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 QUARTER ENDED December 31, 1998

                                    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
              December 31, 1998 and September 30, 1998 (Unaudited)
                                 (In thousands)

                                     ASSETS

                                               December 31   September 30
                                               -----------   ------------

 Operating investment property:
   Land                                           $     -        $   391
   Buildings and improvements                           -          2,421
   Equipment and fixtures                               -             61
                                                  -------        -------
                                                        -          2,873
   Less accumulated depreciation                        -         (1,104)
                                                  -------        -------
                                                        -          1,769

Investments in unconsolidated ventures,
   at equity                                          478          1,239
Cash and cash equivalents                           1,258          1,530
Escrowed funds                                          -             76
Accounts receivable, net                                8              8
Other assets                                            -             34
                                                  -------        -------
                                                  $ 1,744        $ 4,656
                                                  =======        =======

                        LIABILITIES AND PARTNERS' CAPITAL

Mortgage note payable                             $     -        $ 1,550
Accounts payable and accrued expenses                  52             90
Accounts payable - affiliates                           6              7
Accrued interest payable                                -             14
Accrued real estate taxes                               -             62
Other liabilities                                       -              4
Partners' capital                                   1,686          2,929
                                                  -------        -------
                                                  $ 1,744        $ 4,656
                                                  =======        =======


                             See accompanying notes.


<PAGE>


            PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF OPERATIONS
        For the three months ended December 31, 1998 and 1997 (Unaudited)
                      (In thousands, except per Unit data)

                                              1998           1997
                                              ----           ----
Revenues:
   Rental income and expense recoveries    $     43        $   125
   Interest and other income                     24             62
                                           --------        -------
                                                 67            187
Expenses:
   Mortgage interest                             18             46
   Property operating expenses                   13             36
   Depreciation and amortization                  -             21
   Real estate taxes                             11             21
   Management fees                               14             17
   General and administrative                    79             74
                                           --------        -------
                                                135            215
                                           --------        -------
Operating loss                                  (68)           (28)

Partnership's share of unconsolidated
   ventures' income                             330            251
Partnership's share of gain (loss)
   on sale of operating investment
   property                                     (60)         4,474
Venture partner's share of consolidated
   venture's operations                           4              -
                                           --------        -------
Net income                                 $    206        $ 4,697
                                           ========        =======

Per Limited Partnership Unit:
   Net income                              $   5.36        $122.39
                                           ========        =======

   Cash distributions                      $  38.12        $  6.03
                                           ========        =======

   The above per Limited  Partnership  Unit information is 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 CHANGES IN PARTNERS' CAPITAL (DEFICIT)
        For the three months ended December 31, 1998 and 1997 (Unaudited)
                                 (In thousands)


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

Balance at September 30, 1997                     $   (653)     $  5,655
Cash distributions                                      (2)         (229)
Net income                                              49         4,648
                                                  --------      --------
Balance at December 31, 1997                      $   (606)     $ 10,074
                                                  ========      ========

Balance at September 30, 1998                     $   (609)     $  3,538
Cash distributions                                      (2)       (1,447)
Net income                                               2           204
                                                  --------      --------
Balance at December 31, 1998                      $   (609)     $  2,295
                                                  ========      ========






















                             See accompanying notes.


<PAGE>

<TABLE>

            PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        For the three months ended December 31, 1998 and 1997 (Unaudited)
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)
<CAPTION>

                                                                    1998           1997
                                                                    ----           ----
<S>                                                              <C>            <C>

Cash flows from operating activities:
  Net income                                                      $   206        $4,697
  Adjustments to reconcile net income to
   net cash (used in) provided by operating activities:
    Depreciation and amortization                                       -            21
    Amortization of deferred financing costs                            -             2
    Partnership's share of unconsolidated ventures' income           (330)         (251)
    Partnership's share of gain (loss) on sale of
      unconsolidated operating investment property                     60        (4,474)
    Venture partner's share of consolidated venture's
      operations                                                       (4)            -
    Changes in assets and liabilities:
      Escrow deposits                                                  76            59
      Accounts receivable                                               -           (15)
      Accounts receivable - affiliates                                  -             3
      Other assets                                                     34             9
      Accounts payable and accrued expenses                           (38)          264
      Accounts payable - affiliates                                    (1)          (58)
      Accrued interest payable                                        (14)            -
      Accrued real estate taxes                                       (62)            -
                                                                  -------        ------
        Total adjustments                                            (279)       (4,440)
                                                                  -------        ------
        Net cash (used in) provided by operating activities           (73)          257
                                                                  -------        ------

