UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                      ----------------------------------

                                    FORM 10-Q

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

                 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

                                       OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                     For the transition period from ____to ____ .


                        Commission File Number : 0-15037


            PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
            --------------------------------------------------------
             (Exact name of registrant as specified in its charter)


             Delaware                                             04-2870345
             --------                                             ----------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)



265 Franklin Street, Boston, Massachusetts                         02110
------------------------------------------                         -----
(Address of principal executive offices)                          (Zip Code)


Registrant's telephone number, including area code  (617) 439-8118
                                                    --------------


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>

           PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEETS
                June 30, 1997 and September 30, 1996 (Unaudited)
                                 (In thousands)

                                     ASSETS

                                                    June 30    September 30
                                                    -------    ------------
Operating investment property:
   Land                                           $      698     $     698
   Buildings and improvements                          4,294         4,294
   Equipment and fixtures                                107           107
                                                  ----------     ---------
                                                       5,099         5,099
   Less accumulated depreciation                      (1,750)       (1,651)
                                                  ----------     ---------
                                                       3,349         3,448

Cash and cash equivalents                              4,445         5,067
Escrowed funds                                            56            74
Accounts receivable                                      113           107
Accounts receivable - affiliates                           -             2
Deferred expenses, net                                   108           122
Other assets                                              28            32
                                                  ----------     ---------
                                                  $    8,099     $   8,852
                                                  ==========     =========

                 LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Equity in losses from  unconsolidated joint
   ventures in excess of investments and 
   advances                                       $    5,182     $   8,413
Mortgage note payable                                  1,629         1,671
Accounts payable and accrued expenses                     98           135
Accounts payable - affiliates                              7             -
Other liabilities                                         10            10
Partners' capital (deficit)                            1,173        (1,377)
                                                  ----------      --------
                                                  $    8,099      $  8,852
                                                  ==========      ========


        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
          For the nine months ended June 30, 1997 and 1996 (Unaudited)
                                 (In thousands)

                                                   General        Limited
                                                   Partners       Partners
                                                   ---------      --------

Balance at September 30, 1995                      $    (752)    $    (221)
Net loss                                                  (2)         (198)
                                                   ---------     ---------
Balance at June 30, 1996                           $    (754)    $    (419)
                                                   =========     ==========

Balance at September 30, 1996                      $    (756)    $    (621)
Cash distributions                                        (5)       (1,984)
Net income                                                48         4,491
                                                   ---------     ---------
Balance at June 30, 1997                           $    (713)    $   1,886
                                                   =========     =========

                             See accompanying notes.


<PAGE>


            PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS
     For the three and nine months ended June 30, 1997 and 1996 (Unaudited)
                      (In thousands, except per Unit data)

                                    Three Months Ended       Nine Months Ended
                                         June 30,                 June 30,
                                    ------------------      ------------------
                                    1997        1996        1997        1996
                                    ----        ----        ----        ----

Revenues:
   Rental income and expense
      recoveries                  $   122      $   131     $  364     $   393
   Interest and other income           63           65        213         179
                                  -------      -------     ------     -------
                                      185         196         577         572
Expenses:
   Mortgage interest                   47          50         142         150
   Property operating expenses         20          18          83          96
   Depreciation and amortization       36          38         109         115
   Real estate taxes                   20          20          61          57
   Partnership management fees         24           -          42           -
   General and administrative          76          64         174         242
                                  -------      -------     ------     -------
                                      223         190         611         660
                                  -------      -------     ------     -------
Operating income (loss)               (38)          6         (34)        (88)

Partnership's share of 
  unconsolidated ventures' 
  income (losses)                   4,691          13       4,573        (112)
                                  -------      -------     ------     -------

Net income (loss)                 $ 4,653      $   19      $4,539     $  (200)
                                  =======      ======      ======     =======

Net income (loss) per Limited 
  Partnership Unit                $121.28      $ 0.52     $118.29     $ (5.19)
                                  =======      ======     =======     =======


Cash distributions per Limited 
  Partnership Unit                $  6.00      $    -     $ 52.25     $     -
                                  =======      ======     =======     =======



   The above net income (loss) and cash  distributions  per Limited  Partnership
Unit are based upon the 37,969 Limited Partnership Units outstanding during each
period.





                             See accompanying notes.


<PAGE>


            PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          For the nine months ended June 30, 1997 and 1996 (Unaudited)
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)


                                                            1997         1996
                                                            ----         ----
Cash flows from operating activities:
  Net income (loss)                                      $  4,539      $ (200)
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating activities:
    Depreciation and amortization                             109         115
    Amortization of deferred financing costs                    4           8
    Partnership's share of unconsolidated ventures' 
      income (losses)                                      (4,573)        112
    Changes in assets and liabilities:
      Escrow deposits                                          18          14
      Accounts receivable                                      (6)        (42)
      Accounts receivable - affiliates                          2           -
      Other assets                                              4           2
      Accounts payable and accrued expenses                   (37)        (27)
      Accounts payable - affiliate                              7           -
                                                         --------      ------
        Total adjustments                                  (4,472)        182
                                                         --------      ------
          Net cash provided by (used in) operating
          activities                                           67         (18)
  

Cash flows from investing activities:
   Distributions from unconsolidated joint ventures         1,342       1,500

Cash flows from financing activities:
   Principal payments on long-term debt                       (42)        (38)
   Distributions to partners                               (1,989)          -
                                                         --------      ------
        Net cash used in financing activities              (2,031)        (38)
                                                         --------      ------

Net (decrease) increase in cash and cash equivalents         (622)      1,444

Cash and cash equivalents, beginning of period              5,067       3,252
                                                         --------      ------

Cash and cash equivalents, end of period                 $  4,445      $4,696
                                                         ========      ======

Cash paid during the period for interest                 $    138      $  142
                                                         ========      ======












                             See accompanying notes.


