Joint Ventures, and assessing the amount of remaining cash flows that will be required to fund known
future re-leasing costs and other capital improvements. Any residual operating cash flows are generally considered available for distribution to the 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 flows from operating activities during the nine months ended September 30, 2006 and 2005, as Fund II and Fund II-OW has continued to hold operating distributions received from the Joint Ventures and otherwise payable to the
Partnership. Accordingly, no operating distributions were paid to limited partners during the nine months ended September 30, 2006 and 2005. The General Partners anticipate continuing to reserve operating distributions to limited partners, as
we intend to fund our pro-rata share of re-leasing costs and capital improvements at the Louis Rose Building and Boeing at the Atrium. 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.

During the remainder of 2006, we anticipate that we will be able to fund our proportionate share of the capital expenditures noted above, primarily with
net sale proceeds held by Fund II and Fund II-OW.

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



Page 17



---

##### Table of Contents

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 September 30, 2006, the vacancy rate for the Northeast submarket of Charlotte is 22.4%, compared
to the vacancy rate for Charlotte as a whole of 14.6%. 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 capital contributions. 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 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.



Page 18



---

##### Table of Contents

As of September 30, 2006, Fund II and Fund II-OW received, used, and held net sale proceeds
allocated to the Partnership from the sale of properties as presented below:



|                                               |  |                         |  |                                       |   |         |                                                |  |                          |  |                                                                                                                           |  |                                                                         |  |         
|---------------------------------------------- |  | ----------------------- |  | ------------------------------------- | - | ------- | ---------------------------------------------- |  | ------------------------ |  | ------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------- |  | --------
|Property
Sold                                  |  | 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 September 30, 2006                                                        |  | Undistributed Net Sale Proceeds Being Reserved as of September 30, 2006
|                                               |  |                         |  | 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) |  | $0                                                                      |  | $162,355
|                                               |  |                         |  |                                       |   |         |                                               
|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)                                                        |  | 0                                                                       |  | 80,465  
|                                               |  |                         |  |                                       |   |         |                                               
|880 Holcomb Bridge (sold in 2004)              |  | $6,889,379              |  | 0.8                                   | % |         | 53,737                                         |  | 297                      |  |   Funding for Fund I and Fund II Tucker operating expenses (2005)                                                        |  | 0                                                                       |  | 53,440  
|                                               |  |                         |  |                                       |   |         |                                               
|Brookwood Grill (sold in 2004)                 |  | $2,318,115              |  | 3.3                                   | % |         | 76,730                                         |  | 429                      |  |   Funding for Fund I and Fund II Tucker operating expenses (2005)                                                        |  | 0                                                                       |  | 76,301  
|                                               |  |                         |  |                                       |   |         |                                               
|Heritage Place  office portion (sold in 2006) |  | $4,028,983              |  | 2.6                                   | % |         | 102,739                                        |  | 0                        |  |                                                                                                                           |  | 0                                                                       |  | 102,739 
|                                               |  |                         |  |                                       |   |         |                                                |  |                          |  |                                                                                                                           |  |                                                                         |  |         
|                                               |  |                         |  |                                       |   |         |                                               
|Total                                          |  |                         |  |                                       |   |         | $554,779                                       |  | $79,479                  |  |                                                                                                                           |  | $0                                                                      |  | $475,300
|                                               |  |                         |  |                                       |   |         |                                                |  |                          |  |                                                                                                                           |  |                                                                         |  |         

Upon evaluating the capital needs of the properties in which we currently hold an interest, our
General Partners determined that reserves of net sale proceeds of approximately $150,000 will be necessary to fund the Partnerships pro-rata share of the costs anticipated in connection with capital improvements and re-leasing costs at the
Louis Rose Building and Boeing at the Atrium. Accordingly, in November 2006, net sale proceeds of approximately $325,000 from the sales of Cherokee Commons, the Holcomb Bridge Property, Brookwood Grill, and the retail portion of Heritage Place were
distributed to the limited partners of record as of September 30, 2006, which, under the terms of the partnership agreement, does not include limited partners acquiring units after June 30, 2006.

Results of Operations

Equity in loss of Fund II and
Fund II-OW was $1,203 and $8,072 for the three months ended September 30, 2006 and 2005, respectively. The decrease in loss for the three months ended September 30, 2006 as compared with the three months ended September 30, 2005, is
primarily attributable to (i) an increase in interest income recognized on the net sale proceeds held by Fund II and Fund II-OW as a result of an increase in the daily interest yield and an increase in the average net proceeds held during the
respective periods as a result of the May 2006 sale of the office portion of Heritage Place, and (ii) a decline in administrative costs and legal fees relative to the decrease in the size of the portfolio as a result of the sales of properties,
partially offset by (iii) an increase in utility expenses due to increased after-hour usage at Boeing at the Atrium, and (iv) an increase in property taxes at Boeing at the Atrium.

Equity in loss of Fund II and Fund II-OW was $25,795 and $12,720 for the nine months ended September 30, 2006 and 2005, respectively. The increase in loss for the nine months ended
September 30, 2006 as compared with the nine months ended September 30, 2005, is primarily attributable to (i) Fund I and Fund II Tucker recognizing an impairment loss of



Page 19



---

##### Table of Contents

approximately $795,000 on the office component of Heritage Place, (ii) recognizing an additional loss on the sale of Heritage Place in May 2006 of
approximately $9,000, (iii) an increase in utility expenses due to increased after-hour usage at Boeing at the Atrium, and (iv) an increase in property taxes at Boeing at the Atrium, partially offset by (v) an increase in interest
income recognized on the net sale proceeds held by Fund II and Fund II-OW as a result of an increase in the average amount of net sale proceeds held during 2006 and an increase in the daily interest yield, and (vi) a decline in administrative
costs and legal fees relative to the decrease in the size of the portfolio as a result of the sales of properties.

We expect equity in
loss of Fund II and Fund II-OW to increase due to a reduction of interest income earned resulting from the decline in net sales proceeds held by Fund II and Fund II-OW following the distribution of the 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.



Page 20



---

##### 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. As of September 30,
2006, Fund I and Fund II Tucker recorded an impairment loss for the office component of Heritage Place of approximately $795,000, of which approximately $20,000 was allocated to the Partnership.

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

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

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



Page 21



---

##### Table of Contents

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



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

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



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



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



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



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



Page 22



---

##### Table of Contents

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



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



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



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

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



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



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



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



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

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



Page 23



---

##### Table of Contents

SIGNATURES

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



|                  |  |  |  |                                                                                                    |  |                            
|----------------- |  |  |  | -------------------------------------------------------------------------------------------------- |  | ---------------------------
|                  |  |  |  | WELLS REAL ESTATE FUND II-OW (Registrant)                                                         
|                  |  |  | 
|                  |  |  |  | By:                                                                                                |  | WELLS CAPITAL, INC.        
|                  |  |  |  |                                                                                                    |  | (Corporate General Partner)
|                  |  | 
|November 13, 2006 |  |  |  | /s/    LEO F. WELLS,
III                                                                          
|                  |  |  |  | Leo F. Wells, III President, Principal Executive Officer, and Sole Director of Wells Capital, Inc.
|                  |  | 
|November 13, 2006 |  |  |  | /s/    DOUGLAS P.
WILLIAMS                                                                        
|                  |  |  |  | Douglas P. Williams Principal Financial Officer of Wells Capital, Inc.                            



Page 24



---

##### Table of Contents

WELLS REAL ESTATE FUND II-OW



EXHIBIT INDEX

TO THIRD 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