Page 1 of 12



                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                  ------------

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 1996

                                       OR

      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934

            For the transition period from __________ to __________.



                         Commission File Number 0-12593
                                                -------


                         PHOENIX LEASING INCOME FUND VII
-------------------------------------------------------------------------------
                                   Registrant

         California                                       68-0001202
-----------------------------                 ----------------------------------
    State of Jurisdiction                     I.R.S. Employer Identification No.



2401 Kerner Boulevard, San Rafael, California                 94901-5527
--------------------------------------------------------------------------------
    Address of Principal Executive Offices                     Zip Code

       Registrant's telephone number, including area code: (415) 485-4500
                                                           --------------

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>


                                                                    Page 2 of 12

                          Part I. Financial Information
                          -----------------------------
                          Item 1. Financial Statements
                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                 (Amounts in Thousands Except for Unit Amounts)
                                   (Unaudited)
                                                     September 30,  December 31,
ASSETS                                                   1996           1995
                                                        ------         ------

Cash and cash equivalents                               $1,934         $3,940

Accounts receivable (net of allowance for losses
  on accounts receivable of $43 and $58 at September
  30, 1996 and December 31, 1995, respectively)             25             65

Notes receivable (net of allowance for losses on
  notes receivable of $359 at September 30, 1996
  and December 31, 1995)                                   302            317

Equipment on operating leases and held for lease
  (net of accumulated depreciation of $1,845 and
  $2,694 at September 30, 1996 and December 31,
  1995, respectively)                                        5            169

Net investment in financing leases (net of allowance
  for early terminations of $0 and $34 at September
  30, 1996 and December 31, 1995, respectively)           --             --

Property, cable systems and equipment (net of 
  accumulated depreciation of $328 and $238
  at September 30, 1996 and December 31, 1995,
  respectively)                                            861            912

Cable subscriber lists and franchise rights (net
  of accumulated amortization of $471 and $350 at
  September 30, 1996 and December 31, 1995,
  respectively)                                            821            942

Investment in joint ventures                               800            975

Other assets                                               110            107
                                                        ------         ------

   Total Assets                                         $4,858         $7,427
                                                        ======         ======

LIABILITIES AND PARTNERS' CAPITAL

Liabilities

  Accounts payable and accrued expenses                 $1,384         $1,593
                                                        ------         ------

   Total Liabilities                                     1,384          1,593
                                                        ------         ------

Partners' Capital

  General Partner                                          297            262

  Limited Partners, 480,000 units authorized,
   366,432 units issued and 345,974 units outstanding
   at September 30, 1996 and December 31, 1995           3,173          5,573

  Unrealized gains (losses) on available-for-
   sale securities                                           4             (1)
                                                        ------         ------


   Total Partners' Capital                               3,474          5,834
                                                        ------         ------

   Total Liabilities and Partners' Capital              $4,858         $7,427
                                                        ======         ======

        The accompanying notes are an integral part of these statements.

<PAGE>


                                                                    Page 3 of 12

                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (Amounts in Thousands Except for Per Unit Amounts)
                                   (Unaudited)

                                         Three Months Ended   Nine Months Ended
                                            September 30,       September 30,
                                           1996      1995      1996      1995
                                          ------    ------    ------    ------
INCOME

  Rental income                           $   73    $  268    $  256    $  983
  Cable subscriber revenues                  145       148       438       434
  Equity in earnings from joint
   ventures, net                              60       108       193       287
  Interest income, notes receivable           16         6        16       425
  Other income                                27        17       124       125
                                          ------    ------    ------    ------

   Total Income                              321       547     1,027     2,254
                                          ------    ------    ------    ------

EXPENSES

  Depreciation and amortization               77       190       325       481
  Lease related operating expenses             2         7        15        19
  Program service, cable system               35        39       106       105
  Management fees to General Partner          12        27        45       223
  Provision for losses on receivables         28        33        (3)       20
  General and administrative expenses        102        79       305       278
                                          ------    ------    ------    ------

