<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  June 30, 1998                                or
                                --------------------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of 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
                                     -----

                                                                       Page No.

PART I.   FINANCIAL INFORMATION
 
        Item 1.  Financial Statements
 
                 Balance Sheets  June 30, 1998
                  and December 31, 1997....................................... 3
 
                 Statements of Income for the Three Months and Six Months
                  Ended June 30, 1998 and 1997................................ 4
 
                 Statements of Partners' Capital for the Year Ended
                  December 31, 1997 and the Six Months Ended
                  June 30, 1998............................................... 5
 
                 Statements of Cash Flows for the Six
                  Months Ended June 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

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

                                BALANCE SHEETS

<TABLE>
<CAPTION>
                      Assets                             June 30, 1998        December 31, 1997
---------------------------------------------------      -------------        -----------------
<S>                                                  <C>                    <C>
Investment in joint ventures (Note 2)                      $18,743,879               $19,039,835
Cash and cash equivalents                                       80,388                   194,420
Due from affiliates                                            405,430                   416,360
Deferred project costs                                               0                     4,070
Organizational costs,                                                            
 less accumulated amortization of $26,562 in                                     
  1998 and $18,750 in 1997                                       4,688                     7,812
                                                                                 
Prepaid expenses and other assets                                2,746                     3,797
                                                           -----------               -----------
                                                                                 
     Total assets                                          $19,237,131               $19,666,294
                                                           ===========               ===========
                                                                                 
                                                                                 
            Liabilities and Partners' Capital                                    
            ---------------------------------                                    
                                                                                 
Liabilities:                                                                     
 Accounts payable                                          $     1,655               $         0
 Partnership distributions payable                             417,734                   404,129
                                                           -----------               -----------
                                                                                 
     Total liabilities                                         419,389                   404,129
                                                           -----------               -----------
                                                                                 
Partners' capital:                                                               
 Limited partners                                                                
  Class A  1,998,998 Units outstanding                      16,883,650                16,701,193
  Class B  419,019 Units outstanding                         1,934,092                 2,560,972
                                                           -----------               -----------
                                                                                 
     Total partners' capital                                18,817,742                19,262,165
                                                           -----------               -----------
                                                                                 
     Total liabilities and partners' capital               $19,237,131               $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                     Six Months Ended
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
Revenues:
<S>                                     <C>                <C>                  <C>              <C>         
 Equity in income of joint
  ventures (Note 2)                         $ 218,705          $ 201,079           $ 416,605         $ 382,142
 Interest income                                2,312              9,627               5,595            20,340
                                            ---------          ---------           ---------         ---------
                                              221,017            210,706             422,200           402,482
                                                                                                  
Expenses:                                                                                         
 Legal and accounting                          10,287              5,947              15,058            16,541
 Partnership administration                    12,095             17,940              23,296            32,345
 Amortization of organization cost                                                                
  costs                                         1,563              1,563               3,125             3,125
                                             --------          ---------           ---------         ---------
                                               23,945             25,450              41,479            52,011
                                            ---------          ---------           ---------         ---------
 Net income                                 $ 197,072          $ 185,256           $ 380,721         $ 350,471
                                            =========          =========           =========         =========
                                                                                                  
Net income allocated to Class                                                                     
 A Limited Partners                         $ 432,142          $ 393,903           $ 864,032         $ 756,947
                                                                                                  
Net loss allocated to Class B                                                                     
 Limited Partners                           $(235,069)         $(208,647)          $(483,311)        $(406,476)
                                                                                                  
Net income per Class A Limited                                                                    
 Partner Unit                               $    0.22          $    0.21           $    0.44         $    0.41
                                                                                                  
                                                                                                  
Net loss per Class B Limited Partner
 Unit                                       $   (0.56)         $   (0.38)          $   (1.12)        $   (0.72)
                                                                                                  
                                                                                                  
Cash distribution per Class A                                                                     
 Limited Partner Unit                       $    0.21          $    0.19           $    0.42         $    0.38
</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 SIX MONTHS ENDED
                                 JUNE 30, 1998

<TABLE>
<CAPTION>
                                                       Limited Partners                                 
                                       -------------------------------------------------
                                               Class A                   Class B                       Total
                                       ------------------------  -----------------------  GENERAL     PARTNERS'
                                         Units       Amounts       Units      Amounts     Partners     Capital
                                         -----       -------       -----      -------     --------
                               
