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


                                   FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934


For Quarter Ended March 31, 1999             Commission File Number 0-20126


                        COPLEY PENSION PROPERTIES VII;
                       A REAL ESTATE LIMITED PARTNERSHIP
            (Exact name of registrant as specified in its charter)


     Massachusetts                                       04-3035851
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

     225 Franklin Street, 25th Fl.
     Boston, Massachusetts                                02110
(Address of principal executive offices)               (Zip Code)

              Registrant's telephone number, including area code:
                                (617) 261-9000


==============================================================================
Former name, former address and former fiscal year if changed since last report

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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>
 
                        COPLEY PENSION PROPERTIES VII;

                       A REAL ESTATE LIMITED PARTNERSHIP


                                   FORM 10-Q


                       FOR QUARTER ENDED MARCH 31, 1999


                                    PART I


                             FINANCIAL INFORMATION
<PAGE>
 
<TABLE>
<CAPTION>
BALANCE SHEETS

                                        March 31, 1999   December 31, 1998
                                          (Unaudited)       (Audited)
                                        --------------   -----------------
<S>                                     <C>              <C>  
Assets
 
Real estate investments:
  Joint ventures                          $  8,940,409        $  9,003,008
  Property, net                              1,990,124           1,871,598
  Property held for disposition, net                 -           8,825,905
                                           -----------         -----------
                                            10,930,533          19,700,511
 
Cash and cash equivalents                   16,409,420           3,985,403
                                           -----------         -----------
                                          $ 27,339,953        $ 23,685,914
                                           ===========         ===========
Liabilities and Partners' Capital

Accounts payable                          $    108,761        $     91,233
Accrued management fee                          46,784              54,897
Deferred disposition fees                    1,033,108             641,608
                                           -----------         -----------
Total liabilities                            1,188,653             787,738
                                           -----------         -----------
 
 
Partners' capital (deficit):
  Limited partners ($742.12 per unit;
    160,000 units authorized,
    42,076 units issued
    and outstanding)                        26,144,438          22,923,845
  General partners                               6,862             (25,669)
                                           -----------         -----------
Total partners' capital (deficit)           26,151,300          22,898,176
                                           -----------         -----------
                                          $ 27,339,953        $ 23,685,914
                                           ===========         ===========
</TABLE>


               (See accompanying notes to financial statements)
<PAGE>
 
STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE> 
<CAPTION> 
                                       Quarter Ended March 31,
                                       -----------------------
                                        1999            1998
                                       ------          -------
<S>                                    <C>             <C>
INVESTMENT ACTIVITY
 
Property rentals                       $   488,236     $  483,185
Property operating expenses               (189,826)      (167,730)
Depreciation and amortization              (21,505)       (88,152)
                                       -----------     ----------
                                           276,905        227,303
                                   
Joint venture earnings                     275,015        356,803
                                       -----------     ----------
                                   
 Total real estate operations              551,920        584,106
                                   
Gain on sale of property                 3,302,085              -
                                       -----------     ----------
                                   
 Total real estate activity              3,854,005        584,106
                                   
Interest on cash equivalents       
 and short-term investments                 55,494         57,478
                                       -----------     ----------
                                   
 Total investment activity               3,909,499        641,584
                                       -----------     ----------
                                   
PORTFOLIO EXPENSES                 
                                   
Management fees                             46,784         65,027
General and administrative                  54,527         51,725
                                       -----------     ----------
                                           101,311        116,752
                                       -----------     ----------
                                   
Net Income                             $ 3,808,188     $  524,832
                                       ===========     ==========
                                   
Net income per limited partnership 
 unit                                  $     89.60     $    12.35
                                       ===========     ==========
                                   
Cash distributions per limited     
 partnership unit                      $     13.06     $    15.47
                                       ===========     ==========
                                   
Number of limited partnership units
 outstanding during the period              42,076         42,076
                                       ===========     ==========
</TABLE>

               (See accompanying notes to financial statements)
<PAGE>
 
STATEMENTS OF PARTNERS' CAPITAL (Deficit)
(Unaudited)

<TABLE>
<CAPTION>
                                 Quarter ended March 31,
                        ----------------------------------------------
                                1999                    1998
                        ----------------------   --------------------- 

                        General      Limited     General    Limited
                        Partners    Partners     Partners   Partners
                        --------    --------     ---------  --------
<S>                     <C>        <C>           <C>        <C>  
Balance at beginning    $(25,669)  $22,923,845   $(39,350)  $27,539,153
  of period
 
Cash distributions        (5,551)     (549,513)    (6,575)     (650,916)
 
Net income                38,082     3,770,106      5,248       519,584
                        --------   -----------   --------   -----------
 
Balance at end
  of period             $  6,862   $26,144,438   $(40,677)  $27,407,821
                        ========   ===========   ========   ===========
</TABLE>