<PAGE>


                         PAINE WEBBER INCOME PROPERTIES
                            SEVEN LIMITED PARTNERSHIP
                  Notes to Consolidated Financial Statements
                                   (Unaudited)


1. General

      The accompanying financial statements,  footnotes and discussion should be
   read in conjunction with the financial  statements and footnotes contained in
   the Partnership's Annual Report for the year ended September 30, 1996. In the
   opinion of management,  the accompanying  consolidated  financial statements,
   which have not been  audited,  reflect all  adjustments  necessary to present
   fairly the results for the interim period. All of the accounting  adjustments
   reflected in the accompanying  interim  financial  statements are of a normal
   recurring nature.

      The  accompanying  financial  statements have been prepared on the accrual
   basis  of  accounting  in  accordance  with  generally  accepted   accounting
   principles  which require  management to make estimates and assumptions  that
   affect the reported  amounts of assets and  liabilities  and  disclosures  of
   contingent  assets and liabilities as of June 30, 1997 and September 30, 1996
   and  revenues  and expenses for the three and nine months ended June 30, 1997
   and 1996.  Actual  results could differ from the  estimates  and  assumptions
   used.

2. Related Party Transactions

      Accounts  receivable  -  affiliates  at  September  30, 1996  consisted of
   investor service fees due from the Daniel Meadows Partnership of $2,000.

      The Adviser earns a basic management fee equal to 3% of the  Partnership's
   adjusted  cash flow, as defined.  The Adviser also earns an asset  management
   fee equal to 3.99% of  distributable  cash.  Management fees totalled $42,000
   for the nine months ended June 30, 1997. No  management  fees were earned for
   the nine months ended June 30, 1996.

      Included in general and administrative  expenses for the nine months ended
   June 30, 1997 and 1996 is $64,000  and  $65,000,  respectively,  representing
   reimbursements  to an affiliate of the Managing General Partner for providing
   certain  financial,  accounting  and investor  communication  services to the
   Partnership.

      Also included in general and  administrative  expenses for the nine months
   ended  June  30,  1997  and  1996  is  $12,000  and  $13,000,   respectively,
   representing  fees earned by an affiliate,  Mitchell  Hutchins  Institutional
   Investors, Inc., for managing the Partnership's cash assets.

3. Investments in Unconsolidated Joint Venture Partnerships

      As  of  June  30,  1997,   the   Partnership   has   investments  in  four
   unconsolidated  joint ventures which own four  operating  properties  (six at
   September  30, 1996),  as more fully  described in the  Partnership's  Annual
   Report.  On June 27, 1997,  HMF Associates  sold the properties  known as The
   Hunt Club  Apartments,  located  in  Seattle,  Washington,  and  Marina  Club
   Apartments,  located in Des Moines,  Washington,  to an unrelated third party
   for  approximately   $5.3  million  and  $3.1  million,   respectively.   The
   Partnership  received net proceeds of  approximately  $288,000 in  connection
   with the sale of these two assets in  accordance  with a discounted  mortgage
   loan  payoff  agreement  reached  with the  lender in April  1997.  The third
   property owned by the joint venture, the Enchanted Woods Apartments,  located
   in Federal  Way,  Washington,  had been under  contract  for sale to the same
   buyer that purchased The Hunt Club and Marina Club properties,  however,  the
   buyer subsequently  withdrew the offer to purchase Enchanted Woods. A Special
   Capital  Distribution of $1,898,450,  or $50 per original $1,000  investment,
   will be made on August  15,  1997,  to unit  holders of record as of June 27,
   1997. Of this amount,  $7.60 per original  $1,000  investment  represents net
   sale proceeds from the disposition of The Hunt Club Apartments and the Marina
   Club Apartments,  $41.48 per original $1,000 investment  represents  proceeds
   from the settlements of litigation covering  construction-related  defects at
   the Hunt Club,  Marina  Club and  Enchanted  Woods  properties  as  discussed
   further  in the  Annual  Report,  and $0.92 per  original  $1,000  investment
   represents Partnership reserves that exceed future requirements.

