<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              March 31, 1997                  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          (I.R.S. Employer Identification Number)
 of 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 - March 31, 1997
                  and December 31, 1996..............................     3
 
                  Statements of Income for the Three Months
                  Ended March 31, 1997 and 1996......................     4
 
                  Statements of Partners' Capital for the Year Ended
                  December 31, 1996 and the Three Months Ended
                  March 31, 1997.....................................     5
 
                  Statements of Cash Flows for the Three
                  Months Ended March 31, 1997 and 1996...............     6
 
                  Condensed Notes to Financial Statements.............    7
 
          Item 2. Management's Discussion and Analysis of
                  Financial Condition and Results of
                  Operations..........................................    9
 
PART II. OTHER INFORMATION                                                20

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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
 
 
Assets                                          March 31, 1997  December 31, 1996
------                                          --------------  -----------------
<S>                                             <C>             <C>
Investment in joint ventures                        19,446,206         19,625,041
Due from affiliates                                    347,786            366,301
Cash and cash equivalents                              359,898            291,778
Deferred project costs                                   9,002              9,002
Organizational costs,
 less accumulated amortization of $18,750
 in 1997 and $17,188 in 1996                            12,500             14,062
Prepaid expenses and other assets                        5,046              6,546
                                                   -----------        -----------
 
     Total assets                                  $20,180,438        $20,312,730
                                                   ===========        ===========
 
          Liabilities And Partners' Capital
          ---------------------------------
 
Liabilities:
 Partnership distributions payable                 $   344,811        $   296,706
                                                   -----------        -----------
 
  Total liabilities                                    344,811            296,706
                                                   -----------        -----------
 
Partners' capital:
 General Partners                                            0                  0
 Limited Partners
  Class A - 1,840,676 units outstanding             15,817,088         15,698,900
  Class B - 577,341 units outstanding                4,018,539          4,317,124
                                                   -----------        -----------
 
     Total partners' capital                        19,835,627         20,016,024
                                                   -----------        -----------
 
     Total liabilities and partners' capital       $20,180,438        $20,312,730
                                                   ===========        ===========
</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
                                                       ------------------
 
                                                  March 31, 1997   March 31, 1996
                                                  --------------   --------------
<S>                                               <C>              <C> 
Revenues:
  Equity in  income of joint ventures (Note 2)         $ 181,063         $114,467
  Interest income                                         10,713           43,409
                                                       ---------         --------
                                                       $ 191,776         $157,876
                                                       ---------         --------
 
Expenses:
  Legal and accounting                                 $  10,594         $  6,056
  Partnership administration                              14,405           16,888
  Amortization of organization costs                       1,562            1,562
                                                       ---------         --------
                                                          26,561           24,506
                                                       ---------         --------
  Net income                                           $ 165,215         $133,370
                                                       =========         ========
 
Net income allocated to
  Class A Limited Partners                             $ 363,044         $220,170
 
Net loss allocated to
  Class B Limited Partners                             $(197,829)        $(86,800)
 
Net income per weighted average
  Class A Limited Partner Unit                         $    .197         $   .130
 
Net loss per weighted average
  Class B Limited Partner Unit                         $   (.343)        $  (.121)
 
Cash distribution per weighted average
  Class A Limited Partner Unit                         $     .19         $    .11
 
</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, 1996 AND FOR THE THREE MONTHS ENDED
                                 MARCH 31, 1997

 
<TABLE>
<CAPTION>
 
 
                                                 LIMITED PARTNERS                                       TOTAL
                                                 ----------------
                                         CLASS A                      CLASS B             GENERAL      PARTNERS'
                                         -------                      -------
                                  UNITS           AMOUNTS         UNITS      AMOUNTS      PARTNERS      CAPITAL
                                  -----           -------         -----      -------      --------      -------
<S>                              <C>        <C>                <C>        <C>          <C>           <C>           
 
BALANCE,
 DECEMBER 31, 1995               1,692,327       $14,457,205     725,690  $ 6,003,507   $         0   $20,460,712
 Net income (loss)                       0         1,062,605           0     (609,829)            0       452,776
 Partnership distributions               0          (897,464)          0            0             0      (897,464)
 Class B conversion elections      134,503         1,076,554    (134,503)  (1,076,554)            0             0
                                 ---------       -----------   ---------   ----------   -----------   ------------   
BALANCE,
 DECEMBER 31, 1996               1,826,830       $15,698,900     591,187  $ 4,317,124   $         0   $20,016,024
 Net income (loss)                       0           363,044           0     (197,829)            0       165,215   
 Partnership distributions               0          (345,612)          0            0             0      (345,612)
 Class B conversion elections       13,846           100,756     (13,846)    (100,756)            0             0
                                 ---------       -----------   ---------   ----------   -----------   ------------   
BALANCE,
 MARCH 31, 1997                  1,840,676       $15,817,088     577,341  $ 4,018,539   $         0    $19,835,627
                                 =========       ===========   =========  ===========   ===========   ============
</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>
 