Cash flows from investing activities:
   Net proceeds from sale of operating investment property            230             -
   Distributions from unconsolidated joint ventures                 1,031         4,902
                                                                  -------        ------
        Net cash provided by investing activities                   1,261         4,902
                                                                  -------        ------

Cash flows from financing activities:
   Distributions to partners                                       (1,449)         (231)
   Principal payments on long-term debt                               (11)          (15)
                                                                  -------        ------
        Net cash used in financing activities                      (1,460)         (246)
                                                                  -------        ------

Net (decrease) increase in cash and cash equivalents                 (272)        4,913

Cash and cash equivalents, beginning of period                      1,530         2,856
                                                                  -------        ------
Cash and cash equivalents, end of period                          $ 1,258        $7,769
                                                                  =======        ======
Cash paid during the period for interest                          $    32        $   44
                                                                  =======        ======
</TABLE>

                             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,  1998.  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 December 31, 1998 and September 30, 1998 and revenues and
expenses for the three months ended  December 31, 1998 and 1997.  Actual results
could differ from the estimates and assumptions used.

      The  Partnership  originally  invested  the  net  proceeds  of the  public
offering,   through  five  joint  venture   partnerships,   in  seven  operating
properties,  comprised of five multi-family  apartment complexes,  one mixed-use
office and retail property and one shopping center. During fiscal 1997, three of
the multi-family  properties were sold. A fourth multi-family  property was sold
on December 18, 1997. In addition,  during the first quarter of fiscal 1999, the
retail  portion of the Concourse  property was sold.  The office portion of this
mixed-use property had been lost through foreclosure proceedings on December 17,
1992.  The shopping  center  property was also sold during the first  quarter of
fiscal 1999.  Subsequent to these  transactions,  the  Partnership  has only one
remaining real estate investment, the Colony Apartments. See Notes 3 and 4 for a
description of these  transactions and of the remaining real estate  investment.
The Partnership is currently  focusing on potential  disposition  strategies for
the remaining investment in its portfolio.  Although no assurances can be given,
it  is  currently  contemplated  that  the  sale  of  the  Partnership's  Colony
Apartments  investment could be completed during calendar year 1999. The sale of
the  remaining  property  would be  followed  by an orderly  liquidation  of the
Partnership.

2.  Related Party Transactions
    --------------------------

      The Adviser  earned total  management  fees of $14,000 and $17,000 for the
three-month  periods ended  December 31, 1998 and 1997,  respectively.  Accounts
payable -  affiliates  at December  31, 1998 and  September  30, 1998 consist of
management fees of $6,000 and $7,000, respectively, payable to the Adviser.

      Included in general and administrative expenses for the three months ended
December  31, 1998 and 1997 is $23,000 and $22,000,  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 each of the
three-month  periods  ended  December 31, 1998 and 1997 is $1,000,  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 December 31, 1998, the  Partnership's  only remaining  investment in
unconsolidated  joint venture  partnerships  is its investment in Chicago Colony
Apartments  Associates  which  owns  the  Colony  Apartments,  located  in Mount
Prospect, Illinois, as more fully described in the Partnership's Annual Report.

