<PAGE>
 
                      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, 1996                     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          (I.R.S. Employer Identification Number)
incorporation or organization)


3885 Holcomb Bridge Road, Norcross, Georgia              30092
-------------------------------------------------------------------------------
(Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code    (770) 449-7800
                                                  ------------------------------

------------------------------------------------------------------------------- 
     (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
    -------       -------  
<PAGE>
 
                                   Form 10-Q
                                   ---------
                                        
                          Wells Real Estate Fund II-OW
                          ----------------------------
                                        
                                     INDEX
                                     -----
                                        
 
                                                                       Page No.
                                                                       --------
PART I.   FINANCIAL INFORMATION
 
          Item 1. Financial Statements
 
                  Balance Sheets - September 30, 1996 and
                    December 31, 1995......................................... 3
 
                  Statements of Income for the Three Months and Nine Months
                    Ended September 30, 1996 and 1995......................... 4
 
                  Statements of Partners' Capital for the Year Ended
                    December 31, 1995 and the Nine Months
                    Ended September 30, 1996.................................. 5
 
                  Statements of Cash Flows for the Nine Months
                    Ended September 30, 1996 and 1995......................... 6
 
                  Condensed Notes to Financial Statements..................... 7
 
          Item 2. Management's Discussion and Analysis of
                  Financial Condition and Results of
                  Operations................................................. 18
 
PART II.  OTHER INFORMATION.................................................. 26

                                       2
<PAGE>
 
                          WELLS REAL ESTATE FUND II-OW
                     (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
 
                 Assets                     September 30, 1996  December 31, 1995
                 ------                     ------------------  -----------------
<S>                                         <C>                 <C>
Investment in joint venture (Note 2)            $1,388,923         $1,434,495
Cash and cash equivalents                              598                891
Due from affiliate                                   9,856             26,854
                                                ----------         ----------
 
     Total assets                               $1,399,377         $1,462,240
                                                ==========         ==========
 
          Liabilities And Partners' Capital
          ---------------------------------
 
Liabilities:
  Withholdings and accounts payable             $       93         $      385
  Partnership distributions payable                  8,630             26,959
                                                ----------         ----------
 
     Total liabilities                               8,723             27,344
                                                ==========         ==========
 
Partners' Capital:
  Limited Partners:
   Class A - 6,062 units                         1,380,858          1,372,620
   Class B - 1,626 units                             9,796             62,276
                                                ----------         ----------
                                                                             
     Total partners' capital                     1,390,654          1,434,896
                                                ----------         ----------
                                                                             
       Total liabilities and partners' capital  $1,399,377         $1,462,240
                                                ==========         ==========
 
</TABLE>
            See accompanying condensed notes to financial statements.

                                       3
<PAGE>
 
                          WELLS REAL ESTATE FUND II-OW
                     (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                Three Months Ended                         Nine Months Ended
                                                ------------------                         -----------------
                                        September 30, 1996   September 30, 1995   September 30, 1996   September 30, 1995
                                        ------------------   ------------------   ------------------   ------------------
<S>                                    <C>                  <C>                  <C>                  <C>
Revenues:
  Equity in income of joint venture
   (Note 2)                                      $  3,320             $ 20,002             $ 17,647             $ 52,012
  Interest income                                       0                    0                    0                    2
                                                 --------             --------             --------             --------
                                                    3,320               20,002               17,647               52,014
                                                 --------             --------             --------             --------
 
Expenses:
  Partnership administration                            0                    0                    0                  250
                                                 --------             --------             --------             --------
 
Net income                                       $  3,320             $ 20,002             $ 17,647             $ 51,764
                                                 ========             ========             ========             ========
 
Net income allocated to
  Class A Limited Partners                       $ 20,808             $ 31,422             $ 70,126             $ 85,266
 
Net loss allocated to
  Class B Limited Partners                       $(17,488)            $(11,421)            $(52,479)            $(33,503)
 
Net income per Class A
  Limited Partner Unit                           $   3.43             $   5.19             $  11.57             $  14.07
 
Net loss per Class B
  Limited Partner Unit                           $ (10.76)            $  (7.02)            $ (32.28)            $ (20.60)
 
Cash distribution per Class A
  Limited Partner Unit                           $   1.41             $   4.56             $  10.21             $  12.93
 
</TABLE>
           See accompanying condensed notes to financial statements.

                                       4
<PAGE>
 
                          WELLS REAL ESTATE FUND II-OW
                     (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                        STATEMENTS OF PARTNERS' CAPITAL

           FOR THE YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED
                               SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
 
                                         LIMITED PARTNERS                
                                --------------------------------------
                                    CLASS A               CLASS B         TOTAL
                                ------------------  ------------------    PARTNERS'
                                UNITS    AMOUNT      UNITS    AMOUNT      CAPITAL
                                -----  -----------  -------  ---------  -----------
<S>                             <C>    <C>          <C>      <C>        <C>
BALANCE, DECEMBER 31, 1994      6,062  $1,370,379     1,626  $113,335   $1,483,714
 
  Net income (loss)                 0     107,511         0   (51,059)      56,452
  Partnership distributions         0    (105,270)        0         0     (105,270)
                                -----  ----------     -----  --------   ----------
BALANCE, DECEMBER 31, 1995      6,062  $1,372,620     1,626  $ 62,276   $1,434,896
 
  Net income (loss)                 0      70,126         0   (52,480)      17,646
  Partnership distributions         0     (61,888)        0         0      (61,888)
                                -----  ----------     -----  --------   ----------
BALANCE, SEPTEMBER 30, 1996     6,062  $1,380,858     1,626  $  9,796   $1,390,654
                                =====  ==========     =====  ========   ==========
</TABLE>
           See accompanying condensed notes to financial statements.

                                       5
<PAGE>
 
                          WELLS REAL ESTATE FUND II-OW
                     (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                          September 30, 1996   September 30, 1995
                                                          ------------------   ------------------
<S>                                                       <C>                  <C>
Cash flows from operating activities:
  Net income                                                   $ 17,647             $ 51,764
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
    Equity in income of joint venture                           (17,647)             (52,012)
    Distributions received from joint venture                    80,216               75,953
    Distributions to partners from accumulated
      earnings                                                  (80,217)             (75,775)
    Changes in assets and liabilities:
      Withholdings and accounts payable                            (292)                 700
      Due to affiliate                                                0              (14,824)
                                                               --------             --------
       Total adjustments                                        (17,940)             (65,958)
                                                               --------             --------
 
Net cash used in operating activities                              (293)             (14,194)
                                                               --------             --------
  
Net decrease in cash and cash equivalents                          (293)             (14,194)
  
Cash and cash equivalents, beginning of year                        891               14,703
                                                               --------             --------
 
Cash and cash equivalents, end of period                       $    598             $    509
                                                               ========             ========
</TABLE>
           See accompanying condensed notes to financial statements.

