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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



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

For the quarterly period ended June 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



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WELLS REAL ESTATE FUND II-OW

(Exact name of registrant as specified in its
charter)



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

N/A

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

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

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

|Large | accelerated filer ̈Accelerated filer ̈Non-accelerated
filer  x
|----- | ------------------------------------------------------------

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



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q of Wells Real Estate Fund II-OW (the Partnership) 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.



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WELLS REAL ESTATE FUND II-OW



TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                         |  |         
|-------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                         |  | Page No.
|         |  |                      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                        
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                    |  |         
|         |  |                       | 
|         |  |                       |  | Balance SheetsJune 30, 2006 (unaudited) and December 31, 2005                                                          |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Six Months Ended June 30, 2006 (unaudited) and 2005 (unaudited)       |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2005 and the Six Months Ended June 30, 2006 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Six Months Ended June 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                                   |  | 15      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                              |  | 21      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                 |  | 21      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                        
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                       |  | 22      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                            |  | 22      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 22      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                         |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                     |  | 22      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                       |  | 22      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                |  | 22      



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PART I.    FINANCIAL 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 six months ended June 30, 2006 are not necessarily indicative of the operating results expected for the full year.



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WELLS REAL ESTATE FUND II-OW



BALANCE SHEETS

ASSETS



|                                             |  |               |         |                   |   |        
|-------------------------------------------- |  | ------------- | ------- | ----------------- | - | -------
|                                             |  | (Unaudited)   |         |                  
|                                             |  | June 30, 2006 |         | December 31, 2005
|Investment in Fund II and Fund II-OW         |  | $             | 454,356 |                   | $ | 593,240
|Due from Fund II and Fund II-OW              |  |               | 506,425 |                   |   | 392,134
|Cash and cash equivalents                    |  |               | 5,184   |                   |   | 5,184  
|                                             |  |               |         |                   |   |        
|Total assets                                 |  | $             | 965,965 |                   | $ | 990,558
|                                             |  |               |         |                   |   |        
|                                            
|LIABILITIES AND PARTNERS CAPITAL           
|                                             |  |              
|PARTNERS CAPITAL:                           |  |               |         |                   |   |        
|Limited partners:                            |  |               |         |                   |   |        
|Class A  6,062 units issued and outstanding |  | $             | 965,965 |                   | $ | 990,432
|Class B  1,626 units issued and outstanding |  |               | 0       |                   |   | 126    
|General partners                             |  |               | 0       |                   |   | 0      
|                                             |  |               |         |                   |   |        
|Total partners capital                      |  |               | 965,965 |                   |   | 990,558
|                                             |  |               |         |                   |   |        
|Total liabilities and partners capital      |  | $             | 965,965 |                   | $ | 990,558
|                                             |  |               |         |                   |   |        

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF OPERATIONS



|                                                 |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------ |  | --------------------------------------- | ------ | - | ------------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                 |  | (Unaudited) Three Months Ended June 30, |        |   | (Unaudited) Six Months Ended June 30, |  
|                                                 |  | 2006                                    |        |   | 2005                                  |   |        | 2006 |  |   | 2005    |  
|EQUITY IN LOSS OF FUND II AND FUND II-OW         |  | $                                       | (1,492 | ) |                                       | $ | (2,608 | )    |  | $ | (24,593 | ) |  | $ | (4,648  | )
|                                                 |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  
|                                                 |  |                                         |        |  
|NET LOSS                                         |  | $                                       | (1,492 | ) |                                       | $ | (2,608 | )    |  | $ | (24,593 | ) |  | $ | (4,648  | )
|                                                 |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  
|                                                 |  |                                         |        |  
|NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS: |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  
|CLASS A                                          |  | $                                       | (1,492 | ) |                                       | $ | 4,955  |      |  | $ | (24,467 | ) |  | $ | 10,504  |  
|                                                 |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  
|CLASS B                                          |  | $                                       | 0      |   |                                       | $ | (7,563 | )    |  | $ | (126    | ) |  | $ | (15,152 | )
|                                                 |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  
|                                                 |  |                                         |        |  
|NET INCOME (LOSS) PER LIMITED PARTNER UNIT:      |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  
|CLASS A                                          |  | $                                       | (0.25  | ) |                                       | $ | 0.82   |      |  | $ | (4.04   | ) |  | $ | 1.73    |  
|                                                 |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  
|CLASS B                                          |  | $                                       | 0.00   |   |                                       | $ | (4.65  | )    |  | $ | (0.08   | ) |  | $ | (9.32   | )
|                                                 |  |                                         |        |   |                                       |   |        |      |  |   |         |   |  |   |         |  