                                                           Three Months Ended
                                                    --------------------------------
                                                    March 31, 1997   March 31, 1996
                                                    ---------------  ---------------
 
<S>                                                 <C>              <C>
Cash flows from operating activities:
 Net income                                              $ 165,215       $  133,370
 Adjustments to reconcile net income to net cash
  used in operating activities:
   Equity in income of joint ventures                     (181,063)        (114,467)
   Distributions received from joint ventures              291,778          162,016
   Distributions to partners from
     accumulated earnings                                 (297,505)        (193,382)
   Amortization of organization costs                        1,562            1,562
   Changes in assets and liabilities:
     Prepaids and other assets                               1,500            6,000
     Due to affiliates                                           0            1,097
     Accounts payable                                            0         (174,413)
                                                         ---------       ----------
      Total adjustments                                   (183,728)        (311,587)
                                                         ---------       ----------
       Net cash (used in) provided by
         operating activities                              (18,513)        (178,217)
                                                         ---------       ----------
 
Cash flows from investing activities:
 Investment in joint ventures                                    0         (100,558)
 Investment in real estate                                       0         (108,681)
                                                         ---------       ----------
       Net cash used in investing activities                     0         (209,239)
                                                         ---------       ----------
       Net decrease in cash and cash equivalents           (18,513)        (387,456)
 
Cash and cash equivalents, beginning of year               366,301        1,114,066
                                                         ---------       ----------
Cash and cash equivalents, end of period                 $ 347,788       $  726,610
                                                         =========       ==========
Supplemental disclosure of noncash
  investing activities:
  Deferred project costs applied to real estate
   and joint venture property                            $       0       $    4,372
                                                         =========       ==========
</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

                                 March 31, 1997

(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 equity 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 Fund VI, L.P., and
     Wells 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 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 Fund I, the Fund
     II and Fund II-OW Joint Venture and Wells Fund VI, L.P. (the "Fund I, II,
     II-OW, VI, VII Joint Venture").

     As of March 31, 1997, the Partnership owned interest 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 

                                       7
<PAGE>
 
     located in Roswell, Georgia ("Holcomb Bridge Road"), (iv) a retail center
     located in Stockbridge, Georgia ("the Hannover Center"), and a four-story
     office building located in Jacksonville, Florida ("CH2M Hill"), (v) an
     office building located in Gainesville, Florida ("BellSouth") and a retail
     center in Winston-Salem, North Carolina ("Tanglewood 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, 1996.

(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, 1996.

     The following is additional information about the properties in which the
     Partnership owned an interest as of March 31, 1997:

     Tanglewood Commons Shopping Center
     ----------------------------------

     On May 31, 1996, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
     tract of real property located in Clemmons, Forsyth County, North Carolina.
     The land purchase costs were funded by a capital contribution made by Wells
     Fund VI.  Total costs 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 81,000 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.

                                       8
<PAGE>
 
     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 $448,250. payable
     in equal monthly installments of $40,688.  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 the sum of $35,000,000 for any lease
     year.

     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.

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

     General
     -------

     As of March 31, 1997, the developed properties owned by the Partnership
     were 84% occupied. Gross revenues of the Partnership were $191,776 and
     $157,876 for the three months ended March 31, 1997 and March 31, 1996,
     respectively.  The revenues increased in 1997 compared to 1996 due to the
     increase in income from the joint ventures.  Expenses of the Partnership
     remained relatively stable.

     Net income per weighted average Unit for Class A Limited Partners was
     $0.197 for the three months ended March 31, 1997.  Net loss per weighted
     average Unit for Class B and converted Class A Limited Partners was $0.343
     for the three months ended March 31, 1997.

     Cash distributions of $0.19 per weighted average Unit were made to Class A
     Limited Partners for the three months ended March 31, 1997.  The
     Partnership anticipates that distributions will continue to be paid on a
     quarterly basis on a level at least consistent with 1996.