                (See accompanying notes to financial statements)
<PAGE>
 
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
                                              Quarter ended March 31,
                                             -------------------------
                                                 1999         1998
                                             ------------  -----------
<S>                                          <C>           <C>
 
Net cash provided by operating activities    $   477,681   $  765,907
                                             -----------   ----------
 
Cash flows from investing activities:
   Net proceeds from sale of investment       12,109,900           --
   Deferred disposition fees                     391,500           --
   Decrease in short-term
   investments, net                                   --    1,302,726
                                             -----------   ----------
     Net cash provided by
      investing activities                    12,501,400    1,302,726
                                             -----------   ----------
 
Cash flows from financing activity:
  Distributions to partners                     (555,064)    (657,491)
                                             -----------   ----------
 
Net increase in cash
  and cash equivalents                        12,424,017    1,411,142
 
Cash and cash equivalents:
  Beginning of period                          3,985,403    3,154,152
                                             -----------   ----------
 
  End of period                              $16,409,420   $4,565,294
                                             ===========   ==========
</TABLE>

               (See accompanying notes to financial statements)
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the Partnership's financial
position as of March 31, 1999 and December 31, 1998 and the results of its
operations, its cash flows and partners' capital (deficit) for the interim
periods ended March 31, 1999 and 1998. These adjustments are of a normal
recurring nature.

See notes to financial statements included in the Partnership's 1998 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.

Note 1 - Organization and Business

Copley Pension Properties VII; A Real Estate Limited Partnership (the
"Partnership") is a Massachusetts limited partnership organized for the purpose
of investing primarily in newly constructed and existing income producing real
properties. It primarily serves as an investment for qualified pension and
profit sharing plans and other entities intended to be exempt from federal
income tax. The Partnership commenced operations in March 1989. It acquired the
three real estate investments it currently owns prior to 1991. The Partnership
intends to dispose of its investments within eight to twelve years of their
acquisition, and then liquidate; however, the Managing General Partner could
extend the investment period if it is considered to be in the best interest of
the limited partners. The Partnership has engaged AEW Real Estate Advisors, Inc.
(the "Advisor") to provide asset management advisory services.

Note 2 - Real Estate Joint Ventures

     On August 7, 1998, a joint venture, in which the Partnership held 25%
interest, sold the Waterford Apartments to an institutional buyer which was
unaffiliated with the Partnership. The gross sale price was $21,800,000. The
Partnership received its share of net proceeds after closing costs totaling
$5,446,250, and recognized a gain of $2,076,945 ($48.87 per limited partnership
unit). A disposition fee of $163,500 was accrued but not paid to the Advisor. On
August 26, 1998, the Partnership made a capital distribution of $5,427,804 ($129
per limited partnership unit) from the proceeds of the sale.

The following summarized financial information is presented in the aggregate for
the Partnership's joint ventures:
<PAGE>
 
                             Assets and Liabilities
                             ----------------------   

<TABLE>
<CAPTION>
                                             March 31, 1999  December 31, 1998
                                             --------------  -----------------
<S>                                          <C>             <C>
Assets
 Real property, at cost less
   accumulated depreciation of
   $3,127,774 and $3,043,811,respectively       $ 9,129,229        $ 9,213,192
 Other                                            1,061,171          1,011,628
                                                -----------        -----------
                                                 10,190,400         10,224,820
Liabilities                                         178,811            142,195
                                                -----------        -----------


Net assets                                      $10,011,589        $10,082,625
                                                ===========        ===========
</TABLE> 


                             Results of Operations
 
<TABLE> 
<CAPTION> 
                                                      Quarter ended March 31,
                                                         1999        1998
                                                      ----------  -----------
<S>                                                   <C>         <C>
Revenue
 
  Rental income                                        $531,759   $1,260,937
  Other                                                       -        1,685
                                                       --------   ----------
                                                        531,759    1,262,622
                                                       --------   ----------
 
Expenses
 
  Operating expenses                                    112,506      354,693
  Depreciation and amortization                          90,183      225,714
                                                       --------   ----------
                                                        202,689      580,407
                                                       --------   ----------
 
Net income                                             $329,070   $  682,215
                                                       ========   ==========
</TABLE>


     Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to one joint ventures) its affiliates on behalf of
their various financing arrangements with the joint ventures.

     Due to the sale noted above, the results of operations for the quarter
ended March 31, 1998 include the Partnership's investment in three joint
ventures while the results of operations for the quarter ended March 31, 1999
include two investments in joint ventures.
<PAGE>
 
Note 3 - Property

     On April 14, 1995, the Partnership acquired, through a limited partnership
it controls, a 174-unit apartment complex in Sherman Oaks, California, known as
Regency Court Apartments, for a total price of $9,605,021. The purchase and sale
agreement required the seller to supplement the monthly rental income generated
from the property to the extent such income was less than $125,000 per month
during the one-year period ended April 13, 1996, with such supplement not to
exceed $300,000 in total. The supplemental rental was $115,323, which has been
applied to reduce the purchase price in 1995 and 1996.