      On November 17, 1998,  Chicago  Colony Square  Associates  sold the Colony
Square Shopping  Center to an unrelated  third party for $2.3 million.  The sale
generated net proceeds of approximately  $1,014,000,  after the repayment of the
outstanding first mortgage loan of approximately  $864,000,  accrued interest of
approximately  $13,000  (including  a  prepayment  penalty of  $9,000),  closing
proration   adjustments   of   approximately   $221,000  and  closing  costs  of
approximately  $188,000.  The  Partnership  received 100% of the net proceeds in
accordance  with the terms of the joint  venture  agreement.  As a result of the
sales of The  Concourse  Retail  Plaza (see Note 4) and Colony  Square  Shopping
Center, a special distribution of approximately  $1,253,000, or $33 per original
$1,000  investment,  was  made  on  December  15,  1998.  Of this  total,  $5.92
represented  net proceeds  from the sale of The Concourse  Retail Plaza,  $26.69
represented  net proceeds  from the sale of Colony  Square  Shopping  Center and
$0.39 represented Partnership reserves that exceeded future requirements.

      On December 18, 1997, Daniel Meadows Partnership, a joint venture in which
the Partnership had an interest,  sold its operating  investment  property,  The
Meadows on the Lake Apartments, located in Birmingham,  Alabama, to an unrelated
third party for $9.525 million. The sale generated net proceeds of approximately
$4.4  million,  after  repayment  of the  outstanding  first  mortgage  loan  of
approximately  $4.7 million and closing  costs of  approximately  $400,000.  The
Partnership  received 100% of the net proceeds in  accordance  with the terms of
the joint venture agreement.

      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.
Summarized  operations of the unconsolidated joint ventures for the three months
ended December 31, 1998 and 1997 are as follows:

                    Condensed Combined Summary of Operations
              For the three months ended December 31, 1998 and 1997
                                 (in thousands)

                                                        1998        1997
                                                        ----        ----

   Rental revenues and expense recoveries              $1,767      $1,999
   Interest and other income                               80          95
                                                       ------      ------
                                                        1,847       2,094

   Property operating expenses                            485         660
   Interest expense                                       343         439
   Real estate taxes                                      343         424
   Depreciation and amortization                          245         318
                                                       ------      ------
                                                        1,416       1,841
                                                       ------      ------
   Operating income                                       431         253

   Gain (loss) on sale of operating
      investment property                                (109)      4,869
                                                       ------      ------

       Net income                                      $  322      $5,122
                                                       ======      ======


   Net income:
     Partnership's share of combined income            $  277      $4,854
     Co-venturers' share of combined income                45         268
                                                       ------      ------
                                                       $  322      $5,122
                                                       ======      ======


<PAGE>


               Reconciliation of Partnership's Share of Operations
              For the three months ended December 31, 1998 and 1997
                                 (in thousands)

                                                       1998         1997
                                                       ----         ----
   Partnership's share of combined income,
      as shown above                                 $   277      $ 4,854
   Amortization of excess basis                           (7)        (129)
                                                     -------      -------
   Partnership's share of unconsolidated
      ventures' net income                           $   270      $ 4,725
                                                     =======      =======

      The  Partnership's  share  of  unconsolidated   ventures'  net  income  is
presented  as  follows  in  the   consolidated   statements  of  operations  (in
thousands):

                                                       1998         1997
                                                       ----         ----
   Partnership's share of unconsolidated
     ventures' income                                $   330      $   251
   Partnership's share of gain (loss) on
     sale of operating investment property               (60)       4,474
                                                     -------      -------
   Partnership's share of unconsolidated
      ventures' net income                           $   270      $ 4,725
                                                     =======      =======

4.  Operating Investment Property
    -----------------------------

      The Partnership had a controlling interest in one joint venture, West Palm
Beach Concourse Associates,  which owned the Concourse Retail Plaza. On November
10, 1998, West Palm Beach Concourse  Associates sold The Concourse  Retail Plaza
property to an unrelated  party for $2 million.  The sale generated net proceeds
of  approximately  $225,000,  after  the  assumption  of the  outstanding  first
mortgage loan of  approximately  $1,539,000,  accrued  interest of approximately
$4,000,  net closing proration  adjustments of approximately  $2,000 and closing
costs  of  approximately  $231,000.  The  Partnership  received  100% of the net
proceeds  in  accordance  with the terms of the  joint  venture  agreement.  The
Partnership distributed the net proceeds of approximately $225,000, or $5.92 per
original $1,000 investment,  from the sale of The Concourse Retail Plaza as part
of a Special Distribution made to the limited partners on December 15, 1998 (see
Note 3).