      Despite  the  successful  lease-up  of all three  properties  owned by HMF
   Associates  following  the  completion  of the  construction-related  repairs
   discussed  further in the Annual  Report,  the net operating  income from the
   properties  was not  sufficient  to fully cover the interest  accruing on the
   outstanding debt obligations  which matured on June 1, 1997 and July 1, 1997.
   As a result, the total obligation due to the mortgage lender had continued to
   increase  since the date of a fiscal 1992 loan  modification  agreement.  The
   balance of the  original  mortgage  loans on the Hunt Club,  Marina  Club and
   Enchanted Woods properties at the time of their fiscal 1987 acquisition dates
   totalled  $13,035,000.  After  advances  from the  lender to pay for costs to
   repair the construction  defects of  approximately  $4.8 million and interest
   deferrals totalling  approximately $6.2 million,  the total obligation to the
   mortgage  lender  totalled  approximately  $24  million as of the fiscal 1997
   maturity  dates. As a result,  the aggregate  estimated fair value of each of
   the  operating  investment   properties  was  substantially  lower  than  the
   outstanding  obligations  to the first  mortgage  holder.  In April 1997, the
   lender  agreed to another  modification  agreement  which  provided the joint
   venture with an opportunity to complete a sale transaction  prior to the loan
   maturity  dates.  Under the terms of the agreement,  the  Partnership and the
   co-venture  partner could qualify to receive a nominal payment from the sales
   proceeds at a specified  level if a sale was  completed  by June 30, 1997 and
   certain other conditions were met. In May 1997, the agreement with the lender
   was modified to reflect the terms and conditions of a sale involving only the
   Hunt Club and Marina Club  properties.  The June 27, 1997 sale  satisfied the
   conditions in the loan  modification  agreement which allowed the Partnership
   and the  co-venturer to share in the net proceeds from the sale  transaction.
   The co-venturer  received a payment of $50,000 in connection with the sale of
   the Hunt Club and Marina Club properties. The joint venture has also obtained
   a  four-month  extension  from  the  lender  of the  discounted  loan pay off
   agreement with respect to the Enchanted Woods Apartments,  and, in July 1997,
   entered into an agreement with another third-party  prospective buyer for the
   possible  sale of  this  remaining  asset.  As with  the  recently  completed
   transaction,  if this sale were to close  prior to October  31,  1997 and the
   required  conditions  were met,  the  Partnership  could end up  receiving  a
   nominal amount from the proceeds of the sale transaction.  However,  the sale
   remains subject to, among other things,  the  satisfactory  completion of the
   buyer's  due  diligence.  Accordingly,  there  are  no  assurances  that  the
   transaction  will be  consummated.  In any event, it is likely that ownership
   title to the Enchanted Woods Apartments will be transferred  either by a sale
   or a foreclosure  action prior to the end of calendar 1997. The joint venture
   recognized  gains from the forgiveness of indebtedness and on the sale of the
   Hunt Club and Marina Club properties in the aggregate amount of approximately
   $4,841,000 as a result of the June 1997 sale  transaction.  The Partnership's
   share of such gains totalled approximately $4,605,000.  Additional gains will
   be recognized  upon the ultimate sale or foreclosure  of the Enchanted  Woods
   Apartments.

      The unconsolidated  joint venture  investments are accounted for using the
   equity method because the Partnership does not have a voting control interest
   in the ventures. Under the equity method, the assets,  liabilities,  revenues
   and  expenses  of the  joint  ventures  do not  appear  in the  Partnership's
   financial  statements.  Instead, the investments are carried at cost adjusted
   for  the  Partnership's  share  of the  ventures'  earnings  and  losses  and
   distributions.


<PAGE>


      Summarized  operations of the four  unconsolidated  joint ventures for the
   three and nine months ended June 30, 1997 and 1996 are as follows:

                    Condensed Combined Summary of Operations
           For the three and nine months ended June 30, 1997 and 1996
                                 (in thousands)

                                    Three Months Ended      Nine Months Ended
                                        June 30,                  June 30,
                                    ------------------     --------------------
                                    1997        1996        1997        1996
                                    ----        ----        ----        ----

   Rental revenues and expense 
     recoveries                    $2,745       $2,589     $8,094      $7,792
   Interest and other income           96          124        322         311
                                   ------       ------     ------      ------
                                    2,841        2,713      8,416       8,103

   Property operating expenses        889          948      2,822       2,720
   Interest expense                 1,010          957      2,992       2,893
   Real estate taxes                  466          462      1,405       1,408
   Depreciation and amortization      392          396      1,234       1,211
                                   ------       ------     ------      ------
                                    2,757        2,763      8,453       8,232
                                   ------       ------     ------      ------
   Operating income (loss)             84         (50)        (37)       (129)

   Gain on forgiveness of 
     indebtedness                   2,866           -       2,866           -
   Gain on sale of operating 
     investment properties          1,975           -       1,975           -
                                   ------       ------     ------      ------
   Net income (loss)               $4,925       $ (50)     $4,804      $ (129)
                                   ======       =====      ======      ======

   Net income (loss):
     Partnership's share of 
      combined income (losses)     $4,693       $  15      $4,578      $ (107)
     Co-venturers' share of 
      combined income (losses)        232         (65)        226         (22)
                                   ------       -----      ------      ------
                                   $4,925       $  (50)    $4,804      $ (129)
                                   ======       ======     ======      ======

               Reconciliation of Partnership's Share of Operations
           For the three and nine months ended June 30, 1997 and 1996
                                 (in thousands)

