<PAGE>
 
                      SECURITIES AND EXCHANGE  COMMISSION
                            Washington, D. C. 20549

                                   Form 10-Q
 
(Mark one)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

For the quarterly period ended  September 30, 1998  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    0-25606
                          -------

                       Wells Real Estate Fund VII, L.P.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
           Georgia                                     58-2022629
-------------------------------         ---------------------------------------
(State or other jurisdiction of         (I.R.S. Employer Identification Number)
incorporation or organization)


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

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

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


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

Yes    X     No
      ---       ---
<PAGE>
 
                                   Form 10-Q
                                   ---------
                                        
                       Wells Real Estate Fund VII, L.P.
                       --------------------------------

                                     INDEX
                                     -----
<TABLE> 
<CAPTION> 

                                                                                           Page No.
<S>      <C>                                                                                <C> 
PART I.  FINANCIAL INFORMATION
         Item 1.  Financial Statements
 
                  Balance Sheets  September 30, 1998
                  and December 31, 1997...................................................     3
 
                  Statements of Income for the Three Months and Nine Months
                  Ended September 30, 1998 and 1997.......................................     4
                                                                                          
                  Statements of Partners' Capital for the Year Ended                      
                  December 31, 1997 and the Nine Months Ended                             
                  September 30, 1998......................................................     5
                                                                                          
                  Statements of Cash Flows for the Nine                                   
                  Months Ended September 30, 1998 and 1997................................     6
                                                                                          
                  Condensed Notes to Financial Statements.................................     7
                                                                                          
         Item 2.  Management's Discussion and Analysis of                        
                  Financial Condition and Results of Operations...........................     8
 
PART II. OTHER INFORMATION................................................................     20
</TABLE>

                                       2
<PAGE>
 
                          WELLS REAL ESTATE FUND VII,  L.P.
                      (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                      Assets                    September 30, 1998      December 31, 1997
                      ------                    ------------------      -----------------
<S>                                             <C>                    <C>
Investment in joint ventures (Note 2)              $18,585,130              $19,039,835
Cash and cash equivalents                               58,831                  194,420
Due from affiliates                                    357,784                  416,360
Deferred project costs                                       0                    4,070
Organizational costs,                                                 
 less accumulated amortization of $28,125 in                          
  1998 and $18,750 in 1997                               3,125                    7,812
                                                                      
Prepaid expenses and other assets                        2,746                    3,797
                                                   -----------              -----------
                                                                      
     Total assets                                  $19,007,616              $19,666,294
                                                   ===========              ===========
                                                                      
                                                                      
    Liabilities and Partners' Capital                                     
    ---------------------------------  
                                                                      
Liabilities:                                                          
 Accounts payable                                  $     1,655              $         0
 Partnership distributions payable                     406,833                  404,129
                                                   -----------              -----------
                                                                      
     Total liabilities                                 408,488                  404,129
                                                   -----------              -----------
                                                                      
Partners' capital:                                                    
 Limited partners                                                     
  Class A - 1,992,742 Units outstanding             16,843,067               16,701,193
  Class B - 475,275 Units outstanding                1,756,061                2,560,972
                                                   -----------              -----------
                                                                      
     Total partners' capital                        18,599,128               19,262,165
                                                   -----------              -----------
                                                                      
     Total liabilities and partners' capital       $19,007,616              $19,666,294
                                                   ===========              ===========
</TABLE>

              See accompanying condensed notes to financial statements.

                                       3
<PAGE>
 
                                    WELLS REAL ESTATE FUND VII, L.P.
                                 (A GEORGIA PUBLIC LIMITED PARTNERSHIP)
    
                                         STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                     Three Months Ended                   Nine Months Ended
                                           -----------------------------------------------------------------------------
                                           Sept. 30, 1998      Sept. 30, 1997         Sept. 30, 1998      Sept. 30, 1997
                                           --------------      --------------         --------------      --------------
<S>                                        <C>                <C>                     <C>                 <C>
Revenues:                                                                                              
 Equity in income of joint                                                                             
  ventures (Note 2)                        $ 207,089               $ 206,596            $  623,694            $  588,738
 Interest income                               1,515                   6,595                 7,110                26,935
                                           ---------               ---------            ----------            ----------
                                             208,604                 213,191               630,804               615,673
                                           ---------               ---------            ----------            ----------
                                                                                                       
Expenses:                                                                                              
 Legal and accounting                            489                   1,310                15,547                17,851
 Partnership administration                   18,334                  10,509                41,630                42,854
 Amortization of organization                                                                          
  cost costs                                   1,562                   1,562                 4,687                 4,687
                                           ---------               ---------            ----------            ----------
                                              20,385                  13,381                61,864                65,392
                                           ---------               ---------            ----------            ----------
 Net income                                $ 188,219               $ 199,810            $  568,940            $  550,281
                                           =========               =========            ==========            ==========
                                                                                                       