                                       6
<PAGE>
 
                         WELLS REAL ESTATE FUND II-OW
                    (A Georgia Public Limited Partnership)

                    Condensed Notes to Financial Statements



(1)  Summary of Significant Accounting Policies
     ------------------------------------------

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

     Wells  Real  Estate  Fund II-OW (the "Partnership")  is a  Georgia  public
     limited  partnership  having  Leo F. Wells, III and Wells Capital, Inc., as
     General Partners.  The Partnership was formed on October 23, 1987, for the
     purpose of acquiring, developing, constructing, owning, operating,
     improving, leasing and otherwise managing for investment purposes income-
     producing commercial or industrial properties.

     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, and received gross proceeds of $1,922,000
     representing subscriptions from 219 Limited Partners, composed of two
     classes of limited partnership interests, Class A and Class B limited
     partnership units.

     As of September 30, 1996, the Partnership owned interests in the following
     properties: (i) a retail shopping and commercial office complex located in
     Tucker, Georgia, (ii) a shopping center located in Cherokee County,
     Georgia, (iii) a two-story office building located in Charlotte, North
     Carolina, (iv) a four-story office building located in metropolitan
     Houston, Texas, (v) a restaurant located in Fulton County, Georgia, and
     (vi) an office/retail center currently being developed in Fulton County,
     Georgia.  All of the foregoing properties were acquired on an all cash
     basis.

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

     The financial statements of Wells Real Estate Fund II-OW (the
     "Partnership") have been prepared in accordance with instructions to Form
     10-Q and do not include all of the information and footnotes required by
     generally accepted accounting principles for complete financial statements.
     These quarterly statements have not been examined by independent
     accountants, but in the opinion of the General Partners, the statements for
     the unaudited interim periods presented include all adjustments, which are
     of a normal and recurring nature, necessary to present a fair presentation
     of the results for such periods.  For further information, refer to the
     financial statements and footnotes included in the Partnership's Form 10-K
     for the year ended December 31, 1995.

                                       7
<PAGE>
 
     (c)  Employees
     --------------

     The Partnership has no direct employees.  The employees of Wells Capital,
     Inc., a General Partner of the Partnership, perform a full range of real
     estate services including leasing and property management, accounting,
     asset management and investor relations for the Partnership.

     (d)  Insurance
     --------------

     Wells Management Company, Inc., an affiliate of the General Partners,
     carries comprehensive liability and extended coverage with respect to all
     the properties owned directly or indirectly by the Partnership.  In the
     opinion of management of the registrant, the properties are adequately
     insured.

     (e)  Competition
     ----------------

     The Partnership will experience competition for tenants from owners and
     managers of competing projects which may include the General Partners and
     their affiliates.  As a result, the Partnership may be required to provide
     free rent, reduced charges for tenant improvements and other inducements,
     all of which may have an adverse impact on results of operations.  At the
     time the Partnership elects to dispose of its properties, the Partnership
     will also be in competition with sellers of similar properties to locate
     suitable purchasers for its properties.

     (f)  Income Taxes
     -----------------

     The Partnership has not requested a ruling from the Internal Revenue
     Service to the effect that it will be treated as a partnership and not an
     association taxable as a corporation for Federal income tax purposes.  The
     Partnership requested an opinion of counsel as to its tax status, but such
     opinion is not binding upon the Internal Revenue Service.

     (g)  Statement of Cash Flows
     ----------------------------

     For the purpose of the statement of cash flows, the Partnership considers
     all highly liquid debt instruments purchased with an original maturity of
     three months or less to be cash equivalents. Cash equivalents include cash
     and short-term investments.

                                       8
<PAGE>
 
(2)  Investment in Joint Venture
     ---------------------------

     FUND II-FUND II-OW JOINT VENTURE
     --------------------------------

     The Partnership owns all of its properties through a joint venture (the
     "Fund II-Fund II-OW Joint Venture") formed on March 1, 1988, between the
     Partnership and Wells Real Estate Fund II ("Wells Fund II").  Wells Fund II
     is a Georgia public limited partnership affiliated with the Partnership
     through common general partners.  The investment objectives of Wells Fund
     II are substantially identical to those of the Partnership.  As of
     September 30, 1996, the Partnership's equity interest in the Fund II-Fund
     II-OW Joint Venture was approximately 5%, and the equity interest of Wells
     Fund II was approximately 95%.  The Partnership does not have control over
     the operations of the joint venture; however, it does exercise significant
     influence.  Accordingly, investment in joint venture is recorded on the
     equity method.

     Of the six properties owned by the joint venture, one is a retail shopping
     center, two are office buildings, one is an office/retail center, one is an
     office/retail/restaurant center and one is a restaurant.  As of September
     30, 1996, these properties were 63.60% occupied, compared to 95.87% at
     December 31, 1995 and 97.34% at December 31, 1994, 66.90% at December 31,
     1993, 93.76% at December 31, 1992, and 93.57% at December 31, 1991.

     The following describes the properties in which the Partnership owns an
     interest through the Fund II-Fund II-OW Joint Venture as of September 30,
     1996:

     The Charlotte Property/Fund II-Fund II-OW Joint Venture
     -------------------------------------------------------

     On May 9, 1988, the Fund II-Fund II-OW Joint Venture acquired a two-story
     building containing approximately 70,752 net leasable square feet, located
     on a 9.54 acre tract of land located in Charlotte, Mecklenburg County,
     North Carolina (the"Charlotte Property") for a purchase price of
     $8,550,000.

     While the entire project was originally leased under a net lease to IBM,
     IBM elected not to exercise its second three-year option to extend its
     lease and vacated the building effective September 30, 1993, after paying a
     $425,000 lease termination fee.