                                    Three Months Ended        Nine Months Ended
                                         June 30,                June 30,
                                   -------------------     --------------------
                                    1997        1996        1997        1996
                                    ----        ----        ----        ----

   Partnership's share of
     combined income (losses), 
     as shown above                $4,693      $ 15       $ 4,578     $ (107)
   Amortization of excess basis        (2)       (2)           (5)        (5)
   Partnership's share of          ------      ----       -------     ------
     unconsolidated ventures'
     income (losses)               $4,691      $ 13       $ 4,573     $ (112)
                                   ======      ====       =======     ======



<PAGE>


4. Operating Investment Property

      The Partnership has a controlling interest in one joint venture, West Palm
   Beach Concourse Associates, which owns the Concourse Retail Plaza. The Retail
   Plaza consists of 30,473 net rentable  square feet located in West Palm Beach
   Florida.  Subsequent to a settlement  and  assignment  agreement  executed in
   fiscal  1990,  the  Partnership's   co-venture   partner  is  Seventh  Income
   Properties Fund,  Inc., the Managing General Partner of the Partnership.  The
   amended and  restated  terms of the joint  venture  agreement  are more fully
   described in the  Partnership's  Annual Report.  The Partnership  employs the
   services of a local  unaffiliated  property  management company to administer
   the day-to-day operations of the investment property.

      The following is a summary of property  operating  expenses for the three-
   and nine-month periods ended June 30, 1997 and 1996 (in thousands):

                                   Three Months Ended      Nine Months Ended
                                        June 30,                June 30,
                                   -----------------     -------------------
                                    1997      1996          1997      1996
                                    ----      ----          ----      ----

     Repairs and maintenance       $    4    $    7       $    18     $  13
     Utilities                          1         2             3         4
     Insurance                          1         1             4         4
     Administrative and other          11         4            47        40
     Bad debt                           -         -             -        24
     Management fees                    3         4            11        11
                                   ------    ------       -------     -----
                                   $   20    $   18       $    83     $  96
                                   ======    ======       =======     =====

5.    Mortgage Note Payable

      Mortgage note payable on the  consolidated  balance  sheets relates to the
   Partnership's   consolidated   joint  venture,   West  Palm  Beach  Concourse
   Associates, and is secured by the venture's operating investment property. At
   June 30, 1997 and September 30, 1996, mortgage note payable
   consists of the following (in thousands):

                                                        June 30   September 30
                                                        -------   ------------

     11.12% first  mortgage,  payable in
     installments   of  $20  per  month,
     including interest, through January
     1, 2005. All outstanding  principal
     and  accrued  interest  is  due  on
     January 10, 2005. The fair value of
     this note payable  approximated its
     carrying  value as of June 30, 1997
     and  September  30, 1996.                         $ 1,629     $  1,671
                                                       =======     ========


      In  accordance  with  the  Concourse  mortgage  loan  agreements,  certain
   insurance  premiums  and real estate taxes are required to be held in escrow.
   The balance of escrow deposits on the accompanying balance sheets at June 30,
   1997 and September 30, 1996 consists of such escrowed  insurance premiums and
   real  estate  taxes  in  the  aggregate   amounts  of  $56,000  and  $74,000,
   respectively.



<PAGE>



           PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources
-------------------------------

      On June 27, 1997,  HMF Associates  sold the  properties  known as The Hunt
Club  Apartments, located in  Seattle, Washington, and Marina  Club  Apartments,
located in Des Moines, Washington, to an unrelated third party for approximately
$5.3  million and $3.1  million,  respectively.  The  Partnership  received  net
proceeds  of  approximately  $288,000 in  connection  with the sale of these two
assets in accordance with a discounted  mortgage loan payoff  agreement  reached
with the lender in April 1997.  The third  property  owned by the joint venture,
the Enchanted Woods  Apartments,  located in Federal Way,  Washington,  had been
under  contract  for sale to the same  buyer  that  purchased  The Hunt Club and
Marina Club properties,  however,  the buyer subsequently  withdrew the offer to
purchase Enchanted Woods. A Special Capital  Distribution of $1,898,450,  or $50
per original $1,000 investment, will be made on August 15, 1997, to unit holders
of  record as of June 27,  1997.  Of this  amount,  $7.60  per  original  $1,000
investment  represents  net sale proceeds from the  disposition of The Hunt Club
Apartments and the Marina Club Apartments, $41.48 per original $1,000 investment
represents    proceeds   from   the    settlements   of   litigation    covering
construction-related  defects at the Hunt Club,  Marina Club and Enchanted Woods
properties as discussed  further below, and $0.92 per original $1,000 investment
represents Partnership reserves that exceed future requirements.