BALANCE,                       
<S>                                    <C>        <C>            <C>        <C>           <C>       <C>
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       864,032          0    $ (483,311)         0       380,721
Partnership distributions                      0      (825,144)         0             0          0      (825,144)
Class B conversion elections              27,599       143,569    (27,599)     (143,569)         0             0
                                       ---------   -----------   --------    ----------         --   -----------
                               
BALANCE,                       
JUNE 30, 1998                          1,998,998   $16,883,650    419,019    $1,934,092          0   $18,817,742
                                       =========   ===========   ========    ==========         ==   ===========
</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>
                                                                    Six Months Ended
                                                         --------------------------------------
                                                         June 30, 1998            June 30, 1997
                                                         -------------            -------------
 
Cash flows from operating activities:
<S>                                                       <C>                      <C>
 Net income                                                  $ 380,721                $ 350,471
 Adjustments to reconcile net income to net cash         
  used in operating activities:                          
   Equity in income of joint ventures                         (416,605)                (382,142)
   Amortization of organization costs                            3,125                    3,125
   Changes in assets and liabilities:                    
     Prepaids and other assets                                   1,050                    2,000
     Accounts payable                                            1,655                        0
                                                             ---------                ---------
     Total adjustments                                        (410,775)                (377,017)
                                                             ---------                ---------
      Net cash used in operating activities                    (30,053)                 (26,546)
                                                             ---------                ---------
                                                         
Cash flow from investing activities:                     
 Investment in joint ventures                                 (109,765)                       0
 Distributions received from joint ventures                    837,326                  651,676
                                                             ---------                ---------
      Net cash provided by                               
       investing activities                                    727,561                  651,676
                                                         
Cash flow from financing activities:                     
 Partnership distributions paid                               (811,541)                (643,116)
                                                             ---------                ---------
      Net cash used in financing                         
       activities                                             (811,541)                (643,116)
                                                         
Net decrease in cash and cash  equivalents                    (114,033)                 (17,986)
                                                         
Cash and cash equivalents, beginning of year                   194,420                  366,301
                                                             ---------                ---------
                                                         
Cash and cash equivalents, end of period                     $  80,388                $ 348,315
                                                             =========                =========
                                                         
Supplemental disclosure of noncash investing             
 activities:                                             
  Deferred project costs applied to real estate          
  and joint venture property                                 $     416                $       0
                                                             =========                =========
</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

                                 June 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 June 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 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

                                       7
<PAGE>
 
     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 need
     to fund tenant improvements or other capital expenditures out of operating
     cash flow.

                                       8
<PAGE>
 
     Results of Operations and Changes in Financial Conditions
     ---------------------------------------------------------

     General
     -------

     As of June 30, 1998, the developed properties owned by the Partnership were
     93.5% occupied. Gross revenues of the Partnership were $422,200 and
     $402,482 for the six months ended June 30, 1998 and June 30, 1997,
     respectively.  The revenues increased in 1998 compared to 1997 due to the
     increase in income from the joint ventures.  Expenses of the Partnership
     decreased primarily due to a decrease in administrative costs.

     Net income per Unit for Class A Limited Partners was $0.44 for the six
     months ended June 30, 1998.  Net loss per Unit for Class B and converted
     Class A Limited Partners was $1.12 for the six months ended June 30, 1998.

     Cash distributions of $0.42 per weighted average Unit were made to Class A
     Limited Partners for the six months ended June 30, 1998.  The Partnership
     anticipates that distributions will continue to be paid on a quarterly
     basis on a level at least consistent with 1997.

     The Partnership's net cash used in operating activities increased from
     $26,546 in 1997 to $30,053 in 1998.  Net cash provided by investing
     activities increased from $651,676 in 1997 to $727,561 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 additional
     upgrades before the year 2000.  Therefore, it is not anticipated that the
     year 2000 will have significant impact on operations.

                                       9
<PAGE>
 
     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 June 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                     Six Months Ended
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
Revenues:
<S>                                     <C>                 <C>                  <C>              <C>
 Rental income                               $243,184           $242,755            $485,938          $482,711
                                                                                                  
Expenses:                                                                                         
 Depreciation                                  87,646             87,646             175,292           175,292
 Management & leasing expenses                  9,890              9,890              19,780            19,892
 Other operating expenses                       3,099              3,635               6,741             4,763
                                             --------           --------            --------          --------
                                              100,635            101,171             201,813           199,947
                                             --------           --------            --------          --------
                                                                                                  
Net income                                   $142,549           $141,584            $284,125          $282,764
                                             ========           ========            ========          ========
                                                                                                  
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             $ 96,989           $ 96,586            $193,572          $194,217
                                                                                                  
Net income allocated to the                                                                       
 Partnership                                 $ 59,457           $ 59,055            $118,508          $117,941
</TABLE>

Rental income increased for the six months ended June 30, 1998, compared to the
same period of 1997, due to a correction of straight-line rent in the first
quarter 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 six months ended June 30, 1998 and 1997.