     On May 1, 1994, First Union Bank assumed occupancy of the Charlotte
     Property under a lease which expires April 30, 2001.  The principal terms
     of the lease provide for First Union's sole tenancy of the project as a
     regional operations center for the initial term of seven years. Because
     First Union Bank invested approximately $1 million in tenant improvements
     at the Charlotte Property, a lower rental rate was accepted for the first
     five years.  There are presently no plans for improvement or further
     development of the project.

     The annual base rent during the initial term is $412,705 payable in equal
     monthly installments of $34,392.08 during the first two years, annual base
     rent of $454,651 payable in equal monthly installments of $37,887.58 during

                                       9
<PAGE>
 
     the third year, annual base rent of $489,650 payable in equal monthly
     installments of $40,804.17 during the fourth year and annual base rent of
     $524,625 payable in equal monthly installments of $43,718.75 during the
     fifth year.  Rental rates during the remaining two years of the lease term
     will be determined by market rates.

     The occupancy rates at the Charlotte Property for the quarter ended
     September 30, 1996 was 100% which was the rate for the same quarter in the
     five previous years.

     The average effective annual rental per square foot at the Charlotte
     Property was $6.49 for third quarter 1996, $5.83 for 1995, $3.88 for 1994,
     $28.12 for 1993 and $15.69 for 1992 and 1991.  The higher effective annual
     rental rate for 1993 is due to the payment of $425,000 in lease termination
     fees by IBM.

     The Atrium/Fund II & Fund III Joint Venture
     -------------------------------------------

     On April 3, 1989, the Fund II-Fund II-OW Joint Venture formed a joint
     venture (the "Fund II-Fund III Joint Venture") with Wells Real Estate Fund
     III, L.P. ("Wells Fund III"), a  Georgia public limited partnership
     affiliated with the Partnership through common general partners.  The
     investment objectives of Wells Fund III are substantially identical to
     those of the Partnership.

     In April 1989, the Fund II-Fund III Joint Venture acquired a four-story
     office building located on a 5.6 acre tract of land adjacent to the Johnson
     Space Center in metropolitan Houston, in the City of Nassau Bay, Harris
     County, Texas, known as "The Atrium at Nassau Bay", (the "Atrium").

     The funds used by the Fund II-Fund III Joint Venture to acquire the Atrium
     were derived from capital contributions made to the Fund II-Fund III Joint
     Venture by the Fund II-Fund II-OW Joint Venture and Wells Fund III in the
     amount of $8,327,856 and $2,538,000, respectively, for total initial
     capital contributions of $10,865,856.  As of September 30, 1996, the Fund
     II-Fund II-OW Joint Venture and Wells Fund III had made total capital
     contributions to the Fund II-Fund III Joint Venture of approximately
     $8,330,000 and $4,448,000, respectively, for the acquisition and
     development of the Atrium.  The Fund II-Fund II-OW Joint Venture holds
     approximately 66% equity interest in the Fund II-Fund III Joint Venture and
     Wells Funds III holds approximately 34% equity interest in the Fund II-Fund
     III Joint Venture.

     The Atrium was first occupied in 1987 and contains approximately 119,000
     net leasable square feet.  Each floor of the Atrium was originally leased
     under a separate lease to Lockheed Engineering and Science Company, Inc., a
     wholly-owned subsidiary of the Lockheed Company, each of which leases had
     terms of approximately eight years and expired June 30, 1996.

                                       10
<PAGE>
 
     Since Lockheed vacated the building as of June 30, 1996, the occupancy rate
     of the Atrium Property was 0% for the third quarter of 1996.  As set forth
     above, the lease with Lockheed Company expired on June 30, 1996 and
     although the Partnership has responded to various potential tenants
     regarding leasing portions of the Atrium, no leases have been signed as of
     September 30, 1996.  It is anticipated that when leases are obtained for
     the Atrium, rental rates will be lower than those paid by the previous
     tenant, and income could decrease significantly under these new leases.  In
     addition, such leases are likely to require substantial tenant finish and
     refurbishment expenditures by the Partnership which could further reduce
     future cash distribution to Limited Partners.

     The Brookwood Grill Property/Fund II and Fund III Joint Venture
     ---------------------------------------------------------------

     On January 31, 1990, the Fund II-Fund II-OW Joint Venture acquired a 5.8
     acre tract of undeveloped real property at the intersection of Warsaw Road
     and Holcomb Bridge Road in Roswell, Fulton County, Georgia (the "Brookwood
     Grill Property").  The Brookwood Grill Property is located about two miles
     west of Georgia Highway 400 and approximately 20 radial miles north of the
     Atlanta Central Business District.  The Fund II-Fund II-OW Joint Venture
     paid $1,848,561 including acquisition expenses for the 5.8 acre tract of
     undeveloped property.

     On September 20, 1991, the Fund II-Fund II-OW Joint Venture contributed the
     Brookwood Grill, along with its interest as landlord under the lease
     agreement referred to below, as a capital contribution to the Fund II-Fund
     III Joint Venture.  As of September 20, 1991, the Fund II-Fund II-OW Joint
     Venture had expended approximately $2,128,000 for the land acquisition and
     development of the Brookwood Grill Property.

     As of September 20, 1991, a lease agreement was entered into with the
     Brookwood Grill of Roswell, Inc. for the development of approximately 1.5
     acres and the construction of a 7,440 square foot restaurant.  The terms of
     the lease call for an initial term of 9 years and 11 months, with two
     additional 10-year option periods.  The agreement calls for a base rental
     of $217,006 per year for years 1 through 5 with a 15% increase over the
     remainder of the initial term.  Rental rates for all option periods will be
     based on the prevailing market values and rates for those periods.  Under
     the terms of the lease, the Fund II-Fund III Joint Venture was required to
     make certain improvements for the development and construction of the
     restaurant building together with parking areas, driveways, landscaping and
     other improvements described in the plans and specifications.  The Fund II-
     Fund III Joint Venture has expended approximately $1,100,000 for such
     improvements.  In addition to the base rent described above, the tenant is
     required to pay "additional rent" in amounts equal to a 12% per annum
     return on all amounts expended for such improvements.

     The occupancy rate for the Brookwood Grill, a sole tenant, was 100% for the
     third quarter of 1996 and the quarters ended September 30, 1995, 1994,
     1993, and 1992.  The average effective annual rental per square foot at the
     Brookwood Grill is $30.32 for the third quarter 1996 and $30.21 for 1995,
     1994, and 1993, and $24.60 for 1992, the first year of occupancy.