      Despite  the  successful  lease-up  of all three  properties  owned by HMF
Associates  following  the  completion  of  the   construction-related   repairs
discussed  further in the  Annual  Report,  the net  operating  income  from the
properties  was not  sufficient  to fully  cover the  interest  accruing  on the
outstanding debt obligations  which matured on June 1, 1997 and July 1, 1997. As
a result,  the total  obligation  due to the  mortgage  lender had  continued to
increase  since  the date of a fiscal  1992  loan  modification  agreement.  The
balance  of the  original  mortgage  loans on the  Hunt  Club,  Marina  Club and
Enchanted Woods  properties at the time of their fiscal 1987  acquisition  dates
totalled $13,035,000.  After advances from the lender to pay for costs to repair
the construction  defects of approximately  $4.8 million and interest  deferrals
totalling  approximately  $6.2  million,  the total  obligation  to the mortgage
lender totalled  approximately $24 million as of the fiscal 1997 maturity dates.
As a  result,  the  aggregate  estimated  fair  value  of each of the  operating
investment  properties was substantially lower than the outstanding  obligations
to the first  mortgage  holder.  In April  1997,  the  lender  agreed to another
modification  agreement  which provided the joint venture with an opportunity to
complete a sale transaction prior to the loan maturity dates. Under the terms of
the  agreement,  the  Partnership  and the  co-venture  partner could qualify to
receive a nominal payment from the sales proceeds at a specified level if a sale
was  completed by June 30, 1997 and certain  other  conditions  were met. In May
1997,  the  agreement  with the lender  was  modified  to reflect  the terms and
conditions of a sale  involving  only the Hunt Club and Marina Club  properties.
The June  27,  1997  sale  satisfied  the  conditions  in the loan  modification
agreement  which allowed the Partnership and the co-venturer to share in the net
proceeds  from the sale  transaction.  The  co-venturer  received  a payment  of
$50,000 in connection with the sale of the Hunt Club and Marina Club properties.
The joint  venture has also obtained a four-month  extension  from the lender of
the  discounted  loan pay off  agreement  with  respect to the  Enchanted  Woods
Apartments,   and,  in  July  1997,  entered  into  an  agreement  with  another
third-party  prospective buyer for the possible sale of this remaining asset. As
with the  recently  completed  transaction,  if this sale were to close prior to
October 31, 1997 and the required conditions were met, the Partnership could end
up  receiving  a  nominal  amount  from the  proceeds  of the sale  transaction.
However,  the sale remains  subject to,  among other  things,  the  satisfactory
completion of the buyer's due  diligence.  Accordingly,  there are no assurances
that the  transaction  will be  consummated.  In any  event,  it is likely  that
ownership title to the Enchanted Woods Apartments will be transferred  either by
a sale or a  foreclosure  action  prior to the end of calendar  1997.  The joint
venture recognized gains from the forgiveness of indebtedness and on the sale of
the  Hunt  Club  and  Marina  Club   properties  in  the  aggregate   amount  of
approximately  $4,841,000  as a result of the June 1997  sale  transaction.  The
Partnership's share of such gains totalled approximately $4,605,000.  Additional
gains will be recognized  upon the ultimate sale or foreclosure of the Enchanted
Woods Apartments.

      As previously  reported,  the  Partnership  received  $1,574,903 in fiscal
years 1994 and 1995 in  connection  with the various  settlements  of litigation
against the developer and subcontractors covering  construction-related  defects
at the Hunt Club,  Marina  Club and  Enchanted  Woods  (formerly  Forest  Ridge)
apartment complexes. This $1,574,903 had been held in the Partnership's reserves
for potential use in an economically  viable workout that the Partnership  tried
to  negotiate  with the lender for these  properties.  Management  had  numerous
discussions  with the mortgage holder for the properties owned by HMF Associates
over the past several  years  regarding a possible  loan  modification  aimed at
preventing  the further  accumulation  of deferred  interest  and  reducing  the
overall  debt  obligations.  Such a plan  would have  required a sizable  equity
infusion by the joint venture. During fiscal 1996, management of the Partnership
evaluated whether an additional  investment in the venture would be economically
prudent in light of the future  appreciation  potential  of the  properties  and
concluded  that it would be unwise to commit the  additional  equity  investment
required  to effect  the  proposed  debt  restructuring.  With the Hunt Club and
Marina Club properties sold and the Enchanted Woods property under agreement for
sale, the Partnership no longer has a need to retain the litigation proceeds.

      Notwithstanding  the sales of the  properties  owned by HMF Associates for
net proceeds which are substantially  less than the amounts of the Partnership's
original investments,  due to improvements in the Partnership's cash flow during
fiscal  1996  and the  expectation  that it will  continue  in the  future,  the
Partnership  reinstated the payment of regular  quarterly  distributions  at the
annual rate of 2.5% on remaining  invested  capital  effective  with the payment
made on February 14, 1997 for the quarter ended  December 31, 1996.  The payment
of quarterly  distributions  was discontinued in early 1990 primarily due to the
lack of cash flow from  several of the  Partnership's  investments.  The plan to
reinstate quarterly distributions is attributable to the improvement in property
operations  and the lower debt service  costs at the Colony  Apartments  and The
Meadows  on  the  Lake  Apartments,  which  represent  a  combined  48%  of  the
Partnership's original investment portfolio. The Partnership also made a special
distribution  of $40 per  original  $1,000  investment  on February  14, 1997 to
Unitholders  of  record  on  December  31,  1996.  This  amount   represented  a
distribution   of   Partnership   reserves  which   exceeded   expected   future
requirements.