Net income allocated to Class                                                                          
 A Limited Partners                        $ 426,322               $ 437,946            $1,290,354            $1,194,894
                                                                                                       
Net loss allocated to Class B                                                                          
 Limited Partners                          $(238,103)              $(238,136)           $ (721,414)           $ (644,613)
                                                                                                       
Net income per Class A                                                                                 
 Limited Partner Unit                    $    0.22               $    0.23            $     0.66            $     0.64
                                                                                                       
                                                                                                       
Net loss per Class B Limited                                                                           
 Partner Unit                            $   (0.50)              $   (0.43)           $    (1.62)           $    (1.15)
                                                                                                       
                                                                                                       
Cash distribution per class A                                                                          
 Limited Partner Unit                      $    0.20               $    0.20            $     0.62            $     0.58
 
</TABLE>
                     See accompanying condensed notes to financial statements

                                       4
<PAGE>
 
                             WELLS REAL ESTATE FUND VII, L.P.
                          (A GEORGIA PUBLIC LIMITED PARTNERSHIP)

                             STATEMENTS OF PARTNERS' CAPITAL
            FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED
                                    SEPTEMBER 30, 1998


<TABLE>
<CAPTION>
                                                              Limited Partners                                 
                                              -------------------------------------------------               
                                                      Class A                   Class B                       Total
                                              ------------------------  -----------------------   General   Partners'
                                                Units        Amounts       Units      Amounts    Partners    Capital
                                                -----        -------       -----      -------    --------   ---------
<S>                                           <C>            <C>           <C>        <C>        <C>       <C>
BALANCE, 
  DECEMBER 31, 1996                           1,826,830   $15,698,900    591,187    $4,317,124      $0    $20,016,024
                                                                                                       
  Net income (loss)                                   0     1,615,965          0      (882,816)      0        733,149
  Partnership distributions                           0    (1,487,008)         0             0       0     (1,487,008)
  Class B conversion elections                  144,569       873,336   (144,569)     (873,336)      0              0
                                              ---------   -----------   --------    ----------      --    -----------
BALANCE,                                                                                               
  DECEMBER 31, 1997                           1,971,399   $16,701,193    446,618    $2,560,972      $0    $19,262,165
  Net income (loss)                                   0     1,290,354          0      (721,414)      0        568,940
  Partnership distributions                           0    (1,231,977)         0             0       0     (1,231,977)
  Class B conversion elections                   21,343        83,497    (21,343)      (83,497)      0              0
                                              ---------   -----------   --------    ----------      --    -----------
                                                                                                       
BALANCE,                                                                                               
  SEPTEMBER 30, 1998                          1,992,742   $16,843,067    475,275    $1,756,061      $0    $18,599,128
                                              =========   ===========   ========    ==========      ==    ===========
</TABLE>


                    See accompanying condensed notes to financial statements. 

                                       5
<PAGE>
 
                              WELLS REAL ESTATE FUND VII, L.P.
                           (A GEORGIA PUBLIC LIMITED PARTNERSHIP)
                                        
                                 STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                    -------------------------------------------
                                                                      Sept. 30, 1998             Sept. 30, 1997
                                                                    ----------------             --------------
 <S>                                                                <C>                          <C>
Cash flows from operating activities:
 Net income                                                             $   568,940                $   550,281
                                                                        -----------                -----------
 Adjustments to reconcile net income to net cash                                             
  used in operating activities:                                                              
   Equity in income of joint ventures                                      (623,694)                  (588,738)
   Amortization of organization costs                                         4,687                      4,687
   Changes in assets and liabilities:                                                        
     Prepaids and other assets                                                1,051                      2,000
     Due to affiliates                                                            0                          0
     Accounts payable                                                         1,655                         95
                                                                        -----------                -----------
     Total adjustments                                                     (616,302)                  (581,956)
                                                                        -----------                -----------
      Net cash used in operating activities                                 (47,361)                   (31,675)
                                                                        -----------                -----------
                                                                                             
Cash flow from investing activities:                                                         
 Investment in joint ventures                                              (158,564)                   (30,600)
 Distributions received from joint ventures                               1,299,610                  1,029,123
                                                                        -----------                -----------
      Net cash provided by                                                                   
       investing activities                                               1,141,046                    998,523
                                                                                             
Cash flow from financing activities:                                                         
 Partnership distributions paid                                          (1,229,274)                (1,006,303)
                                                                        -----------                -----------
                                                                                             
 Net decrease in cash and cash equivalents                                 (135,589)                   (39,455)
                                                                                             
Cash and cash equivalents, beginning of year                                194,420                    366,301
                                                                        -----------                -----------
                                                                                             
Cash and cash equivalents, end of period                                $    58,831                $   326,846
                                                                        ===========                ===========
                                                                                             
Supplemental disclosure of noncash investing                                                 
 activities:                                                                                 
  Deferred project costs applied to real estate                                              
  and joint venture property                                            $     4,070                $     1,381
                                                                        ===========                ===========
</TABLE>

                     See accompanying condensed notes to financial statements.