                                       11
<PAGE>
 
     As of September 30, 1996, the Fund II-Fund II-OW Joint Venture and Wells
     Fund III had made total contributions to the Fund II-Fund III Joint Venture
     of approximately $2,128,000 and $1,330,000 respectively for the acquisition
     and development of the Brookwood Grill.  The Fund II-Fund II-OW Joint
     Venture holds an approximately 62% equity interest in the Brookwood Grill
     Property and Wells Fund III holds an approximately 38% equity interest in
     the project.

     On January 10, 1995, the Fund II-Fund III Joint Venture contributed the
     remaining 4.3 undeveloped acres of land comprising the Holcomb Bridge Road
     Property to a new joint venture, Fund II, III, VI and VII Associates.  This
     property is described below.

     FUND II, III, VI AND VII JOINT VENTURE/HOLCOMB BRIDGE ROAD PROPERTY
     -------------------------------------------------------------------

     On January 10, 1995, the Partnership, Fund II-Fund III Joint Venture, the
     Wells Real Estate Fund VI entered into a Joint Venture Agreement known as
     Fund II, III, VI and VII Associates ("Fund II, III, VI, and VII Joint
     Venture").  The Fund II-Fund III Joint Venture is a joint venture between
     Wells Real Estate Fund III, a Georgia public limited partnership having Leo
     F. Wells, III and Wells Capital, Inc. as general partners, and an existing
     joint venture (the "Fund II-Fund II-OW Joint Venture") formed by Wells Real
     Estate Fund II ("Wells Fund II"), a Georgia public limited partnership
     having Leo F. Wells, III and Wells Capital, Inc. as general partners, and
     Wells Real Estate Fund II-OW ("Wells Fund II-OW"), a Georgia public limited
     partnership having Leo F. Wells, III and Wells Capital, Inc. as general
     partners.  The investment objectives of Wells Fund II, Wells Fund II-OW,
     Wells Fund III and Wells Fund VI are substantially identical to those of
     the Partnership.

     In January 1995, the Fund II-Fund III Joint Venture contributed to the Fund
     II, III, VI and VII Joint venture approximately 4.3 acres of land at the
     intersection of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton
     County, Georgia (the "Holcomb Bridge Road Property") including land
     improvements.  Development is substantially complete on two buildings
     containing a total of approximately 49,500 square feet.  Six tenants
     occupied the 880 Holcomb Bridge property as of September 30, 1996 for an
     occupancy rate of 54%.  The average effective annual rental was $6.83 per
     square foot for the third quarter of 1996.

     As of September 30, 1996, Fund II-Fund III Joint Venture contributed
     $1,729,116 in land and land improvements for an equity interest of
     approximately 25.2%, Wells Fund VI contributed $1,699,846 for an equity
     interest of approximately 26.0%, and Wells Fund VII contributed $3,217,154
     for an equity interest of approximately 48.8%.  The total costs to develop
     the Holcomb Bridge Road Property is currently estimated to be approximately
     $5,000,000, excluding land.  It is anticipated that of the remaining cost
     of approximately $83,000, $16,000 will be contributed by Wells Fund VI and
     $67,000 by Wells Fund VII, after which the equity interests in the property
     will be 48.8% for Wells Fund VII, 25.5% for Wells Fund VI, and 25.7% for
     the Fund II-Fund III Joint Venture.

                                       12
<PAGE>
 
     Tucker Property/Fund I - Fund II Tucker Joint Venture
     -----------------------------------------------------

     The Tucker Property consists of a retail shopping center and a commercial
     office building complex located in Tucker, DeKalb County, Georgia (the
     "Tucker Property").  The retail shopping center at the Tucker Property
     contains approximately 29,858 net leasable square feet. The commercial
     office space at the Tucker Property, which is divided into seven separate
     buildings, contains approximately 67,465 net leasable square feet.

     On January 9, 1987, the Partnership acquired an interest in the Tucker
     Property which was acquired by a joint venture (the "Tucker Joint Venture")
     originally between the Partnership and Wells Real Estate Fund I ("Wells
     Fund I").  Wells Fund I is a Georgia public limited partnership affiliated
     with the Partnership through common general partners.  The investment
     objectives of Wells Fund I are substantially identical to those of the
     Partnership. Upon the formation of the Fund II-Fund II-OW Joint Venture in
     March 1988, the Partnership contributed its joint venture interest in the
     Tucker Joint Venture to the Fund II-Fund II-OW Joint Venture as a part of
     its capital contribution.

     Both Wells Fund I and the Fund II-Fund II-OW Joint Venture have funded the
     cost of completing the Tucker Property through capital contributions which
     have been paid as progressive stages of construction were completed.  As of
     September 30, 1996, Wells Fund I had contributed a total of $6,399,854, and
     the Fund II-Fund II-OW Joint Venture had contributed a total of $4,826,015
     to the Tucker Property. As of September 30, 1996, Wells Fund I had an
     approximate 55% equity interest in the Tucker Property and Fund II-Fund II-
     OW Joint Venture had an approximate 45% equity interest in the Tucker
     Property.  As of September 30, 1996, the occupancy rate at the Tucker
     Property was 75%.

     There are no tenants in the project occupying ten percent or more of the
     rentable square footage.  The principal businesses, occupations, and
     professions carried on in the building are typical retail
     shopping/commercial office services.

     The occupancy rate at the Tucker Property for the quarters ended September
     30 was 75% in 1996, 89% in 1995, 97% in 1994, 87% in 1993, and 78% in 1992.

     The average effective annual rental per square foot at the Tucker Property
     was $11.02 for 1996, $12.61 for 1995, $12.63 for 1994, $11.37 for 1993, and
     $11.37 for 1992.

                                       13
<PAGE>
 
Cherokee Property/Fund I, II, II-OW, VI & VII Joint Venture
-----------------------------------------------------------

     The Cherokee Property consists of a retail shopping center known as
     "Cherokee Commons Shopping Center" located in metropolitan Atlanta,
     Cherokee County, Georgia (the "Cherokee Property").  The Cherokee Property
     consists of approximately 103,755 net leasable square feet.

     On June 30, 1987, the Partnership acquired an interest in the Cherokee
     Property through a joint venture (the "Cherokee Joint Venture") between the
     Wells Fund II-Fund II-OW and Wells Fund I.