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF PARTNERS CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2005

AND SIX MONTHS ENDED JUNE 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                |  | (24,467  | )                |  | 0                       |  | (126         | ) |  | 0  |  | (24,593     | )
|                           |  |                  |  |          |                  |  |                         |  |              |   |  |    |  |             |  
|BALANCE, JUNE 30, 2006     |  | 6,062            |  | $965,965 |                  |  | 1,626                   |  | $          0 |   |  | $0 |  | $   965,965 |  
|                           |  |                  |  |          |                  |  |                         |  |              |   |  |    |  |             |  

See accompanying notes.



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WELLS REAL ESTATE FUND II-OW



STATEMENTS OF CASH FLOWS



|                                                                                |  |                                      |         |   |      |   |        |  
|------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------ | -
|                                                                                |  | (Unaudited) Six Months EndedJune 30, |        
|                                                                                |  | 2006                                 |         |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                                      |         |   |      |   |        |  
|Net loss                                                                        |  | $                                    | (24,593 | ) |      | $ | (4,648 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                      |         |   |      |   |        |  
|Equity in loss of Fund II and Fund II-OW                                        |  |                                      | 24,593  |   |      |   | 4,648  |  
|                                                                                |  |                                      |         |   |      |   |        |  
|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.



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WELLS REAL ESTATE FUND II-OW



CONDENSED NOTES TO FINANCIAL STATEMENTS

JUNE 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.



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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 No. (FIN) 46(R), Consolidation of Variable Interest Entities, which supersedes FIN 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.

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



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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 on the following information, dependent upon availability, in order of preference: (i) recently
quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscounted cash flows, including estimated salvage value.



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|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 six months ended June 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 six
months ended June 30, 2006 and 2005, respectively, is presented below:



|                   |  |                    |  |                  |  |                  |  |          |  |         |  |            |  |          
|------------------ |  | ------------------ |  | ---------------- |  | ---------------- |  | -------- |  | ------- |  | ---------- |  | ---------
|Total Revenues     |  | Net Loss           |  | Total Revenues   |  | Net Loss        
|Three Months Ended |  | Three Months Ended |  | Six Months Ended |  | Six Months Ended
|June 30,           |  | June 30,           |  | June 30,         |  | June 30,        
|2006               |  | 2005               |  | 2006             |  | 2005             |  | 2006     |  | 2005    |  | 2006       |  | 2005     
|$101,199           |  | $42,992            |  | $(28,092)        |  | $(49,114)        |  | $179,214 |  | $78,504 |  | $(463,120) |  | $(87,530)
|                   |  |                    |  |                  |  |                  |  |          |  |         |  |            |  |          

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 six months ended June 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 |  | Three Months Ended                       |  |           | Three Months Ended                         |  | Three Months Ended
|                          |  | June 30,           |  | June 30,                                 |  |           | June 30,                                   |  | June 30,          
|                          |  | 2006               |  | 2005                                     |  | 2006      |                                            |  | 2005               |   |  | 2006      |   |  | 2005    |  | 2006      |   |  | 2005      
|Fund I and Fund II Tucker |  | $    1,259         |  | $    2,313                               |  | $  (8,537 | )                                          |  | $      (519        | ) |  | $(9,799   | ) |  | $6,670  |  | $(18,336  | ) |  | $    6,151
|Fund II-III Associates    |  | 466,515            |  | 490,369                                  |  | 78,678    |                                            |  | 151,821            |   |  | 932       |   |  | 1,463   |  | 79,610    |   |  | 153,284   
|                          |  |                    |  |                                          |  |           |                                            |  |                    |   |  |           |   |  |         |  |           |   |  |           
|                          |  | $467,774           |  | $492,682                                 |  | $ 70,141  |                                            |  | $151,302           |   |  | $(8,867   | ) |  | $8,133  |  | $ 61,274  |   |  | $159,435  
|                          |  |                    |  |                                          |  |           |                                            |  |                    |   |  |           |   |  |         |  |           |   |  |           
|                          |  |                    |  |                                         
|                          |  | Total Revenues     |  | Income (Loss) FromContinuing Operations  |  |           | Income (Loss) FromDiscontinued Operations  |  | Net Income (Loss) 
|                          |  | Six Months Ended   |  | Six Months Ended                         |  |           | Six Months Ended                           |  | Six Months Ended  
|                          |  | June 30,           |  | June 30,                                 |  |           | June 30,                                   |  | June 30,          
|                          |  | 2006               |  | 2005                                     |  | 2006      |                                            |  | 2005               |   |  | 2006      |   |  | 2005    |  | 2006      |   |  | 2005      
|Fund I and Fund II Tucker |  | $    2,189         |  | $    2,313                               |  | $ (10,804 | )                                          |  | $   (1,042         | ) |  | $(810,142 | ) |  | $17,145 |  | $(820,946 | ) |  | $  16,103 
|Fund II-III Associates    |  | 927,202            |  | 947,297                                  |  | 163,374   |                                            |  | 267,795            |   |  | 2,485     |   |  | 2,283   |  | 165,859   |   |  | 270,078   
|                          |  |                    |  |                                          |  |           |                                            |  |                    |   |  |           |   |  |         |  |           |   |  |           
|                          |  | $929,391           |  | $949,610                                 |  | $152,570  |                                            |  | $266,753           |   |  | $(807,657 | ) |  | $19,428 |  | $(655,087 | ) |  | $286,181  
|                          |  |                    |  |                                          |  |           |                                            |  |                    |   |  |           |   |  |         |  |           |   |  |           