                                       6
<PAGE>
 
                       WELLS REAL ESTATE FUND VII, L.P.
                    (A Georgia  Public Limited Partnership)

                    Condensed Notes to Financial Statements

                              September 30, 1998

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

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

     Wells Real Estate Fund VII, L.P. (the "Partnership") is a Georgia public
     limited partnership, having Leo F. Wells, III and Wells Partners, L.P., a
     Georgia limited partnership, as general partners.  The Partnership was
     formed on December 1, 1992, for the purpose of acquiring, developing,
     owning, operating, improving, leasing, and otherwise managing for
     investment purposes income-producing commercial properties.

     On April 6, 1994, the Partnership commenced an offering of up to
     $25,000,000 of Class A or Class B limited partnership units ($10.00 per
     unit) pursuant to a Registration Statement on Form S-11 filed under the
     Securities Act of 1933.  The Partnership commenced active operations when
     it received and accepted subscriptions for a minimum of 125,000 units on
     April 26, 1994.  The Partnership terminated its offering on January 5,
     1995, and received gross proceeds of $24,180,174 representing subscriptions
     from 1910 Limited Partners.

     The Partnership owns interests in properties through ownership in the
     following joint ventures:  (i) Fund V, Fund VI, Fund VII Associates, a
     joint venture between the Partnership, Wells Real Estate Fund V, L.P., and
     Wells Real Estate Fund VI, L.P. ("Fund V-VI-VII Joint Venture"); (ii) Fund
     VI and Fund VII Associates a joint venture between the Partnership and
     Wells Real Estate Fund VI L.P. ("Fund VI-Fund VII Joint Venture"); (iii)
     Fund II, III, VI and VII Associates, a joint venture between the
     Partnership, Wells Fund II-III Joint Venture, Wells Real Estate Fund VI,
     L.P., and Wells Real Estate Fund VII, L.P. (the "Fund II-III-VI-VII Joint
     Venture"); (iv) Fund VII and Fund VIII Associates, a joint venture between
     the Partnership and Wells Real Estate Fund VIII, L.P. ("Fund VII-Fund VIII
     Joint Venture"); (v) Fund VI, Fund VII and Fund VIII Associates, a joint
     venture between the Partnership, Wells Real Estate Fund VI, L.P., and Wells
     Real Estate Fund VIII, L.P. (the "Fund VI-VII-VIII Joint Venture"); and
     (vi) Fund I, II, II-OW, VI, VII Associates, a joint venture between the
     Partnership, Wells Real Estate Fund I, the Fund II and Fund II-OW Joint
     Venture and Wells Real Estate Fund VI, L.P. (the "Fund I, II, II-OW, VI,
     VII Joint Venture").

     As of September 30, 1998, the Partnership owned interests in the following
     properties through its ownership of the foregoing joint ventures:  (i) a
     three-story office building located in Appleton, Wisconsin (the "Marathon
     Building"); (ii) two retail buildings located in Stockbridge, Georgia
     ("Stockbridge Village III"), and a retail shopping center

                                       7
<PAGE>
 
     expansion in Stockbridge, Georgia ("Stockbridge Village I Expansion");
     (iii) an office/retail center located in Roswell, Georgia ("880 Holcomb
     Bridge Road"); (iv) a retail center located in Stockbridge, Georgia ("the
     Hannover Center"); (v) a four-story office building located in
     Jacksonville, Florida ("BellSouth"); (vi) an office building located in
     Gainesville, Florida ("CH2M Hill"); (vii) a retail center in Winston-Salem,
     North Carolina ("Tanglewood Commons"); and (viii) a retail center located
     in Cherokee County, Georgia ("Cherokee Commons").

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

     The consolidated financial statements of Wells Real Estate Fund VII, L.P.
     (the "Partnership") have been prepared in accordance with instructions to
     Form 10-Q and do not include all of the information and footnotes required
     by generally accepted accounting principles for complete financial
     statements.  These quarterly statements have not been examined by
     independent accountants, but in the opinion of the General Partners, the
     statements for the unaudited interim periods presented include all
     adjustments, which are of a normal and recurring nature, necessary to
     present a fair presentation of the results for such periods.  For further
     information, refer to the financial statements and footnotes included in
     the Partnership's Form 10-K for the year ended December 31, 1997.

(2)  Investments in Joint Ventures
     -----------------------------

     The Partnership owns interests in nine properties through its ownership in
     joint ventures of which three are office buildings and six are retail
     centers.  The Partnership does not have control over the operations of the
     joint ventures; however, it does exercise significant influence.
     Accordingly, investment in joint ventures is recorded on the equity method.
     For a description of the joint ventures and properties owned by the
     Partnership, please refer to the Partnership's Form 10-K for the year ended
     December 31, 1997.