   Total Expenses                            256       375       793     1,126
                                          ------    ------    ------    ------

Net income before income taxes                65       172       234     1,128
Income tax benefit                             2        12         1         2
                                          ------    ------    ------    ------

NET INCOME                                $   67    $  184    $  235    $1,130
                                          ======    ======    ======    ======


NET INCOME PER LIMITED
  PARTNERSHIP UNIT                        $  .17    $  .46    $  .58    $ 2.78
                                          ======    ======    ======    ======

DISTRIBUTIONS PER LIMITED
  PARTNERSHIP UNIT                        $ 3.74    $ 3.72    $ 7.52    $ 3.72
                                          ======    ======    ======    ======

ALLOCATION OF NET INCOME:
  General Partner                         $   10    $   27    $   36    $  169
  Limited Partners                            57       157       199       961
                                          ------    ------    ------    ------

                                          $   67    $  184    $  235    $1,130
                                          ======    ======    ======    ======

        The accompanying notes are an integral part of these statements.

<PAGE>


                                                                    Page 4 of 12

                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in Thousands)
                                   (Unaudited)
                                                           Nine Months Ended
                                                             September 30,
                                                            1996      1995
                                                           ------    ------
Operating Activities:
  Net income                                               $  235    $1,130

   Adjustments to reconcile net income to net cash
     provided by operating activities:
      Depreciation and amortization                           325       481
      Loss (gain) on sale of equipment                         26       (75)
      Equity in earnings from joint ventures, net            (193)     (287)
      Provision for early termination, financing leases       (34)     --
      Provision for losses on notes receivable               --         (27)
      Provision for losses on accounts receivable              31        47
      Gain on sale of marketable securities                    (5)     --
      Decrease in accounts receivable                           9        33
      Decrease in accounts payable and accrued expenses      (209)     (827)
      Increase in deferred income tax asset                    (1)       (4)
      Decrease (increase) in other assets                      (3)      298
                                                           ------    ------

Net cash provided by operating activities                     181       769
                                                           ------    ------

Investing Activities:
  Principal payments, financing leases                         34       398
  Principal payments, notes receivable                         15     1,569
  Proceeds from sale of equipment                              24       148
  Proceeds from sale of marketable securities                  11      --
  Distributions from joint ventures                           367       505
  Property, plant and equipment, cable systems                (38)      (24)
                                                           ------    ------

Net cash provided by investing activities                     413     2,596
                                                           ------    ------

Financing Activities:
  Distributions to partners                                (2,600)   (1,286)
                                                           ------    ------

Net cash used by financing activities                      (2,600)   (1,286)
                                                           ------    ------

Increase (decrease) in cash and cash equivalents           (2,006)    2,079

Cash and cash equivalents, beginning of period              3,940     1,248
                                                           ------    ------

Cash and cash equivalents, end of period                   $1,934    $3,327
                                                           ======    ======

        The accompanying notes are an integral part of these statements.

<PAGE>


                                                                    Page 5 of 12

                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  General.

      The  accompanying  unaudited  condensed  financial  statements  have  been
prepared by the  Partnership in accordance  with generally  accepted  accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of Management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included. Although management believes that the disclosures are adequate to make
the information  presented not misleading,  it is suggested that these condensed
financial  statements be read in conjunction  with the financial  statements and
the notes included in the Partnership's  Financial Statement,  as filed with the
SEC in the latest annual report on Form 10-K.

Note 2.  Reclassification.

      Reclassification  - Certain 1995 amounts have been reclassified to conform
to the 1996 presentation.

Note 3.  Income Taxes.

      Federal and state income tax regulations  provide that taxes on the income
or loss of the  Partnership  are reportable by the partners in their  individual
income tax returns.  Accordingly,  no provision  for such taxes has been made in
the accompanying financial statements.