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

<TABLE>
<CAPTION>
                                               Three Months Ended                     Six Months Ended
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
 Revenues:
<S>                                      <C>               <C>                  <C>              <C>
 Rental income                               $ 59,509            $ 71,388           $118,753        $  139,961

 Expenses:
  Depreciation                                 22,778              21,451             45,492            42,903
  Management & leasing expenses                 8,133               8,499             16,364            15,982
  Other operating expenses                     36,137             (18,831)            69,354            (5,358)
                                              -------            --------           --------          --------
                                               67,048              11,119            131,210            53,527
                                              -------            --------           --------          --------

Net (loss) income                             $(7,539)           $ 60,269           $(12,457)         $ 86,434
                                              =======             =======           ========          ========

Occupied %                                         82%                 87%                82%               87%

Partnership's Ownership % in the
 Fund VI-Fund VII Joint Venture                  56.9%               57.2%              56.9%             57.2%

Cash distribution to Partnership              $ 9,362            $ 53,650           $ 20,235          $ 73,735

Net (loss) income allocated to the
 Partnership                                  $(4,293)           $ 38,277           $ (7,088)         $ 49,467
</TABLE>

A net loss is reflected for the six months ended June 30, 1998, as compared to
net income of $86,434 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, 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 56.9% for 1998, as compared to 57.2% 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
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
Revenues:
<S>                                    <C>                 <C>                 <C>                <C>
 Rental income                                $74,595            $39,974            $145,682           $71,884
                                                                                                      
Expenses:                                                                                             
 Depreciation                                  35,002             23,754              69,654            46,128
 Management & leasing expenses                 10,229              5,077              19,737             8,486
 Other operating expenses                       4,856             15,291              14,377            23,813
                                              -------            -------            --------           -------
                                               50,087             44,122             103,768            78,427
                                              -------            -------            --------           -------
                                                                                                      
Net income (loss)                             $24,508            $(4,148)           $ 41,914           $(6,543)
                                              =======            =======            ========           =======
                                                                                                      
Occupied %                                         79%                49%                 79%               49%
                                                                                                      
Partnership Ownership %                          56.9%              57.2%               56.9%             57.2%
                                                                                                      
Cash distributed to the Partnership           $31,076            $ 9,636            $ 59,682           $15,698
                                                                                                      
Net income (loss) allocated to the                                                                    
 Partnership                                  $13,954            $(2,374)           $ 23,894           $(3,745)
</TABLE>

Rental income, expenses and net income increased for the six months ended June
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 56.9% for 1998, as compared to 57.2% 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                     Six Months Ended
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
Revenues:
<S>                                     <C>                 <C>                 <C>               <C>
 Rental income                               $208,645           $135,912            $421,880          $296,097
                                                                                                 
Expenses:                                                                                        
 Depreciation                                  94,129             69,982             188,033           136,112
 Management & leasing expenses                 29,888             22,483              59,252            43,063
 Other operating expenses                      13,797             13,633              36,830            43,940
                                             --------           --------            --------          --------
                                              137,814            106,098             284,115           223,115
                                             --------           --------            --------          --------
                                                                                                 
Net income                                   $ 70,831           $ 29,814            $137,765          $ 72,982
                                             ========           ========            ========          ========
                                                                                                 
Occupied %                                      100.0%              72.7%              100.0%             72.7%
                                                                                                 
Partnership Ownership %                          49.9%              48.8%               49.9%             48.8%
                                                                                                 
Cash distributed to the Partnership          $ 86,732           $ 50,146            $170,469          $103,530
                                                                                                 
Net income allocated to the                                                                      
 Partnership                                 $ 34,984           $ 14,558            $ 67,789          $ 35,637
</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 is
being completed on two buildings with a total of approximately 49,500 square
feet.

As of June 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 six months
ended June 30, 1998, compared to the same quarter of 1997, are due to the
property being 100% occupied as of June 30, 1998, as compared to the same period
of 1997.

The Partnership's ownership percentage in the Fund II, III, VI, VII Joint
Venture increased to 49.9% in 1998, as compared to 48.9% in 1997, due to
additional funding by the Partnership.