     The buildings and improvements were being depreciated over 30 years using
the straight-line method.

     On March 25, 1999, the Partnership sold the Regency Court Apartments to an
unaffiliated third party (the "Buyer") for sale price of $13,050,000. The terms
of the sale were determined by arm's length negotiation between the Buyer and
the Partnership. The Partnership received net proceeds of approximately
$12,501,000 and recognized a gain of approximately $3,302,000 ($77.69 per
limited partnership unit). On April 29, 1999, the Partnership made a capital
distribution of $12,033,736 ($286 per limited partnership unit) from the
proceeds of the sale.

The following is a summary of the Partnership's investments in property (one at
March 31, 1999, and two at December 31, 1998):

<TABLE>
<CAPTION>
                                 March 31, 1999   December 31, 1998
                                 ---------------  ------------------
<S>                              <C>              <C>
Land                                 $  244,346         $   244,346
Buildings and improvements            1,976,977           1,976,977
Accumulated depreciation               (435,606)           (415,836)
Other net liabilities                   204,407              66,111
Property held for disposition                 -           8,825,905
                                     ----------         -----------
                                     $1,990,124         $10,697,503
                                     ==========         ===========
</TABLE>


Note 4 - Subsequent Event

Distributions of cash from operations relating to the quarter ended March 31,
1999 were made on April 29, 1999 in the aggregate amount of $473,036.24 ($11.13
per limited partnership unit).  As discussed above, the Partnership made a
capital distribution of $12,033,736 ($286 per limited partnership unit) from the
proceeds of the Regency Court Apartments sale.
<PAGE>
 
Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations
----------

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

     The Partnership's offering of units of limited partnership interest was
completed as of September 30, 1990.  A total of 42,076 units were sold.  The
Partnership received proceeds of $36,522,542, net of selling commissions and
other offering costs, which have been used for investment in real estate and the
payment of related acquisition costs, or retained as working capital reserves.
The Partnership made seven real estate investments, one of which was sold in
each of 1991, 1994, 1998 and 1999. Through March 31, 1999, capital of
$10,850,559 ($257.88 per limited partnership unit) has been returned to the
limited partners; $9,972,012 as a result of sales,  $336,608 in 1996 as a result
of a discretionary reduction of cash reserves and $541,939 in 1998 as a result
of a distribution of original working capital.  As a result of sales and similar
transactions, the adjusted capital contribution was reduced to $742.12.

     At March 31, 1999, the Partnership had $16,409,420 in cash and cash
equivalents, of which $473,036 was used for operating cash distributions to
partners on April 29, 1999. In addition $12,033,736 was used for a capital
distribution to limited partners from the proceeds of the sale of Regency Court
Apartments. The remainder is being retained as working capital reserves. The
source of future liquidity and cash distributions to partners will primarily be
cash generated by the Partnership's real estate investments, and proceeds from
the sale of such investments. Distributions of cash from operations for the
first quarter of 1999 were made at the annualized rate of 6.0% on the adjusted
capital contribution of $742.12 per limited partnership unit. Distributions of
cash from operations for the first quarter of 1998 were made at the annualized
rate of 7.0% on the adjusted capital contribution of $884.00 per limited
partnership unit. The distribution rate was lower in 1999 primarily due to the
sale of investments in 1998 and 1999 and the consequent reduction in cash flow.

     The carrying value of real estate investments in the financial statements
is at depreciated cost, or if the investment's carrying value is determined not
to be recoverable through expected undiscounted future cash flows, the carrying
value is reduced to estimated fair market value. The fair market value of such
investments is further reduced by estimated cost of sale for properties held for
sale. Carrying value may be greater or less than current appraised value. At
March 31, 1999, the appraised value of each real estate investment exceeded its
carrying value; the aggregate of such excess was approximately $4,400,000. The
current appraised value of real estate investments has been estimated by the
managing general partner and is generally based on a correlation of traditional
appraisal approaches performed by the Advisor and independent appraisers.
Because of the subjectivity inherent in the valuation process, the estimated
current appraised value may differ significantly from that which could be
realized if the real estate were actually offered for sale in the marketplace.

Year 2000 Readiness Disclosure
------------------------------

     The Year 2000 Issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
<PAGE>
 
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business operations.

     The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide other services which are dependent on the
use of computers.  The Partnership has obtained assurances from AEW Capital
Management that:


     .    AEW Capital Management has developed a Year 2000 Plan (the "Plan")
          consisting of five phases: inventory, assessment, testing,
          remediation/repair and certification.