      Phoenix  Cablevision  of Oregon,  Inc. (the  Subsidiary)  is a corporation
subject to state and  federal tax  regulations.  The  Subsidiary  reports to the
taxing  authority on the accrual basis.  When income and expenses are recognized
in  different  periods  for  financial  reporting  purposes  than for income tax
purposes,  deferred taxes are provided for such differences  using the liability
method.

Note 4.  Notes Receivable.

      Impaired Notes Receivable.  At September 30, 1996 the recorded  investment
in notes that are  considered to be impaired  under  Statement 114 was $607,000.
Included in this  amount is  $113,000  of  impaired  notes for which the related
allowance  for losses is $11,000 and $494,000 of impaired  notes for which there
is no allowance.  The average  recorded  investment in impaired loans during the
nine months ended September 30, 1996 was approximately $610,000.

      The activity in the  allowance for losses on notes  receivable  during the
nine months ended September 30, is as follows:

                                          1996            1995
                                          ----            ----
                                         (Amounts In Thousands)
      Beginning balance                  $ 359           $ 401
         Provision for losses             -                (27)
         Write downs                      -                (15)
                                         ----            ------
      Ending balance                     $359            $ 359
                                         ====            =====

Note 5.  Net Income (Loss) and Distributions per Limited Partnership Unit.

     Net income and distributions per limited partnership unit were based on the
limited  partner's  share of net  income  and  distributions,  and the  weighted
average  number  of units  outstanding  of  345,974  for the nine  months  ended
September  30, 1996 and 1995.  For  purposes  of  allocating  income  (loss) and
distributions to each individual limited partner,  the Partnership allocates net

<PAGE>


                                                                    Page 6 of 12

income (loss) and  distributions  based upon each respective  limited  partner's
ending capital account balance.  The use of this method accurately reflects each
limited  partner's  participation  in  the  partnership  including  reinvestment
through the Capital  Accumulation  Plan.  As a result,  the  calculation  of net
income (loss) and distributions  per limited  partnership unit is not indicative
of per unit income (loss) and  distributions  due to  reinvestments  through the
Capital Accumulation Plan.

Note 6.  Investment in Joint Ventures.

Equipment Joint Ventures

      The aggregate  combined  statements  of operations of the equipment  joint
ventures is presented below:

                        COMBINED STATEMENTS OF OPERATIONS
                             (Amounts in Thousands)

                                         Three Months Ended   Nine Months Ended
                                            September 30,       September 30,
                                           1996      1995      1996      1995
                                          ------    ------    ------    ------
INCOME
Rental income                             $  452    $  763    $1,418    $2,122
Gain on sale of equipment                     53       140       257       262
Other income                                  30       570       109       676
                                          ------    ------    ------    ------

      Total Income                           535     1,473     1,784     3,060
                                          ------    ------    ------    ------

EXPENSES
Depreciation                                  81       628       254       855
Lease related operating expenses             166       338       573       899
Management fees to General Partner            28        76        83       144
General and administrative expenses         --        --           2         3
                                          ------    ------    ------    ------

      Total Expenses                         275     1,042       912     1,901
                                          ------    ------    ------    ------

Net Income                                $  260    $  431    $  872    $1,159
                                          ======    ======    ======    ======

Financing Joint Ventures

   The aggregate  combined  statements  of  operations  of the  financing  joint
ventures is presented below:

                        COMBINED STATEMENTS OF OPERATIONS
                             (Amounts in Thousands)

                                         Three Months Ended   Nine Months Ended
                                            September 30,       September 30,
                                           1996      1995      1996      1995
                                          ------    ------    ------    ------
INCOME
Interest income - notes receivable        $    9    $   14    $   32    $   62
Other income                                   6         7        24        74
                                          ------    ------    ------    ------

      Total Income                            15        21        56       136
                                          ------    ------    ------    ------



<PAGE>


                                                                    Page 7 of 12

EXPENSES
Management fees to General Partner             1         2         1         7
General and administrative expenses            2         3        10        15
                                          ------    ------    ------    ------