                                       14
<PAGE>
 
The Hannover Center/Fund VII - Fund VIII Joint Venture
------------------------------------------------------
<TABLE>
<CAPTION>
                                               Three Months Ended                     Six Months Ended
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
 Revenues:
 <S>                                     <C>                <C>                 <C>               <C>
  Rental income                               $26,061            $26,061             $52,122           $55,257
                                                                                                   
 Expenses:                                                                                         
  Depreciation                                 10,982             10,982              21,963            21,963
  Management & leasing expenses                 2,661              2,434               5,322             5,004
  Other operating expenses                      6,173              5,472              14,289            14,153
                                              -------            -------             -------           -------
                                               19,816             18,888              41,574            41,120
                                              -------            -------             -------           -------
                                                                                                   
 Net income                                   $ 6,245            $ 7,173             $10,548           $14,137
                                              =======            =======             =======           =======
                                                                                                   
 Occupied %                                        50%                50%                 50%               50%
                                                                                                   
Partnership's Ownership % in the                                                                   
 Fund VII - VIII Joint Venture                   36.6%              37.9%               36.6%             37.9%
                                                                                                   
Cash distribution to Partnership              $ 5,725            $ 6,163             $10,846           $11,126
                                                                                                   
Net income allocated to the                                                                        
 Partnership                                  $ 2,301            $ 2,722             $ 3,918           $ 5,365
</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 June 30, 1998, the remaining space at the Hannover Center
has been leased.

Rental income decreased for 1998, compared to 1997, due to a correction in
straight line rent made in the first quarter of 1997.  Expenses remained
relatively stable and the decrease in net income was primarily the result of the
aforementioned straight line adjustment.

                                       15
<PAGE>
 
CH2M Hill/Fund VII - Fund VIII Joint Venture
--------------------------------------------
<TABLE>
<CAPTION>
                                               Three Months Ended                     Six Months Ended
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
Revenues:
<S>                                      <C>               <C>                  <C>              <C>
 Rental income                               $144,440           $132,579            $277,018          $265,157
                                                                                                
Expenses:                                                                                       
 Depreciation                                  59,346             54,548             113,891           106,132
 Management & leasing expenses                 22,568             21,308              50,689            42,617
 Other operating expenses                      13,584            (14,649)             29,065           (34,273)
                                             --------           --------            --------          --------
                                               95,498             61,207             193,645           114,476
                                             --------           --------            --------          --------
                                                                                                
Net income                                   $ 48,942           $ 71,372            $ 83,373          $150,681
                                             ========           ========            ========          ========
                                                                                                
Occupied %                                        100%                94%                100%               94%
                                                                                                
Partnership's Ownership % in the                                                                
 Fund VII-VIII Joint Venture                     36.6%              37.9%               36.6%             37.9%
                                                                                                
Cash distribution to Partnership             $ 41,400           $ 48,212            $ 73,230          $ 98,316
                                                                                                
Net income allocated to the                                                                     
 Partnership                                 $ 18,061           $ 27,086            $ 31,068          $ 57,189
</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 six months
ended June 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.

                                       16
<PAGE>
 
BellSouth Building/Fund VI - Fund VII - Fund VIII Joint Venture
---------------------------------------------------------------

<TABLE>
<CAPTION>
                                               Three Months Ended                     Six Months Ended
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
Revenues:
<S>                                    <C>                 <C>                  <C>              <C>
 Rental income                               $380,277           $407,513            $760,554          $786,563
 Interest income                                2,098              2,041               4,172             4,017
                                             --------           --------            --------          --------
                                              382,375            409,554             764,726           790,580
                                             --------           --------            --------          --------
                                                                                                    
Expenses:                                                                                           
 Depreciation                                 110,953            110,889             221,842           221,778
 Management & leasing expenses                 47,381             51,286              95,196            96,459
 Other operating expenses                     102,655            143,280             190,065           227,247
                                             --------           --------            --------          --------
                                              260,989            305,455             507,103           545,484
                                             --------           --------            --------          --------
                                                                                                    
Net income                                   $121,386           $104,099            $257,623          $245,096
                                             ========           ========            ========          ========
                                                                                                    
Occupied %                                        100%               100%                100%              100%
                                                                                                    
Partnership's Ownership % in the                                                                    
 Fund VI - VII  Fund VIII Joint                                                                     
  Venture                                        33.4%              34.4%               33.4%             34.4%
                                                                                                    
                                                                                                    
Cash distribution to Partnership             $ 80,376           $ 77,277            $165,690          $168,620
                                                                                                    
Net income allocated to the                                                                         
 Partnership                                 $ 40,536           $ 35,820            $ 86,033          $ 85,836
</TABLE>

Net income has increased slightly due primarily to differences in the annual
adjustment for prior year common area maintenance billings to tenants.  Cash
distributions and net income allocated to the Partnership increased in 1998 as
compared to 1997, due primarily to additional funding by the Partnership, which
increased the Partnership's ownership interest in the Fund VI  VII  VIII Joint
Venture.