     On August 1, 1995, the Fund II-Fund II-OW Joint Venture, Wells Fund I,
     Wells Real Estate Fund VI, L.P. ("Wells Fund VI"), a Georgia public limited
     partnership having Leo F. Wells, III and Wells Partners, L.P., a Georgia
     limited partnership, as general partners, and Wells Real Estate Fund VII,
     L.P. ("Wells Fund VII"), a Georgia public limited partnership having Leo F.
     Wells, III and Wells Partners, L.P., a Georgia limited partnership, as
     general partners entered into a joint venture agreement known as Fund I,
     II, II-OW, VI and VII Associates (the "Fund I, II, II-OW, VI, VII Joint
     Venture"), which was formed to own and operate the Cherokee Property.
     Wells Partners, L.P. is a private limited partnership having Wells Capital,
     Inc., a General Partnership, as its sole general partner.  The investment
     objectives of Wells Fund I, Wells Fund VI and Wells Fund VII are
     substantially identical to those of the Partnership.

     As of September 30, 1996, Wells Fund I had contributed property with a book
     value of $2,139,900, the Fund II-Fund II-OW Joint Venture had contributed
     property with a book value of $4,860,100, Wells Fund VI had contributed
     cash in the amount of $953,718 and Wells Fund VII had contributed cash in
     the amount of $953,798 to the Fund I, II, II-OW, VI, VII Joint Venture.  As
     of September 30, 1996, the equity interests in the Cherokee Property were
     approximately as follows:  Wells Fund I - 24%, Fund II-Fund II-OW Joint
     Venture - 54%, Wells Fund VI - 11% and Wells Fund VII - 11%.

     The Cherokee Property is anchored by a 67,115 square foot lease with Kroger
     Food/Drug which expires in 2011.  Kroger's original lease was for 45,528
     square feet.  In 1994, Kroger expanded to the current 67,115 square feet
     which is approximately 65% of the total rentable square feet in the
     property.  As of September 30, 1996, the Cherokee Property was
     approximately 95% occupied by 20 tenants, including Kroger.  Kroger, a
     retail grocery chain, is the only tenant occupying ten percent or more the
     rentable square footage.  The other tenants in the shopping center provide
     typical retail shopping services.

     The Kroger lease provides for an annual rent of $392,915 which increased to
     $589,102 on August 16, 1995 due to the expansion from 45,528 square feet to
     67,115 square feet.  The lease expires March 31, 2011 with Kroger entitled
     to five successive renewals each for a term of five years at the same
     rental rate as the original lease.

                                       14
<PAGE>
 
     The occupancy rate at the Cherokee Property for the quarters ended
     September 30 was 95% in 1996 and 1995, 92% in 1994, 82% in 1993, and 87% in
     1992.

     The average effective annual rental per square foot at the Cherokee
     Property was $8.57 for 1996, $7.50 for 1995, $5.33 for 1994, $6.47 for
     1993, $6.46 for 1992, and $6.52 for 1991.



     For further information regarding the foregoing properties, refer to the
     Partnership's Form 10-K for the year ended December 31, 1995.

     See "Management's Discussion and Analysis of Financial Condition and
     Results of Operation" for a summary and discussion of the operations of the
     properties described above during the quarter ended September 30, 1996.

     The following summarizes the condensed financial statements of the Fund II-
     Fund II-OW Joint Venture:



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       15
<PAGE>
 
         Following are the financial statements for Fund II and II-OW:

                               FUND II AND II-OW
                           (A GEORGIA JOINT VENTURE)

                                BALANCE SHEETS
<TABLE>
<CAPTION>
 
                    Assets                          September 30, 1996  December 31, 1995
                    ------                          ------------------  -----------------
<S>                                                 <C>                 <C>
Real estate assets, at cost:
  Land                                                   $ 1,367,856        $ 1,367,856
  Building and improvements, less accumulated
   depreciation of $1,796,534 in 1996 and
   $1,382,129 in 1995.                                     5,974,584          6,250,334
                                                         -----------        -----------
 
   Total real estate assets                                7,342,440          7,618,190
                                                         -----------        -----------
 
 Investment in joint ventures                             18,622,668         19,207,510
  Cash and cash equivalents                                   67,466             72,419
  Due from affiliates                                         98,893            415,195
  Accounts receivable                                        108,522             95,202
  Prepaid expenses and other assets                           89,110             97,894
                                                         -----------        -----------
 
           Total assets                                  $26,329,099        $27,506,410
                                                         ===========        ===========
 
           Liabilities and Partners' Capital
 
Liabilities:
    Accounts payable and accrued expenses                $         0        $         0
    Partnership distributions payable                        185,615            505,711
    Due to affiliates                                          5,645              4,616
                                                         -----------        -----------
 
      Total liabilities                                      191,260            510,327
                                                         -----------        -----------
 
Partners' Capital:
  Wells Real Estate Fund II                               24,748,917         25,561,588
  Wells Real Estate Fund II-OW                             1,388,922          1,434,495
                                                         -----------        -----------
 
    Total partners' capital                               26,137,839         26,996,083
                                                         -----------        -----------
 
       Total liabilities and partners' capital           $26,329,099        $27,506,410
                                                         ===========        ===========
</TABLE>

                                       16
<PAGE>
 
                               FUND II AND II-OW
                           (A GEORGIA JOINT VENTURE)

                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                  Three Months Ended                      Nine Months Ended
                                        --------------------------------------  --------------------------------------
                                        September 30, 1996  September 30, 1995  September 30, 1996  September 30, 1995
                                        ------------------  ------------------  ------------------  ------------------
<S>                                     <C>                 <C>                 <C>                 <C>
 
Revenues:
  Rental income                                   $114,716            $114,716            $344,150          $  344,150
  Equity in income of joint ventures                71,304             344,511             416,245             926,333
  Interest income                                      106                 110                 308                 427
                                                  --------            --------            --------          ----------
                                                   186,126             459,337             760,703           1,270,910
                                                  --------            --------            --------          ----------
 
Expenses:
  Management and leasing fees                        6,883               6,883              20,649              20,649
  Lease acquisition costs                            4,589               4,589              13,766              13,766
  Operating costs - rental property                  4,935               2,073              16,046              21,651
  Depreciation                                      91,917              48,570             275,750             145,709
  Legal and accounting                                 678               1,171              39,126              23,308
  Computer costs                                     1,404                 390               3,207               5,005
  Partnership administration                        13,209              18,990              59,832              61,320
                                                  --------            --------            --------          ----------
                                                   123,615              82,666             428,376             291,408
                                                  --------            --------            --------          ----------
 