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

                                       8
<PAGE>
 
     need to fund tenant improvements or other capital expenditures out of
     operating cash flow.

     Results of Operations and Changes in Financial Conditions
     ---------------------------------------------------------

     General
     -------

     As of September 30, 1998, the developed properties owned by the Partnership
     were 93.9% occupied. Gross revenues of the Partnership were $630,804 and
     $615,673 for the nine months ended September 30, 1998 and September 30,
     1997, respectively.  The revenues increased in 1998 compared to 1997 due to
     the increase in income from the joint ventures which was generated by an
     occupancy increase at several properties.  Expenses of the Partnership
     decreased primarily due to a decrease in administrative costs, legal and
     accounting fees.

     Net income per Unit for Class A Limited Partners was $0.66 for the nine
     months ended September 30, 1998.  Net loss per Unit for Class B and
     converted Class A Limited Partners was $1.54 for the nine months ended
     September 30, 1998.

     The Partnership made cash distributions to the Limited Partners holding
     Class A Units of $.20 per Unit for the three months ended September 30,
     1998 and $.20 per Unit for the three months ended September 30, 1997.  No
     cash distributions were made to the Limited Partners holding Class B Units
     or to the General Partners.  The Partnership's distributions paid and
     payable through the third quarter of 1998 have been paid from net cash from
     operations and from distributions received from its equity investment in
     joint ventures, and the Partnership anticipates that distributions will
     continue to be paid on a quarterly basis from such sources.

     The Partnership's net cash used in operating activities increased from
     $31,675 in 1997 to $47,361 in 1998.  Net cash provided by investing
     activities increased from $998,523 in 1997 to $1,141,046 in 1998, due
     primarily to the increase in distributions received from the joint
     ventures.

     The Partnership expects to continue to meet its short-term liquidity
     requirements and budget demands generally through net cash provided by
     operations which the Partnership believes will continue to be adequate to
     meet both operating requirements and distributions to Limited Partners.  At
     this time, given the nature of the joint ventures in which the Partnership
     has invested, there are no known improvements and renovations to the
     properties expected to be funded from cash flow from operations.

     The General Partners have verified that all operational computer systems
     are year 2000 compliant.  This includes systems supporting accounting,
     property management and investor services.  Also, as part of this review,
     all building control systems have been verified as compliant.  The current
     line of business applications are based on compliant operating systems and
     database servers.  All of these products are scheduled for

                                       9
<PAGE>
 
     additional upgrades before the year 2000. Therefore, it is not anticipated
     that the year 2000 will have significant impact on operations.



     Recent Accounting Pronouncements
     --------------------------------

     Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
     Comprehensive Income", requires certain transactions (e.g., unrealized
     gains/losses on available for sale securities) that are not reflected in
     net income to be displayed as other comprehensive income.  The Statement
     also requires an entity to report total comprehensive income (i.e., net
     income plus other comprehensive income) for every period in which an income
     statement is presented.  SFAS No. 130 is effective for annual and interim
     periods beginning after December 15, 1997.  None of the transactions
     required to be reported in other comprehensive income pertain to the
     Partnership; consequently, adoption of this Statement had no impact on the
     partnership's disclosures.

     Effective April 3, 1998, the American Institute of Certified Public
     Accountants issued Statement of Position (SOP) 98-5, "Reporting on the
     Costs of Start-Up Activities".  SOP 98-5 is effective for fiscal years
     beginning after December 15, 1998, and initial application is required to
     be reported as a cumulative effect of change in accounting principle.  This
     SOP provides guidance on the financial reporting of start-up costs and
     organization costs.  It requires costs of start-up activities and
     organization costs to be expensed as incurred.  Adoption of this Statement
     by the Partnership in the first quarter of 1999 may result in the write-off
     of certain capitalized organization costs.  Adoption of this Statement is
     not expected to have a material impact on the Partnership's results of
     operations and financial condition.

                                       10
<PAGE>
 
PROPERTY OPERATIONS
-------------------

As of September 30, 1998, the Partnership owned an interest in the following
operational properties:

The Marathon Building/Fund V-VI-VII Joint Venture
-------------------------------------------------

<TABLE>
<CAPTION>
                                                           Three Months Ended                     Nine Months Ended
                                                 ------------------------------------      -------------------------------
                                                 Sept. 30, 1998        Sept. 30, 1997      Sept. 30, 1998   Sept. 30, 1997
                                                 --------------        --------------      --------------   --------------
<S>                                              <C>                   <C>                 <C>              <C>
Revenues:
 Rental income                                     $242,755               $242,754             $728,693         $725,465
                                                   --------               --------             --------         --------
Expenses:                                                                                                
 Depreciation                                        87,647                 87,647              262,939          262,939
 Management & leasing expenses                        9,890                  9,889               29,670           29,781
 Other operating expenses                             3,044                  3,174                9,785            7,937
                                                   --------               --------             --------         --------
                                                    100,581                100,710              302,394          300,657
                                                   --------               --------             --------         --------
                                                                                                         