      Total Expenses                           3         5        11        22
                                          ------    ------    ------    ------

Net Income                                $   12    $   16    $   45    $  114
                                          ======    ======    ======    ======

Foreclosed Cable Systems Joint Ventures

   The aggregate  combined  statements of  operations  of the  foreclosed  cable
systems joint ventures is presented below:

                        COMBINED STATEMENTS OF OPERATIONS
                             (Amounts in Thousands)

                                          Three Months Ended  Nine months Ended
                                            September 30,       September 30,
                                           1996      1995      1996      1995
                                          ------    ------    ------    ------
INCOME
Subscriber revenue                        $  213    $  222    $  635    $  653
Other income                                  16         3        20         7
                                          ------    ------    ------    ------

      Total Income                           229       225       655       660
                                          ------    ------    ------    ------

EXPENSES
Depreciation and amortization                 67        65       199       200
Program services                              70        76       208       209
Management fees to an affiliate of the
 General Partner                              10        10        29        29
General and administrative expenses           63        69       196       186
Provision for losses on accounts 
 receivable                                    2         2         6         7
                                          ------    ------    ------    ------

      Total Expenses                         212       222       638       631
                                          ------    ------    ------    ------

Net income before income taxes                17         3        17        29
Income tax expense                            (2)       (6)       (2)      (13)
                                          ------    ------    ------    ------

Net Income (Loss)                         $   15    $   (3)   $   15    $   16
                                          ======    ======    ======    ======



<PAGE>


                                                                    Page 8 of 12

                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

Results of Operations

      Phoenix Leasing Income Fund VII and Subsidiary (the Partnership)  reported
net income of  $67,000  and  $235,000  during  the three and nine  months  ended
September  30,  1996,  respectively,  as compared to net income of $184,000  and
$1,130,000  during the same  periods in the  preceding  year.  The  reduction in
earnings for the three and nine months ended  September  30, 1996 is a result of
the decline in rental income and interest income from notes receivable.

      Total revenues decreased by $226,000 and $1,227,000 for the three and nine
months ended September 30, 1996, respectively, when compared to the same periods
in the previous  year. The decrease in total revenues for the three months ended
September 30, 1996 is primarily  attributable  to a reduction in rental  income.
The decrease in total revenues for the nine months ended  September 30, 1996, as
compared to the same period in 1995, is  attributable  to the decrease in rental
income and interest income from notes  receivable.  The decline in rental income
of $195,000  and  $727,000,  for the three and nine months ended  September  30,
1996,  as compared to the same periods in the previous  year,  is a result of an
overall  reduction in the size of the equipment  portfolio due to ongoing sales.
The aggregate original cost of equipment owned directly by the Partnership as of
September 30, 1996 is $2.8 million,  as compared to $6.6 million as of September
30, 1995.

      Interest  income from notes  receivable  declined by $409,000 for the nine
months ended September 30, 1996, respectively, as compared to the same period in
the previous year.  During the second quarter of 1995, the Partnership  received
final  payoffs  from two of its notes  receivable  which were  considered  to be
impaired.  The  Partnership  recognized  interest income from the receipt of the
settlement from one of these notes receivable. As a result, interest income from
notes receivable was higher than expected during the nine months ended September
30, 1995.

      Total  expenses  for the three and nine months  ended  September  30, 1996
decreased  by  $119,000  and  $333,000,  respectively,  as  compared to the same
periods  in  1995.  The  decline  is  primarily  the  result  of a  decrease  in
depreciation  expense.  In  addition,  management  fees to the  General  Partner
decreased for the nine months ended  September 30, 1996.  Management fees to the
General Partner were higher during 1995 as a result of settlements received from
two defaulted notes receivable.  The Partnership also experienced an increase in
general  and  administrative  expense  during  the three and nine  months  ended
September  30, 1996 and 1995,  as compared to the same  periods in 1995,  due to
increased legal expense.