     .    As of September 30, 1998, AEW Capital Management had completed the
          inventory and assessment phases of this Plan and had commenced the
          testing and remediation/repair of internal systems.

     .    AEW Capital Management expects to conclude the internal testing,
          remediation/repair and certifications of its Plan no later than June
          30, 1999.

The Partnership also relies on joint venture partners and/or property managers
to supply financial and other data with respect to its real properties.  The
Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements.  To date, the
Partnership is not aware of any problems that would materially impact its
results of operations, liquidity or capital resources.  However, the Partnership
has not yet obtained written assurances that these providers would be Year 2000
compliant.

     The Partnership currently does not have a contingency plan in the event of
a particular provider or system not being Year 2000 compliant.  Such a plan will
be developed if it becomes clear that a provider (including AEW Capital
Management) is not going to achieve its scheduled compliance objectives by June
30, 1999.  The inability of one of these providers to complete its Year 2000
resolution process could materially impact the Partnership.  In addition, the
Partnership is also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failures and related service interruptions.  Given the nature of its
operations, the Partnership will not incur any costs associated with Year 2000
compliance.  All such costs are born by AEW Capital Management and the property
managers.
<PAGE>
 
Results of Operations
---------------------

     Form of Real Estate Investment

     The Drilex investment is a wholly-owned property. The remaining real estate
investments in the portfolio are structured as joint ventures.

     The Regency Court Apartments and Waterford Apartments were structured as a
wholly-owned property and joint venture, respectively.

     Operating Factors

     The Partnership's two industrial properties, Drilex and Prentiss Copystar,
were 100% leased at March 31, 1999 and March 31, 1998.

     Occupancy at Parkmoor Plaza was 100% at March 31, 1999 where it has
remained since the second quarter of 1995.

     As previously discussed, the Waterford Apartments was sold on August 7,
1998, and the Partnership recognized a gain of $2,076,945. At the time of the
sale, the Waterford Apartments were 96% leased. At December 31, 1997 it was 93%
leased.

     In addition, the Regency  Court Apartments investment was sold on March 25,
1999.  The Partnership recognized a gain of approximately $3,302,000. Regency
Court was 97% leased at the time of sale.  At December 31, 1998 it was 96%
leased.
 
     Investment Results

     Interest on short-term investments and cash equivalents was relatively
unchanged between the first quarter of 1998 and 1999.

     Real estate operating results for the first quarter of 1999 and 1998 were
$551,920 and $584,106, respectively. The decrease of $32,186 is primarily due to
the sale of Waterford Apartments on August 7, 1998. Partially offsetting this is
an increase in operating results at Parkmoor Plaza of approximately $16,000 due
to higher rental rates and lower repairs and maintenance expenses. Operating
results from the remainder of the Partnership's investments were relatively
unchanged between the respective periods.

     Cash flow from operations decreased by approximately $288,000 between the
respective three month periods. The decrease is primarily due to the decrease in
distributions from joint ventures as a result of the sale of Waterford
Apartments and a decrease in property working capital.

     Portfolio Expenses

     The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the managing general partner. General and administrative expenses
primarily consist of real estate appraisal, printing, legal, accounting and
investor servicing fees.
<PAGE>
 
     The Partnership management fee decreased approximately $18,000 between
the first quarter of 1998 and 1999 due to a decrease in distributions as a
result of the sale of Waterford Apartments in 1998.  General and administrative
expenses remained relatively unchanged between the first quarter of 1998 and
1999.
<PAGE>
 
                        COPLEY PENSION PROPERTIES VII;

                       A REAL ESTATE LIMITED PARTNERSHIP

                                   FORM 10-Q

                       FOR QUARTER ENDED MARCH 31, 1999

                                    PART II

                               OTHER INFORMATION


Item 6.   Exhibits and Reports on Form 8-K

          a.  Exhibits:   (27) Financial Data Schedule

          b.   Reports on Form 8-K:  During the quarter ended March 31, 1999, a
               Current Report on Form 8-K was filed on April 8, 1999 reporting
               on Item No. 2 (Acquisition or Disposition of Assets) and Item No.
               7 (Financial statements and Exhibits), relating in both cases to
               the March 25, 1999 sale of Regency Court Apartments.
<PAGE>
 
                                  SIGNATURES
                                  ----------

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                COPLEY PENSION PROPERTIES VII;
                                A REAL ESTATE LIMITED PARTNERSHIP
                                (Registrant)


May 13, 1999
                                /s/ J. Christopher Meyer III
                                --------------------------------
                                J. Christopher Meyer III
                                President, Chief Executive Officer
                                And Director of Managing General
                                Partner, Seventh Copley Corp.



May 13, 1998
                                /s/ Karin J. Lagerlund
                                --------------------------------
                                Karin J. Lagerlund
                                Principal Financial and Accounting
                                Officer of Managing General Partner,
                                Seventh Copley Corp.