Net income                                         $142,174               $142,044             $426,299         $424,808
                                                   ========               ========             ========         ========
                                                                                                         
Occupied %                                              100%                   100%                 100%             100%
                                                                                                         
Partnership's Ownership % in the                                                                         
 Fund V-VI-VII Joint Venture                           41.7%                  41.7%                41.7%            41.7%
                                                                                                         
Cash distribution to Partnership                   $ 96,832               $ 96,778             $290,404         $290,995
                                                                                                         
Net income allocated to the                                                                              
 Partnership                                       $ 59,301               $ 59,246             $177,809         $177,187
</TABLE>

Rental income increased slightly for the nine months ended September 30, 1998,
compared to the same period of 1997.  Operating expenses increased slightly, due
primarily to accounting and administrative fees increasing, as compared to 1997.
Cash distributions to the Partnership and net income allocated to the
Partnership remained relatively stable for the nine months ended September 30,
1998 and 1997.

                                       11
<PAGE>
 
Stockbridge Village III/Fund VI-Fund VII Joint Venture
------------------------------------------------------

<TABLE>
<CAPTION> 
                                                            Three Months Ended                          Nine Months Ended
                                                   -----------------------------------          ----------------------------------
                                                   Sept. 30, 1998       Sept. 30, 1997          Sept. 30, 1998      Sept. 30, 1997
                                                   --------------       --------------          --------------      --------------
<S>                                                <C>                 <C>                      <C>                 <C>
Revenues:
 Rental income                                        $59,652              $71,127                 $178,405            $211,088
                                                      -------              -------                 --------            --------
Expenses:                                                                                                         
 Depreciation                                          22,781               21,452                   68,273              64,355
 Management & leasing expenses                         20,952                6,730                   37,316              22,712
 Other operating expenses                              22,325                2,891                   91,679              (2,467)
                                                      -------              -------                 --------            --------
                                                       66,058               31,073                  197,268              84,600
                                                      -------              -------                 --------            --------
                                                                                                                  
Net (loss) income                                     $(6,406)             $40,054                 $(18,863)           $126,488
                                                      =======              =======                 ========            ========
                                                                                                                  
Occupied %                                                 82%                  87%                      82%                 87%
                                                                                                                  
Partnership's Ownership % in the                                                                                  
 Fund VI-Fund VII Joint Venture                          56.6%                57.3%                    56.6%               57.3%
                                                                                                                  
Cash distribution to Partnership                      $ 9,979              $35,525                 $ 30,214            $109,260
                                                                                                                  
Net (loss) income allocated to the                                                                                
 Partnership                                          $(3,648)             $22,927                 $(10,736)           $ 72,394
</TABLE>

A net loss is reflected for the nine months ended September 30, 1998, as
compared to net income of $126,488 for the same period in 1997.  The loss was
due to a decrease in rental income and an increase in other operating expenses
which were the result of Kenny Rogers Roasters, a restaurant, which vacated its
leased space in the first quarter of 1998.  A bad debt reserve is being recorded
in other operating expenses, and the receivable due from this tenant has been
turned over to lawyers for collection.  Efforts are being made to re-lease this
space.

The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture
decreased to 56.6% for 1998, as compared to 57.3% in 1997, due to additional
fundings by Wells Fund VI, which decreased the Partnership's ownership in the
Fund VI-Fund VII Joint Venture.

                                       12
<PAGE>
 
Stockbridge Village I Expansion/Fund VI-Fund VII Joint Venture
--------------------------------------------------------------

<TABLE>
<CAPTION>
                                                   Three Months Ended                      Six Months Ended
                                           ----------------------------------     -------------------------------
                                           Sept. 30, 1998    Sept. 30, 1997       Sept. 30, 1998   Sept. 30, 1997
                                           --------------    --------------       --------------   --------------
<S>                                         <C>              <C>                   <C>              <C>
Revenues:                                    
 Rental income                               $73,471            $53,719              $219,153            $125,603
                                             -------            -------              --------            --------
                                                                                                     
Expenses:                                                                                            
 Depreciation                                 35,003             29,297               104,657              75,425
 Management & leasing expenses                10,175              7,223                29,912              15,709
 Other operating expenses                       (529)             6,066                13,848              29,879
                                             -------            -------              --------            --------
                                              44,649             42,586               148,417             121,013
                                             -------            -------              --------            --------
                                                                                                     
Net income                                   $28,822            $11,133              $ 70,736            $  4,590
                                             =======            =======              ========            ========
                                                                                                     
Occupied %                                        79%                73%                   79%                 73%
                                                                                                     
Partnership Ownership %                         56.6%              57.3%                 56.6%               57.3%
                                                                                                     
Cash distributed to the Partnership          $35,899            $21,842              $ 95,581            $ 37,540
                                                                                                     
Net income allocated to the                                                                          
 Partnership                                 $16,382            $ 6,374              $ 40,276            $  2,629
</TABLE>

Rental income, expenses and net income increased for the nine months ended
September 30, 1998, as compared to the same period in 1997, due primarily to
lease up efforts and increased occupancy at this property.  Negotiations are
being conducted to lease the remaining space.