                                       17
<PAGE>
 
Tanglewood Commons/Fund VI,VII,VIII Joint Venture
-------------------------------------------------
<TABLE>
<CAPTION>
                                             Three Months Ended                       Six Months Ended
                                      --------------------------------       ---------------------------------
                                      June 30, 1998      June 30, 1997        June 30, 1998      June 30, 1997
                                      -------------      -------------        --------------     -------------
<S>                                    <C>               <C>                 <C>             <C>
Revenues:
 Rental income                             $182,139           $160,049             $364,752           $209,583
 Interest income                              4,587              2,785                9,725              6,385
                                           --------           --------             --------           --------
                                            186,726            162,834              374,477            215,968
                                           --------           --------             --------           --------
                                                                                                 
Expenses:                                                                                        
 Depreciation                                61,059             51,145              121,486             82,251
 Management & leasing expenses               15,032             10,173               29,851             13,337
 Other operating expenses                   (19,872)            29,706                5,230             51,612
                                           --------           --------             --------           --------
                                             56,219             91,024              156,567            147,200
                                           --------           --------             --------           --------
                                                                                                 
Net income                                 $130,507           $ 71,810             $217,910           $ 68,768
                                           ========           ========             ========           ========
                                                                                                 
Occupied %                                       87%                78%                  87%                78%
                                                                                                 
Partnership's Ownership % in the                                                                 
 Fund VI - VII  Fund VIII Joint                                                                  
  Venture                                      33.4%              34.4%                33.4%              34.4%
                                                                                                 
                                                                                                 
Cash distribution to Partnership           $ 63,926           $ 25,984             $112,807           $ 35,939
                                                                                                 
Net income allocated to the                                                                      
 Partnership                               $ 43,583           $ 24,709             $ 72,771           $ 23,630
</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 when all tenant improvements are
completed.

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 rent equal to one percent of the amount by
which Harris Teeter 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 six months ended June 30, 1998 and 1997 are not
available.  Income has increased for the three months ended June 30, 1998, as
compared to the same period in 1997, due to increased occupancy at the shopping
center while expenses have decreased due primarily to differences in the annual
adjustment for prior year common area maintenance billings to tenants.

                                       18
<PAGE>
 
Cherokee Property - Fund I, II, II-OW, VI, VII Joint Venture
------------------------------------------------------------
<TABLE>
<CAPTION>
                                               Three Months Ended                     Six Months Ended
                                        --------------------------------       -------------------------------
                                        June 30, 1998      June 30, 1997       June 30, 1998     June 30, 1997
                                        -------------      -------------       -------------     -------------
Revenues:
<S>                                     <C>                <C>                 <C>                 <C>
 Rental income                               $225,705           $215,973            $454,682          $433,412
 Interest income                                   19                 19                  41                37
                                             --------           --------            --------          --------
                                              225,724            215,992             454,723           433,449
Expenses:                                                                                         
 Depreciation                                 110,564            109,697             221,127           217,222
 Management & leasing expenses                 18,737             19,323              44,488            50,864
 Other operating expenses                       1,919             40,203               5,050            64,322
                                             --------           --------            --------          --------
                                              131,220            169,223             270,665           332,408
                                             --------           --------            --------          --------
                                                                                                  
Net income                                   $ 94,504           $ 46,769            $184,058          $101,041
                                             ========           ========            ========          ========
                                                                                                  
Occupied %                                       91.0%              92.0%               91.0%             92.0%
                                                                                                  
Partnership Ownership %                          10.7%              10.7%               10.7%             10.7%
                                                                                                  
Cash distributed to the Partnership          $ 22,720           $ 16,592            $ 42,876          $ 36,163
                                                                                                  
Net income allocated to the                                                                       
 Partnership                                 $ 10,120           $  5,008            $ 19,709          $ 10,819
</TABLE>
 
Rental income increased in 1998 over 1997, due primarily to the one time
adjustment made to the straight line rent schedule in 1997.  Management and
leasing expenses decreased in 1998, as compared to 1997, due to decreased
leasing commissions.  The decrease in operating expenses in 1998, as compared to
1997, are due to decreased expenditures for tenant improvements, 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 second 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:  August 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