      Through the third  quarter of fiscal 1997,  the  Partnership  had received
cash flow distributions of $550,000 from the Colony Apartments joint venture and
$503,000  from the Meadows  joint  venture.  During the third  quarter of fiscal
1996, the Meadows joint venture  completed the final phase of the repair work on
the  construction  defects at the property using the proceeds from the insurance
settlement  originally  escrowed  with the  lender  plus  excess  cash flow from
property operations.  With the repair work at The Meadows on the Lake Apartments
completed, the venture has begun generating regular distributions of excess cash
flow to the Partnership.  Future  distributions  from the Colony  Apartments and
Meadows joint  ventures are expected to be sufficient to fund the  Partnership's
operating  costs,  allow  for the  payment  of  quarterly  distributions  to the
Unitholders and provide  adequate  liquidity to fund the capital needs which may
exist at the other joint venture investment properties.  As previously reported,
the Partnership and its co-venture partner have received unsolicited offers from
prospective  purchasers  to acquire  The Meadows on the Lake  Apartments.  After
carefully  reviewing the offers,  the  Partnership  determined that the property
should sell at a higher price and directed the co-venture  partner to market the
property for sale.  Subsequent to the end of the quarter,  an offer was received
from a qualified buyer which could meet the  Partnership's  sale criteria.  This
offer is currently under review by the  Partnership and its co-venture  partner.
If approved and completed, this sale of the property for $9,600,000 would result
in net proceeds to the Partnership of  approximately  $4.5 million after closing
costs and the repayment of the outstanding  first mortgage loan.  However,  this
sale transaction remains subject, among other things,  negotiation of definitive
sale  documents  and  satisfactory  completion  of  the  potential  buyer's  due
diligence.  Accordingly, there are no assurances that a sale transaction will be
completed.  The Partnership is also focusing on potential disposition strategies
for the other investments in its portfolio. Although no assurances can be given,
it is currently  contemplated that sales of the  Partnership's  remaining assets
could be completed within the next 2-to-3 years.

     Occupancy  levels  at the  Concourse  Retail  Plaza and the  Colony  Square
Shopping  Center were 90% and 94%,  respectively,  as of June 30,  1997.  At the
present time, real estate values for retail shopping  centers in certain markets
are being adversely  impacted by the effects of overbuilding and  consolidations
among  retailers  which  have  resulted  in an  oversupply  of space  and by the
generally flat rate of growth in retail sales.  It remains  unclear at this time
what impact,  if any,  this  general  trend will have on the  operations  and/or
market  values  of  the  Partnership's  retail  properties  in  the  near  term.
Management  continues to closely monitor the operating  performance of the three
restaurant  tenants at the Concourse Retail Plaza.  Two of these tenants,  which
occupy  approximately 40% of the property's  leasable space,  reported declining
sales during  fiscal 1996 and fell behind on their rental  payments.  Management
negotiated  agreements with both tenants to cure the rental delinquencies which,
in one of the cases,  involved the  forgiveness of a portion of the  delinquency
and a reduction in the future  monthly rent payment in return for an increase in
the term of the lease obligation.  One of these tenants is currently meeting the
modified  terms of its rental  obligations.  The  Partnership  had pursued legal
action against the other tenant,  which occupies 28% of the Plaza,  because of a
failure to pay the modified  rent.  Subsequently,  a court  judgment was entered
against  this  restaurant  tenant.  However,  this  tenant  is now  experiencing
improved sales and is paying its rent as modified under the court judgement. The
Partnership will continue to collect this tenant's rent while also looking for a
replacement tenant in the event of a default. Subsequent to the end of the third
quarter,  the  property's  leasing team began  discussions  with a popular south
Florida  Caribbean  restaurant  chain on a lease for a 3,953  square foot vacant
restaurant space. The Partnership  believes that the potential  addition of this
new  restaurant  would  add  stability  to the  tenant  base and make the  Plaza
appealing to prospective  future buyers.  At Colony Square,  a lease for a 2,332
square foot martial arts studio, or 6% of the Center's  available space, was not
renewed by the tenant  upon its  expiration  during the third  quarter of fiscal
1997. However,  subsequent to the end of the quarter, a new three-year lease was
signed with a security  systems  company to occupy  this space.  Also during the
third  quarter,  a 2,344  square  foot liquor  store  renewed its lease for five
years.  Capital  improvements planned at Colony Square for the fourth quarter of
fiscal 1997 include the  installation  of a main gas line and the  conversion of
two spaces  from  electric to gas heat.  One lease is  expiring in the  upcoming
quarter with an 840 square foot tanning  center.  The property  management  team
believes this lease will be renewed.

    At June 30, 1997 the Partnership and its  consolidated  venture had cash and
cash  equivalents of  approximately  $4,445,000.  Such cash and cash equivalents
will be utilized as needed for Partnership  requirements  such as the payment of
operating expenses, the funding of operating deficits or capital improvements of
the joint ventures in accordance with the terms of the respective  joint venture
agreements,  to the extent  economically  justified,  and for  distributions  to
partners.  The source of future  liquidity and  distributions to the partners is
expected to be from  available net cash flow  generated by the operations of the
Partnership's  investment  properties  and  from net  proceeds  from the sale or
refinancing  of such  properties.  Such sources of liquidity  are expected to be
sufficient to meet the Partnership's  needs on both a short-term and a long-term
basis.