                                       9
<PAGE>
 
     The Partnership's net cash used in operating activities decreased from
     $178,217 in 1996 to $18,513 in 1997 due to the decrease in construction
     payables.  Net cash used in investing activities decreased from $209,239 in
     1996 to $0.0 in 1997 due primarily to the decrease in investment in joint
     ventures and real estate.

     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 Partnership expects to make future real estate investments, directly or
     through investments in joint ventures from limited partners' contributions.
     It is anticipated that the Partnership will contribute approximately
     $40,000 to the Fund VI-Fund VII Joint Venture for the completion of the
     Stockbridge Village III Property and $83,000 to the Fund II-III-VI-VII
     Joint Venture for the completion of the Holcomb Bridge Road Property, from
     Limited Partners' remaining contributions.

     Since properties are acquired on all-cash basis, the Partnership has no
     permanent long-term liquidity requirements.

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

As of March 31, 1997, the Partnership owned interest in the following
operational properties:

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

                                                 Three Months Ended
                                                 ------------------
 
                                           March 31, 1997   March 31, 1996
                                           --------------   --------------
 
Revenues:
 Rental Income                                   $239,956         $242,754
 
Expenses:
 Depreciation                                      87,646           87,646
 Management and leasing expenses                   10,002            9,710
 Other operating expenses                           1,128            3,698
                                                 --------         --------
                                                   98,776          101,054
                                                 --------         --------
 
Net income                                       $141,180         $141,700
                                                 ========         ========
 
Occupied %                                            100%             100%
Partnership Ownership %                              41.7%            41.7%
 
Cash distributed to the Partnership              $ 97,631         $ 89,552
 
Net income allocated to the Partnership          $ 58,886         $ 59,103


Rental income decreased for the three months ended March 31, 1997 compared to
the same period of 1996 due to a one-time adjustment of straight-line rent in
the first quarter of 1997.  A small increase in management and leasing fees in
first quarter 1997 over the first quarter 1996 was offset by a decrease in
operating expense, primarily accounting and administrative fees.  Cash
distributions to the Partnership increased for the three months ended March 31,
1997 compared to 1996 due to the scheduled increase in rent which became
effective January 1, 1997.

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

                                                 Three Months Ended
                                                 ------------------

                                           March 31, 1997   March 31, 1996
                                           --------------   --------------
 
Revenues:
 Rental Income                                    $68,573          $56,924
 
Expenses:
 Depreciation                                      21,452           20,377
 Management and leasing expenses                    7,483            3,977
 Other operating expenses                          13,473           17,990
                                                  -------          -------
                                                   42,408           42,344
                                                  -------          -------
 
Net income                                        $26,165          $14,580
                                                  =======          =======
 
Occupied %                                             87%              77%
Partnership's Ownership % in the                     57.2%            56.9%
 Fund VI-Fund VII Joint Venture
 
Cash distributed to the Partnership               $26,877          $16,375
 
Net income allocated to the Partnership           $14,975          $ 8,305


In April 1994, Wells Fund VI purchased 3.27 acres of land located in Clayton
County, Georgia.  On December 9, 1994, the Partnership contributed the
Stockbridge Village III property as a capital contribution to the Fund VI-Fund
VII Joint Venture.

Construction was completed on a 3,200 square foot restaurant in March, 1996.
This retail building is leased to Kenny Rogers Roasters, a restaurant, for a
term of nine years and eleven months.  The initial base rent is $82,320 with an
increase in the fifth year to $87,600 annually.

The second multi-tenant retail building containing approximately 15,000 square
feet was completed in October, 1996.  Damon's Clubhouse, a restaurant, occupied
approximately 6,732 square feet in October.  The Damon's lease is for a term of
nine years and eleven months with initial base rent of $102,375 for five years
and increasing to $115,375 for the remainder of the lease.  Four additional
tenants have occupied approximately 5,850 square feet as of March 31, 1997.

The Partnership's ownership percentage in the Fund VI-Fund VII Joint Venture
increased to 57.2% for 1997, as compared to 56.9% in 1996, due to additional
fundings by the Partnership which increased the Partnership's ownership in the
Fund VI-Fund VII Joint Venture.