      The  following  is a  summary  of  property  operating  expenses  for  the
three-month periods ended December 31, 1998 and 1997 (in thousands):

                                              1998        1997
                                              ----        ----

     Repairs and maintenance                  $   1       $   4
     Utilities                                    1           1
     Insurance                                    2           2
     Administrative and other                     5          25
     Management fees                              4           4
                                              -----      ------
                                              $  13      $   36
                                              =====      ======

5.  Mortgage Note Payable
    ---------------------

      Mortgage note payable on the  consolidated  balance sheet at September 30,
1998 related to the Partnership's  consolidated  joint venture,  West Palm Beach
Concourse  Associates,  and was secured by the  venture's  operating  investment
property.  At  September  30,  1998,  mortgage  note  payable  consisted  of the
following (in thousands):

                                                     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  was  due on
     January 10, 2005. The fair value of
     this note payable  approximated its
     carrying  value as of September 30,
     1998.                                             $ 1,550
                                                       =======
<PAGE>

     In  accordance  with  the  Concourse  mortgage  loan  agreements,   certain
insurance premiums and real estate taxes were required to be held in escrow. The
balance of escrow  deposits on the  accompanying  balance sheet at September 30,
1998 consisted of such escrowed  insurance premiums and real estate taxes in the
aggregate amounts of $76,000.

      On November 10, 1998, in conjunction with the sale of the Concourse Retail
Plaza described in Note 4, the unrelated  purchaser of the property  assumed the
mortgage note payable.  Therefore,  the  Partnership no longer has any liability
associated with this debt.


<PAGE>

            PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP

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

Information Relating to Forward-Looking Statements
--------------------------------------------------

      The following  discussion of financial condition includes  forward-looking
statements  which  reflect  management's  current  views with  respect to future
events and  financial  performance  of the  Partnership.  These  forward-looking
statements  are  subject to certain  risks and  uncertainties,  including  those
identified  in Item 7 of the  Partnership's  Annual  Report on Form 10-K for the
year ended  September  30, 1998 under the  heading  "Certain  Factors  Affecting
Future Operating Results", which could cause actual results to differ materially
from historical  results or those  anticipated.  The words "believe,"  "expect,"
"anticipate,"  and  similar  expressions  identify  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which were made based on facts and conditions as they existed as of
the date of this report.  The  Partnership  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information, future events or otherwise.

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

      As previously  reported,  the Partnership had reviewed its options for The
Concourse  Retail Plaza at the beginning of fiscal 1998 and  determined  that it
was the  appropriate  time to market the  property  for sale.  During the second
quarter of fiscal 1998, the  Partnership  initiated  discussions  with area real
estate firms concerning potential marketing strategies for selling The Concourse
and solicited  marketing  proposals from several of these firms. After reviewing
their  respective  proposals  and  conducting   interviews  to  determine  their
expertise and track record in selling properties  similar to The Concourse,  the
Partnership  selected a Florida-based  firm.  During the third quarter of fiscal
1998, a marketing package was finalized and comprehensive  sale efforts began in
early May. On August 14, 1998, a purchase and sale  agreement was signed with an
unrelated  third  party.  On  November  10,  1998,  West  Palm  Beach  Concourse
Associates sold The Concourse  Retail Plaza property to this unrelated party for
$2 million. The sale generated net proceeds of approximately $225,000, after the
assumption of the outstanding  first mortgage loan of approximately  $1,539,000,
accrued interest of approximately  $4,000, net closing proration  adjustments of
approximately   $2,000  and  closing  costs  of  approximately   $231,000.   The
Partnership  received 100% of the net proceeds in  accordance  with the terms of
the joint venture agreement. The mortgage loan, which was assumable,  contains a
prohibition  on  prepayment  through  January 10,  2000.  As a result,  any sale
transaction  completed  prior to such date had to involve an  assumption of this
mortgage loan which carries an interest rate of 11.12% per annum. The sale price
was  discounted to reflect this  above-market  interest rate.  Nonetheless,  the
Managing  General Partner believed that a current sale was in the best interests
of the Limited Partners. As discussed further below, the Partnership recorded an
impairment  writedown  of $418,000  in fiscal  1998 to reflect the net  proceeds
received from the sale during the first quarter of fiscal 1999.