Results of Operations
Three Months Ended June 30, 1997
--------------------------------

    The Partnership reported net income of $4,653,000 for the three months ended
June 30,  1997,  as compared to net income of $19,000 for the same period in the
prior  year.  This  increase  in  the  Partnership's  net  income  is  primarily
attributable to the gains totalling $4,605,000  recognized by the Partnership on
the sale of the Hunt Club and Marina Club  apartment  complexes on June 27, 1997
and the related  forgiveness of debt, as discussed further above. Such gains are
included in the Partnership's  share of unconsolidated  ventures' income for the
current three-month period. The Partnership's net income, prior to the effect of
these  gains,   increased  by  $29,000  as  a  result  of  an  increase  in  the
Partnership's  share of  unconsolidated  ventures'  operating  income of $73,000
which was partially offset by a $44,000  unfavorable change in the Partnership's
operating   income  (loss).   The  increase  in  the   Partnership's   share  of
unconsolidated  ventures'  operating  income is  primarily  due to  increases in
rental  revenues  at all  four  of the  unconsolidated  joint  ventures.  Rental
revenues from Colony Square  increased mainly due to higher lease rates obtained
on the new leases signed during the past 18 to 21 months. Rental income from The
Meadows  on the Lake  Apartments  and  Colony  Apartments  increased,  despite a
decline in average  occupancy,  due to the increases in rental rates experienced
at both  properties  compared  to the same  period  in the  prior  year.  Rental
revenues from the HMF Associates joint venture increased due to a combination of
increases in rental rates and higher average  occupancies when compared the same
three-month  period in the prior year. Also  contributing to the increase in the
Partnership's  share of unconsolidated  ventures' operating income is a decrease
in property  operating  expenses  which was  partially  offset by an increase in
interest expense.  Property  operating expenses decreased mainly due to declines
in marketing and repair and  maintenance  expenditures  of the HMF joint venture
when compared to the same three-month period in the prior year. Interest expense
increased  mainly  due to the higher  mortgage  loan  balances  of the HMF joint
venture due to the interest deferrals referred to above.

    The  Partnership  reported an operating loss of $38,000 for the three months
ended June 30, 1997, compared to operating income of $6,000 for the three months
ended June 30, 1996.  This  unfavorable  change in the  Partnership's  operating
income  (loss) is mainly due to a $24,000  increase in  management  fees for the
current three-month  period.  Management fees increased due to the reinstatement
of  distributions,  upon which  management  fees are based,  beginning  with the
distribution  made for the quarter  ended  December  31, 1996.  In  addition,  a
decline of $9,000 in rental  revenues  from the  consolidated  Concourse  Retail
Plaza and an  increase of $12,000 in general and  administrative  expenses  also
contributed to the unfavorable change in operating income (loss) for the current
three-month period.

Nine Months Ended June 30, 1997
-------------------------------

    The Partnership  reported net income of $4,539,000 for the nine months ended
June 30, 1997,  as compared to a net loss of $200,000 for the same period in the
prior year. This favorable change in the  Partnership's net operating results is
primarily  attributable  to the gains  totalling  $4,605,000  recognized  by the
Partnership on the sale of the Hunt Club and Marina Club apartment  complexes on
June 27, 1997 and the related  forgiveness of debt, as discussed  further above.
Such gains are included in the Partnership's  share of unconsolidated  ventures'
income for the current  nine-month  period. The Partnership's net loss, prior to
the effect of these gains,  decreased by $134,000 for the nine months ended June
30, 1997 as a result of a decrease in the Partnership's  share of unconsolidated
ventures'   operating   losses  of  $80,000  and  a  $54,000   decrease  in  the
Partnership's operating loss.

    The  decrease  in  the  Partnership's  share  of  unconsolidated   ventures'
operating  losses for the nine months  ended June 30, 1997 is  primarily  due to
increases  in rental  income  from  Colony  Apartments,  Colony  Square  and the
properties owned by HMF Associates  totalling  $324,000.  Rental revenues at all
three joint ventures  improved as a result of increases in rental rates obtained
at the properties over the past 21 months.  An increase in average  occupancy at
the  properties  owned by HMF prior to the sale of the Hunt Club and Marina Club
properties on June 27, 1997 also contributed to the increase in rental revenues.
An  increase of $221,000 in combined  expenses,  attributable  to  increases  in
property  operating   expenses  and  interest  expense,   partially  offset  the
improvement  in  rental  income  for the  current  nine-month  period.  Property
operating  expenses  increased by $102,000  primarily  due to higher  repair and
maintenance,  marketing and utility costs at Colony  Apartments and the Meadows.
Interest  expense  increased  mainly due to the higher mortgage loan balances of
the HMF joint venture as a result of the interest deferrals referred to above.