                                       12
<PAGE>
 
Stockbridge Village I Expansion/Fund VI-Fund VII Joint Venture
--------------------------------------------------------------
 
                                         Three Months Ended
                                         -------------------
 
                                         March 31, 1997
                                         ------------------
 
Revenues:
 Rental Income                                      $31,910
 
Expenses:
 Depreciation                                        22,374
 Management and leasing expenses                      3,409
 Other operating expenses                             8,522
                                                    -------
                                                     34,305
                                                    -------
 
Net loss                                            $(2,395)
                                                    =======
 
Occupied %                                               41%
Partnership's Ownership % in the                       57.2%
 Fund VI-Fund VII Joint Venture
 
Cash distributed to the Partnership                 $ 6,062
 
Net loss allocated to the Partnership               $(1,371)


On June 7, 1995, the Fund VI-Fund VII Joint Venture purchased 3.38 acres of real
property located in Clayton County, Georgia.  The Stockbridge Village I
Expansion consists of a multi-tenant shopping center containing approximately
29,000 square feet.  The majority of construction was completed in April, 1996
with Cici's Pizza leasing a 4,000 square foot restaurant.  The term of the lease
is for nine years and eleven months commencing April, 1997.  The initial base
rent is $48,000.  In the third year, annual base rent will increase to $50,000,
in the sixth year to $52,000, and in the ninth year to $56,000.  Five additional
tenants have occupied 8,000 square feet at the property as of March 31, 1997.
Negotiations are being conducted to lease the remaining space.

Since this property opened in second quarter 1996, there is no comparable
financial information for the first quarter of the prior year.  It is
anticipated that no additional funding by the Partnership or Wells Fund VI will
be required to complete tenant build-out.

                                       13
<PAGE>
 
Holcomb Bridge Road Property/Fund II-III-VI-VII Joint Venture
-------------------------------------------------------------
 
 
                                           Three Months Ended
                                           ------------------
 
                                       March 31, 1997   March 31, 1996
                                       --------------   --------------
 
Revenues:
 Rental Income                               $160,185         $  9,421
 
Expenses:
 Depreciation                                  66,130            6,120
 Management and leasing expenses               20,580            1,051
 Other operating expenses                      30,307           18,839
                                             --------         --------
                                              117,017           26,010
                                             --------         --------
 
Net income (loss)                            $ 43,168         $(16,589)
                                             ========         ========
 
Occupied %                                         63%              21%
Partnership's Ownership % in the
 Fund II-III-VI-VII Joint Venture                48.9%            47.8%
 
Cash distributed to the Partnership          $ 53,385         $      0
 
Net income (loss) allocated to the
 Partnership                                 $ 21,079         $ (7,924)


In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road 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 March 31, 1997, nine tenants are occupying approximately 31,140 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 ended March 31,
1997, compared to the same quarter of 1996, are due to the rental income from
the additional tenants, and the operation of the property for a full three
months.

                                       14
<PAGE>
 
The Hannover Center/Fund VII-Fund VIII  Joint Venture
-----------------------------------------------------
 
  
                                              Three Months Ended
                                              -------------------
 
                                                 March 31, 1997
                                               ------------------
 
Revenues:
 Rental Income                                        $29,196
 
Expenses:
 Depreciation                                          10,981
 Management and leasing expenses                        2,570
 Other operating expenses                               8,681
                                                      -------
                                                       22,232
                                                      -------
 
Net income                                            $ 6,964
                                                      =======
 
Occupied %                                                 50%
Partnership's Ownership % in the                        37.95%
 Fund VII-Fund VIII Joint Venture
 
Cash distributed to the Partnership                   $ 4,963
 
Net income allocated to the Partnership               $ 2,643

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 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.  Accordingly, no comparative financial data is available for the
first quarter of 1996.  Efforts are being made to lease the remaining space.
 

                                       15
<PAGE>
 
     CH2M Hill at Gainesville/Fund VII - Fund VIII Joint Venture
     -----------------------------------------------------------
 
                                                 Three Months Ended
                                          --------------------------------
                                          March 31, 1997   March 31, 1996
                                          ---------------  ---------------
Revenues:
  Rental Income                                $ 132,578         $136,542
 
Expenses:
  Depreciation                                    51,584           54,337
  Management & leasing expenses                   21,309           13,398
  Other operating expenses                      ( 19,624)           ( 651)
                                               ---------         --------
                                                  53,269           67,084
                                               ---------         --------
 
Net income                                     $  79,309         $ 69,458
                                               =========         ========
 
Occupied %                                          93.6%            93.5%
 
Partnership's Ownership % in the
   Fund VII - VIII Joint Venture                    38.0%            21.0%
 
Cash Distribution to Partnership               $  50,104         $ 16,960
 
Net Income Allocated to the Partnership        $  30,103         $ 14,605


Net income increased for the three months ended March 31, 1997, as compared to
the same period in 1996, due primarily to decreased expenditures in accounting
fees.  Cash distributions increased in 1997, as compared to 1996, due primarily
to one time lease acquisition fee paid in 1996 and an increase in the
Partnership's percentage ownership interest.  The Partnership's ownership
increased due to additional fundings by the Partnership in the Fund VII-Fund
VIII Joint Venture.