      As previously  reported,  the Partnership  and its co-venture  partner had
begun  exploring  potential  opportunities  for the  sale of the  Colony  Square
property in early fiscal 1998. As part of that plan,  discussions were held with
real estate brokerage firms with a specialty in small retail centers like Colony
Square.  During  the third  quarter  of fiscal  1998,  the  Partnership  and its
co-venture partner selected a real estate brokerage firm to begin marketing this
asset for sale.  Subsequently,  an offer was  received  to  purchase  the Colony
Square  Shopping  Center  from a  prospective  third-party  buyer  that  met the
Partnership's  and  co-venture  partner's  sale  criteria.  A purchase  and sale
agreement was signed on July 9, 1998 with this  prospective  buyer.  On November
17, 1998,  Chicago  Colony Square  Associates  sold the Colony  Square  Shopping
Center to this unrelated party for $2.3 million. The sale generated net proceeds
of  approximately  $1,014,000,  after the  repayment  of the  outstanding  first
mortgage  loan of  approximately  $864,000,  accrued  interest of  approximately
$13,000   (including  a  prepayment   penalty  of  $9,000),   closing  proration
adjustments  of  approximately  $221,000  and  closing  costs  of  approximately
$188,000.  The Partnership  received 100% of the net proceeds in accordance with
the  terms of the  joint  venture  agreement.  As a result  of the  sales of The
Concourse Retail Plaza and Colony Square Shopping Center, a Special Distribution
of approximately $1,253,000, or $33 per original $1,000 investment,  was made on
December 15, 1998. Of this total,  $5.92  represented net proceeds from the sale
of The Concourse Retail Plaza,  $26.69 represented net proceeds from the sale of
Colony Square Shopping Center and $0.39  represented  Partnership  reserves that
exceeded future requirements.

      With the sales of The Concourse and Colony Square, the Partnership now has
one remaining real estate investment,  the Colony Apartments, a 783-unit complex
located in Mount Prospect,  Illinois.  The occupancy level at Colony  Apartments
averaged  97% for the  quarter,  unchanged  from the prior  quarter and the same
period in the prior  year.  In  addition,  the average  monthly  rental rate per
apartment unit is budgeted to increase by  approximately 3% over the next twelve
months. With the improvements in the apartment segment of the real estate market
and  the  strong  local  job  market  in  this  northwest  Chicago  suburb,  the
Partnership and its co-venture  partner decided to market the Colony  Apartments
for sale during the third  quarter of fiscal 1998.  A national  real estate firm
was selected to market the property and comprehensive sale efforts began in late
June.  As a result of these  sale  efforts,  ten  offers  were  received.  These
prospective  purchasers were then requested to submit best and final offers.  To
reduce the  prospective  buyers'  due  diligence  work and the time  required to
complete  it,  updated  operating  reports as well as  building  evaluation  and
environmental  information  on  the  property  were  provided  to  the  top  six
prospective  buyers,  who were asked to submit best and final offers and did so.
After completing an evaluation of the best and final offers, the Partnership and
its  co-venture   partner   selected  an  offer.   However,   after   protracted
negotiations, the Partnership and its co-venture partner were unable to finalize
a purchase and sale agreement with this prospective buyer. In November 1998, the
Partnership  and its co-venture  partner  re-opened  discussions  with the other
prospective  buyers who had previously  submitted best and final offers.  Two of
these prospective buyers expressed  interest.  Again,  however,  after extensive
discussions  with them,  neither prospect would agree to acquire the property on
terms acceptable to the Partnership.  Subsequent to quarter-end, the Partnership
and its  co-venture  partner  decided to re-market  the  property for sale.  The
Partnership  and its co-venture  partner are actively  pursuing these  marketing
efforts and expect to complete a sale of the property and a  liquidation  of the
Partnership  before  the  end of  calendar  year  1999.  However,  there  are no
assurances  that  the  sale  of the  final  asset  and  the  liquidation  of the
Partnership will be completed within this time frame.