The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture
decreased to 56.6% for 1998, as compared to 57.3% in 1997, due to additional
funding by Wells Fund VI which decreased the Partnership's ownership interest in
the Fund VI-Fund VII Joint Venture.

                                       13
<PAGE>
 
880 Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
--------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                  Three Months Ended                      Nine Months Ended
                                           ----------------------------------     -------------------------------
                                           Sept. 30, 1998    Sept. 30, 1997       Sept. 30, 1998   Sept. 30, 1997
                                           --------------    --------------       --------------   --------------
<S>                                         <C>              <C>                   <C>              <C>
Revenues:
 Rental income                                $226,233          $181,877             $648,113         $477,974
                                              --------          --------             --------         --------
                                                                                                 
Expenses:                                                                                        
 Depreciation                                   94,128            84,509              282,161          220,621
 Management & leasing expenses                  20,198            26,156               79,450           69,219
 Other operating expenses                       27,664            48,870               64,494           92,810
                                              --------          --------             --------         --------
                                               141,990           159,535              426,105          382,650
                                              --------          --------             --------         --------
                                                                                                 
Net income                                    $ 84,243          $ 22,342             $222,008         $ 95,324
                                              ========          ========             ========         ========
                                                                                                 
Occupied %                                         100%               87%                 100%              87%
                                                                                                 
Partnership Ownership %                             49%               49%                  49%              49%
                                                                                                 
Cash distributed to the Partnership           $ 92,587          $ 46,418             $263,056         $149,948
                                                                                                 
Net income allocated to the                                                                      
 Partnership                                  $ 41,276          $ 10,923             $109,065         $ 46,560
</TABLE>

In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road (the "880 Holcomb Bridge
Road Property") to the Fund II, III, VI, VII Joint Venture.  Development has
been completed on two buildings with a total of approximately 49,500 square
feet.

As of September 30, 1998, fourteen tenants are occupying approximately 49,500
square feet of space in the retail and office building under leases of varying
lengths.   Increases in revenues, expenses and net income for the quarter and
nine months ended September 30, 1998, compared to the same quarter of 1997, are
due to the property being 100% occupied as of September 30, 1998, as compared to
the same period of 1997.

                                       14
<PAGE>
 
The Hannover Center/Fund VII - Fund VIII Joint Venture
------------------------------------------------------

<TABLE>
<CAPTION>
                                                  Three Months Ended                      Nine Months Ended
                                           --------------------------------       -------------------------------
                                           Sept. 30, 1998    Sept. 30, 1997       Sept. 30, 1998   Sept. 30, 1997
                                           --------------    --------------       --------------   --------------
<S>                                         <C>              <C>                   <C>              <C>
Revenues:
 Rental income                                $26,061           $26,061               $78,183         $81,318
                                              -------           -------               -------         -------
                                                                                                 
Expenses:                                                                                        
 Depreciation                                  10,981            10,981                32,944          32,944
 Management & leasing expenses                  2,661             2,775                 7,983           7,779
 Other operating expenses                       2,133             4,872                16,422          19,025
                                              -------           -------               -------         -------
                                               15,775            18,628                57,349          59,748
                                              -------           -------               -------         -------
                                                                                                 
Net income                                    $10,286           $ 7,433               $20,834         $21,570
                                              =======           =======               =======         =======
                                                                                                 
Occupied %                                         50%               50%                   50%             50%
                                                                                                 
Partnership's Ownership % in the                                                                 
 Fund VII - VIII Joint Venture                   36.7%             38.0%                 36.7%           38.0%
                                                                                                 
Cash distribution to Partnership              $     0           $ 6,390               $ 2,413         $17,516
                                                                                                 
Net income allocated to the                                                                      
 Partnership                                  $ 3,773           $ 2,822               $ 7,691         $ 8,187
</TABLE>

On April 1, 1996, Fund VII-Fund VIII Joint Venture acquired a 1.01 acre tract of
land and a 12,000 square foot combination retail/office building known as the
Hannover Retail Center (the "Hannover Center").

Moovies, Inc., a video sales and rental store, signed a nine year, eleven month
lease for 6,020 square feet and occupied the space and opened for business on
June 22, 1996. As of September 30, 1998, the remaining space at the Hannover
Center had been leased and occupancy is due to commence in October 1998.

Distributions decreased for the three months ending September 30, 1998, due
primarily to approximately $44,000 in construction being funded by operating
cash flow in 1998.