                                       16
<PAGE>
 
BellSouth /Fund VI - Fund VII-Fund VIII Joint Venture
-----------------------------------------------------
 
                                           Three Months Ended
                                           -------------------
                                             March 31, 1997
                                           -------------------
 
Revenues:
 Rental income                                       $379,050
 Interest income                                        1,976
                                                     --------
                                                      381,026
                                                     --------
 
Expenses:
 Depreciation                                         110,889
 Management & leasing expenses                         45,173
 Other operating expenses                              83,967
                                                     --------
                                                      240,029
                                                     --------
 
Net income                                           $140,997
                                                     ========
 
Occupied %                                                100%
Partnership's Ownership % in the
 Fund VI-VII-VIII Joint Venture                          35.5%
 
Cash distributed to Partnership                      $ 91,348
 
Net income allocated to the Partnership              $ 50,016


On April 25, 1995, the Fund VI-Fund VII-Fund VIII Joint Venture purchased 5.55
acres of land located in Jacksonville, Florida.  In May, 1996, the 92,964 square
foot office building was completed, with BellSouth Advertising and Publishing
Corporation occupying approximately 66,333 square feet and American Express
occupying approximately 22,607 square feet.  Approximately 2,900 square feet of
additional space was occupied by BellSouth commencing in December, 1996 bringing
occupancy to 100%.

Interest income was generated from construction dollars, not as yet funded on
construction, being invested in interest bearing accounts.

Since the building opened in May, 1996, comparative income and expense figures
for prior years are not available.

                                       17
<PAGE>
 
Tanglewood Commons/Fund VI-Fund VII-Fund VIII Joint Venture
-----------------------------------------------------------
 
                                           Two Months Ended
                                           -----------------
                                            March 31, 1997
                                           -----------------
 
Revenues:
 Rental income                                      $49,534
 Interest income                                      3,600
                                                    -------
                                                     53,134
                                                    -------
 
Expenses:
 Depreciation                                        31,106
 Management & leasing expenses                        3,164
 Other operating expenses                            21,906
                                                    -------
                                                     56,176
                                                    -------
 
Net income                                          $(3,042)
                                                    =======
 
Occupied %                                               70%
Partnership's Ownership % in the
 Fund VI-VII-VIII Joint Venture                        35.5%
 
Cash distributed to Partnership                     $ 9,955
 
Net (loss) allocated to the Partnership             $(1,079)


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.  The
land purchase costs were funded by a capital contribution made by Wells Fund VI.
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 prior years are not available.

Interest income was generated from construction dollars, not as yet funded on
construction, being invested in interest bearing accounts.

                                       18
<PAGE>
 
Cherokee Commons /Fund I, II, II-OW, VI, VII Joint Venture
----------------------------------------------------------
 
 
                                             Three Months Ended
                                             ------------------
 
                                       March 31, 1997   March 31, 1996
                                       --------------   --------------
 
Revenues:
 Rental income                               $217,439         $222,621
 Interest income                                   18               19
                                             --------         --------
                                              217,457          222,640
Expenses:
 Depreciation                                 107,525          107,183
 Management and leasing expenses               31,541           12,634
 Other operating expenses                      24,119           48,872
                                             --------         --------
                                              163,185          168,689
                                             --------         --------
 
Net income                                   $ 54,272         $ 53,951
                                             ========         ========
 
Occupied %                                         91%              95%
Partnership's Ownership %                        11.0%            11.0%
 
Cash distributed to the Partnership          $ 19,571         $ 16,488
 
Net income allocated to the
 Partnership                                 $  5,811         $  5,777


Rental income decreased in 1997 over 1996 levels due primarily to the decrease
in occupancy.  Management and leasing expenses increased in 1997, as compared to
1996, due to the one-time payments of lease acquisition fees.  Operating
expenses decreased due primarily to a timing difference in billings to tenants
for property taxes.

                                       19
<PAGE>
 
                          PART  II - OTHER INFORMATION
                          ----------------------------

Item 6(b).  No reports on Form 8-K were filed during the first quarter of 1997.

                                   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:  May 13, 1997     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