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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 six months ended June 30, 2006 and 2005, respectively, is presented below:



|                              |  |                    |  |                                |  |                                    |  |                    |  |      |  |         |  |      |  |        
|----------------------------- |  | ------------------ |  | ------------------------------ |  | ---------------------------------- |  | ------------------ |  | ---- |  | ------- |  | ---- |  | -------
|                              |  | Total Revenues     |  | Loss FromContinuing Operations |  | Income FromDiscontinued Operations |  | Net Income        
|                              |  | Three Months Ended |  | Three Months Ended             |  | Three Months Ended                 |  | Three Months Ended
|                              |  | June 30,           |  | June 30,                       |  | June 30,                           |  | June 30,          
|                              |  | 2006               |  | 2005                           |  | 2006                               |  | 2005               |  | 2006 |  | 2005    |  | 2006 |  | 2005   
|Fund II-III-VI-VII Associates |  | $0                 |  | $0                             |  | $0                                 |  | $(2,166)           |  | $0   |  | $83,676 |  | $0   |  | $81,510
|                              |  |                    |  |                                |  |                                    |  |                    |  |      |  |         |  |      |  |        



|                              |  |                  |  |                                |  |                                    |  |                  |  |      |  |         |  |      |  |        
|----------------------------- |  | ---------------- |  | ------------------------------ |  | ---------------------------------- |  | ---------------- |  | ---- |  | ------- |  | ---- |  | -------
|                              |  | Total Revenues   |  | Loss FromContinuing Operations |  | Income FromDiscontinued Operations |  | Net Income      
|                              |  | Six Months Ended |  | Six Months Ended               |  | Six Months Ended                   |  | Six Months Ended
|                              |  | June 30,         |  | June 30,                       |  | June 30,                           |  | June 30,        
|                              |  | 2006             |  | 2005                           |  | 2006                               |  | 2005             |  | 2006 |  | 2005    |  | 2006 |  | 2005   
|Fund II-III-VI-VII Associates |  | $0               |  | $0                             |  | $0                                 |  | $(8,208)         |  | $0   |  | $90,029 |  | $0   |  | $81,821
|                              |  |                  |  |                                |  |                                    |  |                  |  |      |  |         |  |      |  |        