Net income                                        $ 62,511            $376,671            $332,327          $  979,502
                                                  ========            ========            ========          ==========
 
Net income allocated to
  Wells Real Estate Fund II                       $ 59,191            $356,669            $314,680          $  927,490
 
Net income allocated to
  Wells Real Estate Fund II-OW                    $  3,320            $ 20,002            $ 17,647          $   52,012
 
</TABLE>

                                       17
<PAGE>
 
     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     -----------------------------------------------------------------------
     RESULTS OF OPERATION
     --------------------

     The following discussion and analysis should be read in conjunction with
     the accompanying financial statements of the Partnership and notes thereto.
     This Report contains forward-looking statements, within the meaning of
     Section 27A of the Securities Act of 1933 and 21E of the Securities
     Exchange Act of 1934, including discussion and analysis of the financial
     condition of the Partnership, anticipated capital expenditures required to
     complete certain projects, amounts of cash distributions anticipated to be
     distributed to Limited Partners in the future and certain other matters.
     Readers of this Report should be aware that there are various factors that
     could cause actual results to differ materially from any forward-looking
     statement made in the Report, which include construction costs which may
     exceed estimates, construction delays, lease-up risks, inability to obtain
     new tenants upon the expiration of existing leases, and the potential need
     to fund tenant improvements or other capital expenditures out of operating
     cash flow.

     RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
     ---------------------------------------------------------

     General
     -------

     As of September 30, 1996, the developed properties owned by the Fund II-
     Fund II-OW Joint Venture (including the Holcomb Bridge Road Property which
     is substantially complete) were 63% occupied, as compared to 97% occupied
     as of September 30, 1995.

     Gross revenues of the Partnership were $3,320 for the quarter ended
     September 30, 1996, as compared to $20,002 for the quarter ended September
     30, 1995.  The decrease in gross revenues for 1996 was due primarily to the
     decrease in equity in income from the joint venture.

     Administrative expenses of the Partnership are incurred at the joint
     venture level.  Accounting expenses increased for the nine month period
     ended September 30, 1996 as compared to the same period of 1995 due to
     payment of fees for tax preparation and additional audit fees. Depreciation
     expenses increased from 1995 to 1996 due to the change in the estimated
     useful lives of all buildings and improvements in which the Partnership
     owns an interest from 40 years to 25 years which became effective December
     31, 1995.

     Distributions to the Partnership from Fund II-Fund II-OW Joint Venture for
     the three month period ended September 30, 1996 and September 30, 1995 were
     $9,856 and $27,669 respectively.

     The Partnership made cash distributions to the Limited Partners holding
     Class A Units of $1.41 per unit for the third quarter of 1996 as compared
     to $4.56 per unit for the third quarter of 1995.  No cash distributions
     were made by the Partnership to the Limited Partners holding Class B Units.

                                       18
<PAGE>
 
     Cash distributions for the third quarter of 1996 were made from investment
     income and do not represent a return of capital.

     As of September 30, 1996, the Fund II-Fund II-OW Joint Venture had used all
     of the remaining funds available for investment in properties.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       19
<PAGE>
 
Charlotte Property/Fund II and II-OW Joint Venture
--------------------------------------------------
<TABLE>
<CAPTION>
                                                Three Months Ended                        Nine Months Ended
                                                ------------------                        -----------------              
                                      September 30, 1996   September 30, 1995   September 30, 1996   September 30, 1995
                                      ------------------   ------------------   ------------------   ------------------
<S>                                   <C>                  <C>                  <C>                  <C>
Revenues:
  Rental income                                $114,716             $114,716             $344,150             $344,150
 
Expenses:
  Depreciation                                   91,917               48,569              275,750              145,708
  Management and leasing expenses                11,472               11,472               34,415               34,415
  Other operating expenses                        4,934                2,073               16,046               21,651
                                               --------             --------             --------             --------
                                                108,323               62,114              326,211              201,774
                                               --------             --------             --------             --------
 
Net income                                     $  6,393             $ 52,602             $ 17,939             $142,376
                                               ========             ========             ========             ========
 
Occupied %                                          100%                 100%                 100%                 100%
Partnership Ownership %                             5.3%                 5.3%                 5.3%                 5.3%
 
Cash generated to the Fund II-
  Fund II-OW Joint Venture*                    $101,844             $ 90,783             $290,310             $267,229
 
Net income allocated to the
  Fund II-Fund II-OW
  Joint Venture*                               $  6,393             $ 52,602             $ 17,939             $142,376
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.

Rental income was stable for the three and nine months ended September 30, 1996
and 1995.  The decrease in net income for the three and nine month periods of
1996 compared to 1995 was primarily due to the increase in depreciation expenses
which resulted from the change in fourth quarter, 1995 in estimated useful lives
of buildings and improvements previously discussed under the "General" section
of "Results of Operations and Changes in Financial Conditions".  Cash generated
to the Joint Venture for the three month and nine month periods ended September
30, 1996 increased over the same periods of 1995 due primarily an increase in
the actual rent as of April 1996, which is not reflected in the rental income
for accounting purposes shown above due to straight-lining the rent over the
lease period.

                                       20
<PAGE>
 
The Atrium/Fund II and Fund III Joint Venture
---------------------------------------------
<TABLE>
<CAPTION>
                                                  Three Months Ended                        Nine Months Ended
                                                  ------------------                        -----------------             
                                        September 30, 1996   September 30, 1995   September 30, 1996   September 30, 1995
                                        ------------------   ------------------   ------------------   ------------------
<S>                                   <C>                  <C>                  <C>                  <C>
Revenues:
  Rental income                                 $   8,909             $519,836           $1,048,582           $1,559,509
  Interest income                                   6,091                6,658               21,409               21,762
                                                ---------             --------           ----------           ----------
                                                   15,000              526,494            1,069,991            1,581,271
                                                ---------             --------           ----------           ----------
Expenses:
  Depreciation                                    168,691              117,029              505,788              351,087
  Management and leasing expenses                       0               35,691               71,380              107,071
  Other operating expenses                       (176,240)              64,686               57,310              196,713
                                                ---------             --------           ----------           ----------
                                                   (7,549)             217,406              634,478              654,871
                                                ---------             --------           ----------           ----------
 
Net income                                      $  22,549             $309,088           $  435,513           $  926,400
                                                =========             ========           ==========           ==========
 
Occupied %                                              0%                 100%                   0%                 100%
Partnership Ownership %                               3.5%                 3.5%                 3.5%                 3.5%
 
Cash distributions to the Fund II-
  Fund II-OW Joint Venture*                     $       0             $294,805           $  472,173           $  883,847
 
Net income allocated to the
  Fund II-Fund II-OW
  Joint Venture*                                $  14,792             $202,762           $  285,696           $  607,718
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.