      The decline in depreciation  and amortization of $113,000 and $156,000 for
the three and nine months ended September 30, 1996, respectively, as compared to
the  same  periods  in  the  previous  year,  is  a  result  of a  reduction  in
depreciation  from leasing  activities.  In addition to the declining  equipment
portfolio as previously discussed,  the decrease in depreciation expense is also
the result of an  increasing  portion of the  equipment  portfolio  being  fully
depreciated.

      Because Phoenix Leasing Income Fund VII is in its liquidation stage, it is
not expected that the Partnership will acquire any additional  equipment for its
leasing activities.  As a result,  revenues from leasing activities are expected
to  continue  to  decline  as the  portfolio  is  liquidated  and the  remaining
equipment is released at lower rental rates.



<PAGE>


                                                                    Page 9 of 12

Cable System

      The  Partnership  acquired a cable system in  satisfaction  of a defaulted
note receivable held by the Partnership.  The Partnership  assumed  ownership of
this cable television system on October 28, 1993. Both cable subscriber  revenue
and program services expense remained relatively the same for the three and nine
months ended September 30, 1996 as compared to the same periods in 1995.

Joint Ventures

      The  Partnership has made  investments in various  equipment and financing
joint ventures along with other affiliated  partnerships  managed by the General
Partner for the purpose of spreading the risk of investing in certain  equipment
leasing and  financing  transactions.  These joint  ventures  are not  currently
making  any  significant  additional  investments  in new  equipment  leasing or
financing  transactions.  As a  result,  the  earnings  and cash  flow from such
investments  are  anticipated  to  continue  to  decline as the  portfolios  are
released at lower rental rates and eventually liquidated.

      Earnings  from joint  ventures  decreased  by $48,000  and $94,000 for the
three and nine months ended  September 30, 1996, as compared to the same periods
in the prior year.  This decrease is a result of the overall decline in revenues
and  expenses  experienced  by the  equipment  joint  ventures  as a result of a
majority of the equipment joint ventures being in the liquidation  stage.  Other
factors  contributing  to the  decline in  earnings  from joint  ventures is the
decline in interest income from notes receivable for financing joint ventures.

Liquidity and Capital Resources

   The  Partnership's  primary source of liquidity comes from equipment  leasing
and financing  activities.  The  Partnership has  contractual  obligations  with
lessees  for fixed  lease terms at fixed  rental  amounts and will also  receive
payments on its outstanding notes receivable. The Partnership's future liquidity
is dependent upon its receiving payment of such contractual obligations.  As the
initial lease terms expire, the Partnership will continue to renew,  remarket or
sell the equipment.  The future liquidity in excess of the remaining contractual
obligations  will depend upon the General  Partner's  success in re-leasing  and
selling the Partnership's  equipment as it comes off lease. The Partnership also
owns a cable  television  system and has  investments  in equipment  leasing and
foreclosed cable television system joint ventures.

      During the nine months ended  September 30, 1996, the net cash provided by
leasing,  financing and cable  television  activities  was $230,000  compared to
$2,736,000  for the same  period in the prior  year.  The  decrease  in net cash
provided  during 1996, as compared to 1995, is  attributable  to the decrease in
rental income,  payments on notes receivable and financing leases. Payments from
notes  receivable  were higher than usual during the nine months ended September
30,  1995 as a  result  of the  Partnership  receiving  settlements  from  notes
receivable from two cable television system operators that had been in default.

      Distributions from joint ventures has become one of the primary sources of
cash  generated  by  the  Partnership.  The  Partnership  received  $367,000  as
distributions  from joint ventures for the nine months ended September 30, 1996,
compared to $505,000 for the same period in 1995. This decrease in distributions
is  reflective  of the  overall  decrease  in  revenues  generated  by the joint
ventures, as discussed previously.