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



|                              |  |                                |   |  |                                |   |  |             |   |  |           |   |  |                       |   |  |                 |  |               |     |  |          
|----------------------------- |  | ------------------------------ | - |  | ------------------------------ | - |  | ----------- | - |  | --------- | - |  | --------------------- | - |  | --------------- |  | ------------- | --- |  | ---------
|                              |  | Six Months Ended June 30, 2006 |   |  | Six Months Ended June 30, 2005
|                              |  | OperatingIncome(loss)          |   |  | Impairment Loss                |   |  | Loss onSale |   |  | Total     |   |  | OperatingIncome(loss) |   |  | Impairment Loss |  | Gain onSale   |     |  | Total    
|Fund I and Fund II Tucker     |  | $(6,097                        | ) |  | $(794,812                      | ) |  | $(9,233     | ) |  | $(810,142 | ) |  | $ 17,145              |   |  | $0              |  | $           0 |     |  | $  17,145
|Fund II-III Associates        |  | 2,485                          |   |  | 0                              |   |  | 0           |   |  | 2,485     |   |  | 2,283                 |   |  | 0               |  | 0             |     |  | 2,283    
|Fund II-III-VI-VII Associates |  | 0                              |   |  | 0                              |   |  | 0           |   |  | 0         |   |  | (10,157               | ) |  | 0               |  | 100,186       | (1) |  | 90,029   
|                              |  |                                |   |  |                                |   |  |             |   |  |           |   |  |                       |   |  |                 |  |               |     |  |          
|                              |  | $(3,612                        | ) |  | $(794,812                      | ) |  | $(9,233     | ) |  | $(807,657 | ) |  | $   9,271             |   |  | $0              |  | $100,186      |     |  | $109,457 
|                              |  |                                |   |  |                                |   |  |             |   |  |           |   |  |                       |   |  |                 |  |               |     |  |          



| | (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 June 30, 2006 and December 31, 2005:



|                    |  |                     |  |                        
|------------------- |  | ------------------- |  | -----------------------
|                    |  | As of June 30, 2006 |  | As of December 31, 2005
|Operating cash flow |  | $  31,126           |  | $  18,629              
|Net sale proceeds   |  | 475,299             |  | 373,505                
|                    |  |                     |  |                        
|                    |  | $506,425            |  | $392,134               
|                    |  |                     |  |                        



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

Management
and Leasing Fees

Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners, is entitled
to compensation for the management and leasing of the Partnerships properties owned through 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



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one-time lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others
rendering similar services in the same geographic area for similar properties or (b) in the case of commercial properties 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 $1,173 and $1,273 for the three months ended June 30, 2006 and 2005, respectively, and $2,393 and $2,520 for the six
months ended June 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 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. The Partnerships share of administrative costs reimbursed to Wells Capital and/or Wells Management by the Joint Ventures is $2,590 and $3,528 for the three months ended June 30, 2006 and 2005,
respectively, and $5,113 and $7,129 for the six months ended June 30, 2006 and 2005, respectively. In addition, Wells Capital pays for certain operating expenses of the Partnership (bill-backs) directly and invoices Fund II and Fund
II-OW for the reimbursement thereof.

Economic Dependency

We have engaged Wells Capital and Wells Management to provide certain essential services, 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 June 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
reasonable likely 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.



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##### Table of Contents

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

The following discussion and analysis should be read in conjunction with the 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.

The General Partners have announced their intention to distribute net sale proceeds from the sales of the Cherokee Commons, the Holcomb Bridge Property, Brookwood Grill, and the retail portion of
Heritage Place of approximately $325,000 in November of 2006.



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##### Table of Contents

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. 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. (See Contractual Obligations and Commitments below.)

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 six months ended June 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 six months ended June 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.



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##### Table of Contents

Long-Term Liquidity

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

We have encountered difficulties in re-leasing the Louis Rose Building primarily due to the softening of the Charlotte office market and related Northeast submarket of Charlotte during the period following the
expiration of the sole tenants lease on April 30, 2001. The Northeast submarket of Charlotte continues to present challenges to landlords, primarily due to the increasing availability of office space for lease, and low rental rates and
concessions offered to prospective tenants. As of June 30, 2006, the vacancy rate for the Northeast submarket of Charlotte is 25.3%, compared to the vacancy rate for Charlotte as a whole of 15.1%. 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.



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##### Table of Contents

As of June 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 SaleProceeds Allocated to the Partnership |  | Use of Net Sale Proceeds |  | Net Sale Proceeds Distributed toPartners as of June 30, 2006                                                             |  | Undistributed NetSale ProceedsCurrently
BeingReserved as of June 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, our General Partners anticipate distributing residual net sale proceeds of approximately $325,000 from the sales of the Cherokee Commons, the Holcomb Bridge Property, Brookwood Grill, and
the retail portion of Heritage Place in November 2006, as further discussed below.

Contractual Obligations and Commitments

In June 2006, our General Partners announced their intention to distribute net sale proceeds of approximately $325,000 from the sales of the Cherokee
Commons, the Holcomb Bridge Property, Brookwood Grill, and the retail portion of Heritage Place 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. Following such distribution, we would hold residual net sale proceeds of approximately $150,000 in reserve in order to fund our pro-rata share of anticipated capital improvements and
re-leasing costs at the Louis Rose Building and Boeing at the Atrium.