Rental income decreased for the three and nine month periods ended September 30,
1996 compared to the same periods in 1995 due to the termination of the Lockheed
lease as of June 30, 1996.  The increase in depreciation expenses for the three
months and nine months ended September 30, 1996 over the same periods of 1995 is
due to the change in the estimated useful lives of buildings and improvements
which was made in the fourth quarter of 1995.  The decrease in operating
expenses for the three month period ended September 30, 1996 compared to
September 30, 1995, resulted from a reclassification of prior years' excess
reimbursements.  The decrease in the nine month operating expenses for September
30, 1996 compared to September 30, 1995 is due to this reclassification and the
vacancy of the project during the quarter.

The lease with Lockheed Company expired on June 30, 1996, and although the
Partnership has responded to various potential tenants regarding leasing the
Atrium, no leases have been signed as of September 30, 1996.  It is anticipated
that when leases are obtained for the Atrium, rental rates will be lower than
those paid by the previous tenant, and income could decrease significantly under
these new leases.  In addition, such leases are likely to require further tenant
finish and refurbishment expenditures by the Partnership which could
substantially reduce future cash distributions to Limited Partners.

                                       21
<PAGE>
 
The Brookwood Grill Property/Fund II and Fund III Joint Venture
---------------------------------------------------------------
<TABLE>
<CAPTION>
                                                  Three Months Ended                        Nine Months Ended
                                                  ------------------                        -----------------              
                                        September 30, 1996   September 30, 1995   September 30, 1996   September 30, 1995
                                       -------------------  -------------------  -------------------  -------------------
<S>                                    <C>                  <C>                  <C>                  <C>
Revenues:
  Rental income                                   $56,797              $60,316             $169,172             $172,691
  Equity loss of joint venture                       (573)                   0              (26,996)                   0
                                                  -------              -------             --------             --------
                                                   56,224               60,316              142,176              172,691
                                                  -------              -------             --------             --------
Expenses:
  Depreciation                                     13,503               14,664               40,509               43,994
  Management and leasing expenses                   7,483                7,833               20,178               22,112
  Other operating expenses                         13,665               11,919               48,941               30,750
                                                  -------              -------             --------             --------
                                                   34,651               34,416              109,628               96,856
                                                  -------              -------             --------             --------
 
Net income                                        $21,573              $25,900             $ 32,548             $ 75,835
                                                  =======              =======             ========             ========
 
Occupied %                                            100%                 100%                 100%                 100%
Partnership Ownership %                              3.31%                3.31%                3.31%                3.31%
 
Cash distributions to the Fund II-
  Fund II-OW Joint Venture*                       $26,840              $25,025             $ 65,958             $ 73,911
 
Net income allocated to the
  Fund II-Fund II-OW
  Joint Venture*                                  $13,451              $16,149             $ 20,294             $ 47,283
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.

Rental income decreased slightly for the three months and nine months ended
September 30, 1996 compared to the same periods in 1995 due primarily to a
decrease in billing of expenses to the tenants.  Expenses were stable for the
three months ended September 30, 1996 and 1995, but were substantially higher
for the nine month periods ended September 30, 1996 compared to September 30,
1995.  The increase in other operating expenses is the result of decreased
property tax reimbursements and a reimbursement to the tenant in first quarter
1996 of administrative charges paid in 1995.  Although there was a change in
useful lives of assets from forty years to twenty-five years in December 1995,
depreciation expense decreased in 1996, compared to the same periods in 1995,
due to the contribution of land and land improvements by Brookwood Grill to the
880 Holcomb Bridge Property.  Net income decreased for both the three and nine
month periods of 1996 compared to 1995 for the reasons cited above and due to
the net loss generated by the Fund II, III, VI, and VII Joint Venture.

                                       22
<PAGE>
 
Holcomb Bridge Road Property/Fund II, III, VI & VII Joint Venture
-----------------------------------------------------------------
<TABLE>
<CAPTION>
                                                          Three Months Ended     Six Month Ended
                                                          ------------------     ---------------  
                                                          September 30, 1996   September 30, 1996
                                                          ------------------   ------------------
<S>                                                      <C>                  <C>
Revenues:
    Rental income                                                   $82,869             $136,044
 
Expenses:
    Depreciation                                                     54,939              138,881
    Management and leasing expenses                                   8,530               14,610
    Other operating expenses                                         22,279               70,012
                                                                    -------             --------
                                                                     85,748              223,503
                                                                    -------             --------
Net loss                                                            $(2,879)            $(87,459)
                                                                    =======             ========
 
Occupied %                                                             53.6%                53.6%
 
Partnership Ownership % in the Fund II, III, VI, VII
   Joint Venture                                                        0.8%                 0.8%
Cash distribution to the Fund II-Fund III
    Joint Venture*                                                   $ 7,022             $  7,022
Net loss allocated to the Fund II-Fund III
    Joint Venture*                                                   $  (572)            $(26,995)
</TABLE>
The Partnership holds a 3.31% ownership in the Fund II-Fund III Joint Venture.

In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road (the "Holcomb Bridge Road
Property") to the Fund II, III, VI, and VII Joint Venture.  Development is being
completed on two buildings with a total of approximately 49,500 square feet.  As
of September 30, 1996, six tenants are occupying approximately 26,549 square
feet of space in the retail and office building under leases of varying lengths.
Since the property was not developed as of September 30, 1995, no comparative
figures are available for the quarter.