      As of September 30, 1996, the  Partnership  owned equipment held for lease
with a purchase price of $1,540,000  and a net book value of $2,000  compared to
$1,927,000 and $14,000,  respectively at September 30, 1995. The General Partner
is actively  engaged,  on behalf of the Partnership,  in remarketing and selling
the Partnership's off-lease equipment portfolio.


<PAGE>


                                                                   Page 10 of 12

      The Limited  Partners  received  distributions  of $2,600,000 for the nine
months ended September 30, 1996, as compared to  distributions of $1,286,000 for
the nine months ended  September  30, 1995.  As a result,  the  cumulative  cash
distributions  to the  Limited  Partners  are  $82,581,000  and  $79,981,000  at
September 30, 1996 and 1995,  respectively.  The General Partner did not receive
distributions during the nine months ended September 30, 1996 and 1995.

      As the Partnership's  asset portfolio  continues to decline as a result of
the ongoing  liquidation of assets,  it is expected that the cash generated from
leasing  operations  will also continue to decline.  Due to the decrease in cash
generated by leasing and  financing  activities,  the  Partnership  is no longer
making  quarterly  distributions  to  partners.  Distributions  are  being  made
semi-annually in January and July.

      During 1993, the  Partnership  foreclosed upon a cable  television  system
that it had  extended  credit.  Pursuant to this  foreclosure,  the  Partnership
assumed $1.7 million in debt that matured on December 31, 1994. As a result, the
Partnership did not make  distributions  to partners on July 15, 1994 or January
15, 1995 in order to retain  sufficient cash to pay off the outstanding  debt at
its maturity date. The Partnership has resumed making semi-annual  distributions
beginning with the July 15, 1995 distribution. As a result, distributions during
the nine months ended  September 30, 1996 were higher than those made during the
same  period  in 1995.  The  Partnership  anticipates  making  distributions  to
partners on January and July of 1997 at the same amount as those made on January
and July of 1996.

      Cash on hand and cash generated from cable  television,  equipment leasing
and  financing  operations  has  been  and  is  anticipated  to  continue  to be
sufficient to meet the Consolidated Partnership's ongoing operational expenses.




<PAGE>


                                                                   Page 11 of 12



                         PHOENIX LEASING INCOME FUND VII

                               September 30, 1996

                           Part II. Other Information.
                                    ------------------

Item 1.  Legal Proceedings.  Inapplicable.

Item 2.  Changes in Securities.  Inapplicable

Item 3.  Defaults Upon Senior Securities.  Inapplicable

Item 4.  Submission of Matters to a Vote of Securities Holders.  Inapplicable

Item 5.  Other Information.  Inapplicable

Item 6.  Exhibits and Reports on 8-K:

         a) Exhibits:

            (27)   Financial Data Schedule

         b) Reports on 8-K:  None



<PAGE>


                                                                   Page 12 of 12



                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) 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.

                                           PHOENIX LEASING INCOME FUND VII
                                           -------------------------------
                                                     (Registrant)


      Date                       Title                        Signature
      ----                       -----                        ---------


November 12, 1996        Chief Financial Officer,       /S/ PARITOSH K. CHOKSI
-----------------        Senior Vice President          -----------------------
                         and Treasurer of               (Paritosh K. Choksi)
                         Phoenix Leasing Incorporated
                         General Partner


November 12, 1996        Senior Vice President,         /S/ BRYANT J. TONG
-----------------        Financial Operations           -----------------------
                         (Principal Accounting Officer) (Bryant J. Tong)
                         Phoenix Leasing Incorporated
                         General Partner


November 12, 1996        Senior Vice President          /S/ GARY W. MARTINEZ
-----------------        Phoenix Leasing Incorporated   -----------------------
                         General Partner                (Gary W. Martinez)


November 12, 1996        Partnership Controller         /S/ MICHAEL K. ULYATT
-----------------        Phoenix Leasing Incorporated   -----------------------
                         General Partner                (Michael K. Ulyatt)