      At December 31, 1998, the  Partnership  and its  consolidated  venture had
cash  and cash  equivalents  of  approximately  $1,258,000.  Such  cash and cash
equivalents will be utilized as needed for Partnership  requirements such as the
payment of operating  expenses,  distributions  to partners,  and the funding of
operating  deficits or capital  improvements of the remaining joint venture,  in
accordance with the terms of the joint venture  agreement.  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  remaining investment
property  and  from  the net  proceeds  from  the  sale or  refinancing  of such
property.  Such sources of liquidity  are expected to be  sufficient to meet the
Partnership's needs on both a short-term and long-term basis.

      As noted above,  the  Partnership  expects to be  liquidated by the end of
calendar year 1999.  Notwithstanding  this, the Partnership believes that it has
made all necessary  modifications to its existing systems to make them year 2000
compliant and does not expect that  additional  costs  associated with year 2000
compliance,  if any, will be material to the Partnership's results of operations
or financial position.

Results of Operations
Three Months Ended December 31, 1998
------------------------------------

      The Partnership reported net income of $206,000 for the three months ended
December 31, 1998,  as compared to  $4,697,000  for the same period in the prior
year. This decrease in the Partnership's net income is mainly  attributable to a
$4,474,000 gain recognized during the three-month period ended December 31, 1997
on the sale of the Meadows  property as well as a $60,000  loss  recorded on the
sale of the Colony Square property during the current  three-month  period. Also
contributing  to the  unfavorable  change in net income was an  increase  in the
Partnership's  operating  loss of  $40,000.  The  Partnership's  operating  loss
increased  mainly due to an unfavorable  change in the operating  results of the
consolidated Concourse Retail Plaza prior to its sale on November 10, 1998 and a
decrease in interest income.  The unfavorable change in the operating results of
the  Concourse  Retail  Plaza was  mainly  attributable  to a decline  in rental
revenues  as a  result  of a lower  average  occupancy  level.  Interest  income
decreased  mainly due to a lower  average  invested  cash balance in the current
period as a result of the  temporary  investment of the Meadows sale proceeds in
the prior year pending the  distribution to the Limited  Partners which occurred
in  February  of 1998.  An  increase  of $79,000 in the  Partnership's  share of
unconsolidated  ventures' income partially offset the unfavorable changes in net
income for the current  three-month  period. The increase in Partnership's share
of  unconsolidated  ventures'  income resulted from an increase in the operating
income at the Colony  Apartments  joint  venture  and the absence in the current
period of  operating  results  from The  Meadows  on the Lake  Apartments  which
reported an operating loss of $72,000 for the first quarter of fiscal 1998 prior
to its sale on December 18, 1997. The increase in the operating income at Colony
Apartments resulted mainly due to increases in rental revenues stemming from the
increases  in rental  rates  achieved  at the  property  over the past twelve to
fifteen  months.   These  favorable  changes  in  the  Partnership's   share  of
unconsolidated  ventures'  income were partially offset by a decrease in the net
income of the Colony Square joint venture for the current  period as a result of
the sale of the property on November 17, 1998.


<PAGE>



                                     PART II
                                Other Information


Item 1. Legal Proceedings   NONE
-------------------------

Item 2. through 5.     NONE
------------------

Item 6. Exhibits and Reports on Form 8-K
----------------------------------------

(a)  Exhibits:         NONE

(b)   A Current  Report on Form 8-K was filed during the first quarter of fiscal
      1999 to  report  the sale of The  Concourse  Retail  Plaza  and is  hereby
      incorporated  herein by  reference.  A second  Current  Report on Form 8-K
      dated November 17, 1998 was filed during the current quarter to report the
      sale of the  Colony  Square  Shopping  Center  and is hereby  incorporated
      herein by reference.



<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:  February 22, 1999