As of September 30, 1996, the Fund II-Fund III Joint Venture contributed
$1,729,116 in land and improvements for an equity interest of approximately
25.2%, Wells Fund VI contributed $1,699,846 for an equity interest of
approximately 26.0%, and Wells Fund VII contributed $3,217,154 for an equity
interest of approximately 48.8%.  The total costs to develop the Holcomb Bridge
Road Property is currently estimated to be approximately $5,000,000, excluding
land.  It is anticipated that of the remaining cost of approximately $83,000,
$16,000 will be contributed by Wells Fund VI and $67,000 by Wells Fund VII,
after which the equity interests in the property will be 48.8% for Wells Fund
VII, 25.5% for Wells Fund VI, and 25.7% for the Fund II-Fund III Joint Venture.
Wells Fund VI and Wells Fund VII have reserved sufficient funds for this
purpose.

                                       23
<PAGE>
 
Tucker Property/Fund I - Fund II Joint Venture
----------------------------------------------
<TABLE>
<CAPTION>
                                                   Three Months Ended                        Nine Months Ended
                                                   ------------------                        -----------------               
                                         September 30, 1996   September 30, 1995   September 30, 1996   September 30, 1995
                                         ------------------   ------------------   ------------------   ------------------
<S>                                      <C>                  <C>                  <C>                  <C>
 
Revenues:
  Rental income                                   $262,134             $313,802             $804,135             $957,817
  Interest income                                      122                  147                  501                2,596
                                                  --------             --------             --------             --------
                                                   262,256              313,949              804,636              960,413
                                                  --------             --------             --------             --------
Expenses:
  Depreciation                                     105,280               60,007              313,508              180,020
  Management and leasing expenses                   27,454               36,291               89,838              104,091
  Other operating expenses                         109,108              124,144              365,608              422,275
                                                  --------             --------             --------             --------
                                                   241,842              220,442              768,954              706,386
                                                  --------             --------             --------             --------
 
Net income                                        $ 20,414             $ 93,507             $ 35,682             $254,027
                                                  ========             ========             ========             ========
 
Occupied %                                              75%                  89%                  75%                  89%
                                                  ========             ========             ========             ========
Partnership Ownership %                               2.39%                2.39%                2.39%                2.39%
 
Cash distributed to the Partnership               $ 52,215             $ 71,266             $150,347             $197,189
 
Net income allocated to the
  Partnership                                     $  9,168             $ 25,025             $ 16,025             $ 73,911
</TABLE>

Rental income decreased in 1996 from 1995 due primarily to decreased tenant
occupancy. Operating expenses decreased in 1996 over 1995 due to decrease in
utilities and other repairs and maintenance.  The increase in depreciation
expense for 1996 as compared to 1995 is a result of the change in the estimated
useful lives of buildings and improvements as previously discussed under the
"General" section of "Results of Operation and Changes in Financial Conditions".
Net income of the property decreased in 1996 as compared to 1995 due to
increased depreciation and decreased occupancy as discussed above.

The property was 75% leased as of September 30, 1996, as compared to 89% leased,
as of September 30, 1995, due to three tenants vacating space totaling 9,761
square feet.  Although no leases have been signed, every effort is being made to
re-lease this space.

                                       24
<PAGE>
 
Cherokee Property/Fund I, II, II-OW, VI & VII Joint Venture
-----------------------------------------------------------
<TABLE>
<CAPTION>
                                                    Three Months Ended                        Nine Months Ended
                                                    ------------------                        -----------------            
                                          September 30, 1996   September 30, 1995   September 30, 1996   September 30, 1995
                                          ------------------   ------------------   ------------------   ------------------
<S>                                       <C>                  <C>                  <C>                  <C>
Revenues:
  Rental income                                    $219,956             $253,387             $666,564             $546,904
  Interest income                                        18                   69                   55                  164
                                                   --------             --------             --------             --------
                                                    219,974              253,456              666,619              547,068
                                                   --------             --------             --------             --------
 
Expenses:
  Depreciation                                      107,607               72,989              322,251              164,233
  Management and leasing expenses                    12,101                9,354               38,011               23,823
  Other operating expenses                           38,084               36,728              133,588              118,548
                                                   --------             --------             --------             --------
                                                    157,792              119,071              493,850              306,604
                                                   --------             --------             --------             --------
 
Net income                                         $ 62,182             $134,385             $172,769             $240,464
                                                   ========             ========             ========             ========
 
Occupied %                                               95%                  95%                  95%                  95%
Partnership Ownership %                                 2.9%                 2.9%                 2.9%                 2.9%
 
Cash distributions to the Fund II-
  Fund II-OW Joint Venture*                        $108,584             $ 88,365             $312,609             $169,704
 
Net income allocated to the Fund II-
  Fund II-OW Joint Venture*                        $ 33,928             $ 83,606             $ 94,265             $157,247
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.

Rental income decreased for the three months ended September 30, 1996, as
compared to the same period in 1995, due to the receipt in September 1995 of
certain excess rents relating to the Kroger expansion which, although completed
in November 1994, was billed retroactively and paid in September 1995.  The
increases in depreciation expenses for 1996 as compared to 1995 are the result
of the change in the estimated useful lives of buildings and improvements as
previously discussed under the "General" section of "Results of Operations and
Changes in Financial Conditions". Management and leasing expenses increased in
1996 as compared to 1995 due to the increased revenue.  Other operating expenses
increased in 1996 due to increased repairs and maintenance.  Net income of the
property decreased for the nine month period ended September 30, 1996, as
compared to the same period for 1995, due primarily to the increase in
depreciation expenses offset partially by the increase in rental income.

A lease amendment executed with Kroger in 1994 provided for the expansion of its
existing store at the Cherokee Commons Shopping Center from 45,528 square feet
to 66,918 square feet.  In November, 1994, construction was completed on the
Kroger expansion and remodeling of the center.  The total costs for both the
Kroger expansion and remodeling of the Center was $2,807,367.  The costs of this
expansion were funded in the following amounts:  Wells Fund I - $94,679, the
Fund II-Fund II-OW Joint Venture - $805,092, Wells Fund VI - $953,798, and Wells
Fund VII - $953,798.

                                       25
<PAGE>
 
                          PART  II - OTHER INFORMATION
                          ----------------------------

Item 6(b).  No reports on Form 8-K were filed during the third quarter of 1996.

                                   SIGNATURES

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

                                   WELLS REAL ESTATE FUND II-OW
                                   (Registrant)
Dated:  November 11, 1996          By:  /s/Leo F. Wells, III
                                      -------------------------------
                                   Leo F. Wells, III, as Individual
                                   General Partner and as President,
                                   Sole Director and Chief Financial
                                   Officer of Wells Capital, Inc.
                                   the Corporate General Partner

                                       26