This distribution has not been formally declared by our General
Partners. In accordance with the terms of the partnership agreement, our General Partners may elect to retain reserves deemed reasonably necessary for the Partnership in the sole discretion of the General Partners. Thus, should a change in
circumstances prior to the intended distribution date require our General Partners to reevaluate the Partnerships reserve requirements, it is possible that this distribution may not occur or such distribution could be made at a lower amount.



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##### Table of Contents

Results of Operations

Equity in loss of Fund II and Fund II-OW was $1,492 and $2,608 for the three months ended June 30, 2006 and 2005, respectively. The decrease in loss for the three months ended June 30, 2006 as compared with
the three months ended June 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, (ii) a
decline in administrative costs, partially offset by (iii) recognizing a loss on the sale of Heritage Place in May 2006, and (iv) an adjustment in the second quarter of 2005 to prior year operating expense reimbursement billings at Boeing
at the Atrium. Tenants are billed for operating expense reimbursements based on estimates, which are reconciled in the following calendar year based on actual costs incurred and the terms of the corresponding tenant leases.

Equity in loss of Fund II and Fund II-OW was $24,593 and $4,648 for the six months ended June 30, 2006 and 2005, respectively. The increase in loss
for the six months ended June 30, 2006 as compared with the six months ended June 30, 2005, is primarily attributable to (i) Fund I and Fund II Tucker recognizing an impairment loss of approximately $795,000 on the office component of
Heritage Place; (ii) recognizing an additional approximately $9,000 loss on the sale of Heritage Place in May 2006; (iii) an increase in printing costs, legal fees, and accounting fees resulting from the increased costs relating to
compliance with reporting and regulatory requirements; (iv) an adjustment in the second quarter of 2005 to prior year operating expense reimbursement billings 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 the daily interest yield. Tenants are billed for operating expense reimbursements based on
estimates, which are reconciled in the following calendar year based on actual costs incurred and the terms of the corresponding tenant leases.

We expect future equity in loss of Fund II and Fund II-OW to increase as a result of (i) a corresponding decline in income due to selling Heritage Place in May 2006, and (ii) increases in our administrative expenses and legal fees
in future periods resulting from increased costs relating to compliance with reporting and regulatory requirements.

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.



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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.

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 June 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.



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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.



|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 June 30, 2006 that have materially affected, or are likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

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 June 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 June 30, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



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



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



|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 June 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 June 30, 2006.



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



|(a) | During the quarter ended June 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 Second Quarter Form 10-Q attached hereto.



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##### Table of Contents

SIGNATURES

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



|                |  |  |  |                                                                                                   |  |                            
|--------------- |  |  |  | ------------------------------------------------------------------------------------------------- |  | ---------------------------
|                |  |  |  | WELLS REAL ESTATE FUND II-OW (Registrant)                                                        
|                |  |  | 
|                |  |  |  | By:                                                                                               |  | WELLS CAPITAL, INC.        
|                |  |  |  |                                                                                                   |  | (Corporate General Partner)
|                |  | 
|August 10, 2006 |  |  |  | /S/    LEO F. WELLS,
III                                                                         
|                |  |  |  | Leo F. Wells, III President, Principal Executive Officer, and Sole Directorof Wells Capital, Inc.
|                |  | 
|August 10, 2006 |  |  |  | /S/    DOUGLAS P.
WILLIAMS                                                                       
|                |  |  |  | Douglas P. Williams Principal Financial Officer of Wells Capital, Inc.                           



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##### Table of Contents

EXHIBIT INDEX

TO

SECOND QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND II-OW



|            |  |                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                    
|            | 
|10.1        |  | Purchase and Sale Agreement for commercial office portion of Heritage Place (previously filed with the Commission as Exhibit 10.3 to the Form 10-Q of Wells Real Estate
Fund I for the period ending March 31, 2006, Commission File No. 0-14463, and hereby incorporated by this reference)                   
|            | 
|10.2        |  | First Amendment to Purchase and Sale Agreement for commercial office portion of Heritage Place (previously filed with the Commission as Exhibit 10.4 to the Form 10-Q of
Wells Real Estate Fund I for the period ending March 31, 2006, Commission File No. 0-14463, and hereby incorporated by this reference)
|            | 
|31.1        |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                         
|            | 
|31.2        |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                         
|            | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002