                                       15
<PAGE>
 
Tanglewood Commons/Fund VI-VII-VIII Joint Venture
-------------------------------------------------

<TABLE>
<CAPTION>
                                            Three Months Ended              Nine Mths Ended  Eight Mths Ended
                                      --------------------------------      ---------------  ----------------
                                      Sept. 30, 1998    Sept. 30, 1997      Sept. 30, 1998    Sept. 30, 1997
                                      --------------    --------------      ---------------  ----------------
<S>                                   <C>                <C>                <C>               <C>
Revenues:
 Rental income                           $183,587          $172,682             $548,339         $382,265
 Interest income                            4,345             3,890               14,070           10,275
                                         --------          --------             --------         --------
                                          187,932           176,572              562,409          392,540
                                         --------          --------             --------         --------
                                                                                
Expenses:                                                                       
 Depreciation                              61,235            53,435              182,721          135,686
 Management & leasing expenses             14,953            13,390               44,804           26,727
 Other operating expenses                  19,150            20,740               24,380           72,352
                                         --------          --------             --------         --------
                                           95,338            87,565              251,905          234,765
                                         --------          --------             --------         --------
                                                                                
Net income                               $ 92,594          $ 89,007             $310,504         $157,775
                                         ========          ========             ========         ========
                                                                                
Occupied %                                     90%               78%                  90%              78%
                                                                                
Partnership's Ownership % in the                                                
 Fund VI - Fund VII - Fund VIII                                                  
  Joint Venture                              33.4%             33.4%                33.4%            33.4%
                                                                                
                                                                                
Cash distribution to Partnership         $ 50,990          $ 45,106             $163,797         $ 81,045
                                                                                
Net income allocated to the                                                     
 Partnership                             $ 30,922          $ 30,264             $103,693         $ 53,894
</TABLE>
On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina.
Total cost and expenses to be incurred by the Fund VI-VII-VIII Joint Venture for
the acquisition, development, construction and completion of the shopping center
are anticipated to be approximately $8,700,000.

The Fund VI-VII-VIII Joint Venture developed a large strip shopping center
building containing approximately 67,320 gross square feet which opened on
February 26, 1997, on a 12.48 acre tract.   The remaining 2.2 acre portion of
the property will remain in a vegetative or natural state.

In February 1997, Harris Teeter, Inc., a regional supermarket chain, occupied
its leased space of 46,120 square feet with an initial term of 20 years.  The
annual base rent during the initial term is $488,250.  In addition, Harris
Teeter has agreed to pay percentage rents equal to one percent of the amount by
which Harris Teeter's gross sales exceed $35,000,000 for any lease year.

Since this property commenced operations in February 1997, comparable income and
expense figures for the complete nine months ended September 30, 1998 and 1997
are not available.  Income has increased for the three months ended September
30, 1998, as compared to the same period in 1997, due to increased occupancy at
the shopping center while expenses have increased, due primarily to increased
depreciation.

                                       16
<PAGE>
 
CH2M Hill/Fund VII - Fund VIII Joint Venture
--------------------------------------------

<TABLE>
<CAPTION>
                                                  Three Months Ended                      Nine Months Ended
                                           ----------------------------------     -------------------------------
                                           Sept. 30, 1998    Sept. 30, 1997       Sept. 30, 1998   Sept. 30, 1997
                                           --------------    --------------       --------------   --------------
<S>                                         <C>              <C>                   <C>              <C> 
Revenues:                                                                         
 Rental income                               $143,832           $132,578              $420,850         $397,735
                                             --------           --------              --------         --------
                                                                                                    
Expenses:                                                                                           
 Depreciation                                  68,946             56,025               182,837          162,157
 Management & leasing expenses                 14,330             21,473                65,019           64,090
 Other operating expenses                      14,902            (25,759)               43,967          (60,032)
                                             --------           --------              --------         --------
                                               98,178             51,739               291,823          166,215
                                             --------           --------              --------         --------
                                                                                                    
Net income                                   $ 45,654           $ 80,839              $129,027         $231,520
                                             ========           ========              ========         ========
                                                                                                    
Occupied %                                        100%                94%                 100%               94%
                                                                                                    
Partnership's Ownership % in the                                                                    
 Fund VII-VIII Joint Venture                     36.7%              38.0%                 36.7%            38.0%
                                                                                                    
Cash distribution to Partnership             $ 42,940           $ 52,369              $116,170         $150,685
                                                                                                    
Net income allocated to the                                                                         
 Partnership                                 $ 16,762           $ 30,682              $ 47,830         $ 87,871
</TABLE>

Rental income increased in 1998, as compared to 1997, due to a new tenant
occupying the remaining space in the building in late March 1998.  Depreciation,
management and leasing expenses increased compared to 1997, due primarily to the
increased occupancy.  Other operating expenses increased for the nine months
ended September 30, 1998, as compared to the same period of 1997, due primarily
to a decrease in CAM reimbursements, which is the result of a refund to the
tenant of property taxes overpaid in 1997 which was identified during a CAM
reconciliation process performed after year end.  Income and distribution to the
Partnership have decreased primarily due to refund of taxes to the tenant noted
above.