    The  decrease  in the  Partnership's  operating  loss  is  mainly  due to an
increase of $34,000 in interest and other income,  a $68,000  decline in general
and  administrative  expenses  and  a  $13,000  decline  in  property  operating
expenses.  Interest  and other  income  improved as a result of higher  interest
earnings on invested cash reserves due to an increase in the average outstanding
balances  of such  reserves  for the  current  nine-month  period.  General  and
administrative  expenses decreased mainly due to a reduction in certain required
professional  services during the current nine-month period.  Property operating
expenses for the consolidated  Concourse Retail Plaza decreased primarily due to
the inclusion of $24,000 of bad debt expense during the nine-month  period ended
June 30,  1996.  No bad debt  expense was  recorded  for the current  nine-month
period.  The  increase  in  interest  income and the  decreases  in general  and
administrative expenses and property operating expenses were partially offset by
a decline of $29,000 in rental  income from the  consolidated  Concourse  Retail
Plaza and an increase of $42,000 in management  fees.  Rental income  dropped at
the  Concourse  Retail  Plaza  mainly as a result of the two lease  modification
agreements referred to above. Management fees increased due to the reinstatement
of  distributions,  upon which  management  fees are based,  beginning  with the
distribution made in February 1997 for the quarter ended December 31, 1996.


<PAGE>


                                     PART II
                                Other Information

Item 1. Legal Proceedings

     As previously  reported,  the Partnership's  General Partners were named as
defendants  in  a  class  action  lawsuit   against   PaineWebber   Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of
70 direct  investment  offerings  of interests  in various  limited  partnership
investments  and REIT stocks,  including  those offered by the  Partnership.  In
January  1996,  PaineWebber  signed  a  memorandum  of  understanding  with  the
plaintiffs in the class action  outlining the terms under which the parties have
agreed to  settle  the  case.  Pursuant  to that  memorandum  of  understanding,
PaineWebber  irrevocably  deposited  $125  million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York to be used to  resolve  the  litigation  in  accordance  with a  definitive
settlement agreement and plan of allocation.  On July 17, 1996,  PaineWebber and
the class plaintiffs submitted a definitive  settlement agreement which provides
for the complete  resolution of the class action litigation,  including releases
in favor of the Partnership and the General Partners,  and the allocation of the
$125 million  settlement  fund among  investors in the various  partnerships  at
issue in the case. As part of the settlement, PaineWebber also agreed to provide
class  members  with  certain  financial  guarantees  relating  to  some  of the
partnerships.  The details of the  settlement  are  described in a notice mailed
directly to class members at the direction of the court.  A final hearing on the
fairness  of the  settlement  was held in December  1996,  and in March 1997 the
court issued a final approval of the settlement. The release of the $125 million
of  settlement  proceeds has not occurred to date pending the  resolution  of an
appeal of the settlement  agreement by two of the plaintiff  class  members.  As
part  of  the  settlement   agreement,   PaineWebber  has  agreed  not  to  seek
indemnification  from the related partnerships and real estate investment trusts
at issue in the litigation  (including the  Partnership) for any amounts that it
is required to pay under the settlement.

      In June  1996,  approximately  50  plaintiffs  filed  an  action  entitled
Bandrowski v. PaineWebber Inc. in Sacramento,  California Superior Court against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
plaintiffs' purchases of various limited partnership interests,  including those
offered by the  Partnership.  The complaint  alleged,  among other things,  that
PaineWebber and its related entities committed fraud and  misrepresentation  and
breached  fiduciary  duties  allegedly  owed to the  plaintiffs  by  selling  or
promoting  limited   partnership   investments  that  were  unsuitable  for  the
plaintiffs and by overstating the benefits,  understating  the risks and failing
to state  material  facts  concerning  the  investments.  The  complaint  sought
compensatory  damages of $3.4 million plus punitive damages against PaineWebber.
In September 1996, the court dismissed many of the plaintiffs'  claims as barred
by applicable securities arbitration regulations.  Mediation with respect to the
Bandrowski  action was held in December 1996. As a result of such  mediation,  a
settlement between PaineWebber and the plaintiffs was reached which provided for
the complete  resolution  of such action.  Final  releases and  dismissals  with
regard to this action were received during the quarter ended June 30, 1997.

      Based on the  settlement  agreements  discussed  above covering all of the
outstanding unitholder  litigation,  and notwithstanding the appeal of the class
action  settlement  referred  to  above,  management  does not  expect  that the
resolution  of these  matters will have a material  impact on the  Partnership's
financial statements, taken as a whole.

Item 2. through 5. NONE

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:    NONE

(b)  Reports on Form 8-K:

     A Current  Report on Form 8-K dated June 27, 1997 was filed  subsequent  to
the end of the third quarter to report the sale of two of the  properties  owned
by HMF Associates.


<PAGE>





           PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP


                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the  Partnership  has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


                              PAINE WEBBER INCOME PROPERTIES SEVEN
                                    LIMITED PARTNERSHIP


                              By:  SEVENTH INCOME PROPERTIES FUND, INC.
                                   Managing General Partner




                              By: /s/ Walter V. Arnold
                                  --------------------
                                  Walter V. Arnold
                                  Senior Vice President and
                                  Chief Financial Officer


Dated:  August 13, 1997