                                       17
<PAGE>
 
BellSouth Building/Fund VI - Fund VII-Fund VIII Joint Venture
-------------------------------------------------------------


<TABLE>
<CAPTION>
                                            Three Months Ended                        Nine Months Ended
                                 ----------------------------------------  ----------------------------------------
                                 September 30, 1998   September 30, 1997   September 30, 1998   September 30, 1997
                                 -------------------  -------------------  -------------------  -------------------
<S>                              <C>                  <C>                  <C>                  <C>
Revenues:
 Rental income                        $380,278             $350,461             $1,140,832           $1,137,024
 Interest income                         2,096                2,097                  6,268                6,114
                                      --------             --------             ----------           ----------
                                       382,374              352,558              1,147,100            1,143,138
                                      --------             --------             ----------           ----------
                                                                         
Expenses:                                                                
 Depreciation                          110,985              110,889                332,827              332,667
 Management & leasing                                                    
  expenses                              47,414               47,095                142,610              143,554
 Other operating expenses              121,718               85,739                311,783              312,986
                                      --------             --------             ----------           ----------
                                       280,117              243,723                787,220              789,207
                                      --------             --------             ----------           ----------
                                                                         
Net income                            $102,257             $108,835             $  359,880           $  353,931
                                      ========             ========             ==========           ==========
                                                                         
Occupied %                               100.0%               100.0%                 100.0%               100.0%
                                                                         
Partnership's Ownership %   in                                           
 the Fund VI - Fund VII  -                                               
 Fund VIII Joint Venture                  33.4%                33.4%                  33.4%                33.4%
                                                                         
                                                                         
                                                                         
Cash distribution to                                                     
 Partnership                          $ 72,998             $ 78,100             $  239,688           $  246,720
                                                                         
Net income allocated to the                                              
 Partnership                          $ 34,149             $ 37,056             $  120,182           $  122,892
</TABLE>

Net income has increased slightly in 1998 as compared to 1997.  Cash
distributions allocated to the Partnership decreased in 1998 as compared to
1997, due primarily to additional funding by Wells Fund VIII in early 1997,
which decreased the Partnership's ownership interest in the Fund VI - VII - VIII
Joint Venture.

                                       18
<PAGE>
 
Cherokee Property - Fund I, II, II-OW, VI, VII Joint Venture
------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                             Three Months Ended                      Nine Months Ended
                                                   ------------------------------------      -------------------------------
                                                   Sept. 30, 1998        Sept. 30, 1997      Sept. 30, 1998   Sept. 30, 1997
                                                   --------------        --------------      --------------   --------------
<S>                                                <C>                   <C>                <C>                <C>
Revenues:
 Rental income                                        $226,733              $215,367             $681,415         $648,799
 Interest income                                             2                    10                   43               47
                                                      --------              --------             --------         --------
                                                       226,735               215,377              681,458          648,826
Expenses:                                                                                                     
 Depreciation                                          111,285               110,037              332,412          327,259
 Management & leasing expenses                          18,478                 7,017               62,966           57,881
 Other operating expenses                               20,630                39,455               25,680          103,777
                                                      --------              --------             --------         --------
                                                       150,393               156,509              421,058          488,917
                                                      --------              --------             --------         --------
                                                                                                              
Net income                                            $ 76,342              $ 58,868             $260,400         $159,909
                                                      ========              ========             ========         ========
                                                                                                              
Occupied %                                                91.0%                 93.0%                91.0%            93.0%
                                                                                                              
Partnership Ownership %                                   10.7%                 10.7%                10.7%            10.7%
                                                                                                              
Cash distributed to the Partnership                   $ 20,348              $  8,475             $ 63,224         $ 44,639
                                                                                                              
Net income allocated to the                                                                                   
 Partnership                                          $  8,175              $  6,304             $ 27,884         $ 17,123
</TABLE>
 
Rental income increased in 1998 over 1997, due primarily to the one time
adjustment made to the straight line rent schedule in 1997.  The decrease in
operating expenses in 1998, as compared to 1997, are due to decreased
expenditures for tenant improvements, plumbing, common area expenses, and legal
fees.

                                       19
<PAGE>
 
                          PART  II - OTHER INFORMATION
                          ----------------------------
                                        
Item 6(b).  No reports on Form 8-K were filed during the third quarter of 1998.

                                   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 VII, L.P.
                                  (Registrant)
Dated:  November 10, 1998         By: /s/Leo F. Wells, III
                                      --------------------
                                  Leo F. Wells, III, as Individual
                                  General Partner and as President,
                                  Sole Director and Chief Financial
                                  Officer of Wells Capital, Inc., the
                                  General Partner of Wells Partners, L.P.

                                       20