UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 ___________________
 FORM 10-QSB
 
 
 
 
 [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal quarter ended June 30, 2003
 
 
 [ ]  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 0-26594
 _______________________
 
 
 
 
 PLM EQUIPMENT GROWTH & INCOME FUND VII
 (Exact name of registrant as specified in its charter)
 
 
 California

94-3168838(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)235 3 RD Street South, Suite 200St. Petersburg, FL

33701(Address of principal

(Zip code)executive offices) 
 
 Registrant's telephone number, including area code: (727) 803-1800
 _______________________
 
 
 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 ____
 - - 
 PLM EQUIPMENT GROWTH & INCOME FUND VII(A Limited Partnership)CONDENSED BALANCE SHEETS(in thousands of dollars, except unit amounts) (unaudited)
 
 
 June 30,

December 31,2003



2002AssetsEquipment held for operating leases, at cost
$
83,847


$
79,849Less accumulated depreciation

(52,941
)


(49,918
)Net equipment

30,906



29,931Cash and cash equivalents

8,607



9,339Restricted cash

60



60Accounts and note receivable, less allowance for doubtfulaccounts of $1,072 in 2003 and $1,133 in 2002

2,295



1,769Investments in unconsolidated special-purpose entities

5,517



6,757Deferred charges, net of accumulated amortizationof $474 in 2003 and $454 in 2002

120



98Prepaid expenses and other assets

306



370Total assets
$
47,811


$
48,324Liabilities and partners capitalLiabilities:Accounts payable and accrued expenses
$
462


$
221Due to affiliates

959



847Lessee deposits and reserve for repairs

1,225



1,249Notes payable

11,000



11,000Total liabilities

13,646



13,317Commitments and contingenciesPartners' capital:Limited partners (4,981,450 limited partnership units)

34,165



35,007General Partner

--



--Total partners' capital

34,165



35,007Total liabilities and partners capital
$
47,811


$
48,324 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See accompanying notes to unaudited condensed financial statements.
 - - 
 PLM EQUIPMENT GROWTH & INCOME FUND VII(A Limited Partnership)CONDENSED STATEMENTS OF OPERATIONS(in thousands of dollars, except weighted-average unit amounts) (unaudited)
 
 For the Three Months
Ended June 30,

For the Six Months
Ended June 30,2003



2002



2003



2002RevenuesLease revenue
$
3,163


$
3,759


$
6,600


$
7,700Interest and other income

41



25



83



42Gain on disposition of equipment

5



--



20



2Loss on disposition of equipment

(1
)


(1
)


--



--Total revenues

3,208



3,783



6,703



7,744ExpensesDepreciation and amortization

1,631



1,634



3,099



3,266Repairs and maintenance

720



324



1,430



803Equipment operating expense

492



422



993



866Insurance expense

214



112



379



254Management fees to affiliate

178



186



363



383Interest expense

210



263



419



522General and administrative expensesto affiliates

20



96



57



164Other general and administrative expenses

349



233



624



342Loss on impairment of equipment

7



--



119



--(Recovery of) provision for bad debts

(180
)


283



(265
)


529Total expenses

3,641



3,553



7,218



7,129Equity in net income (loss) of unconsolidatedspecial-purpose entities

(420
)


12



(327
)


35Net income (loss)
$
(853
)

$
242


$
(842
)

$
650Partners' share of net income (loss)Limited partners
$
(853
)

$
242


$
(842
)

$
650General Partner

--



--



--



--Total
$
(853
)

$
242


$
(842
)

$
650Limited partners net income (loss) perweighted-average limited partnership unit
$
(0.17
)

$
0.05


$
(0. 17
)

$
0.13 
 
 
 
 
 
 
 
 
 
 
 
 
 See accompanying notes to unaudited condensed financial statements.
 
 PLM EQUIPMENT GROWTH & INCOME FUND VII(A Limited Partnership)CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITALFor the period from December 31, 2002 to June 30, 2003(in thousands of dollars) (unaudited)
 
 
 Limited
Partners

General
Partner

TotalPartners' capital as of December 31, 2002
$
35,007


$
--


$
35,007Net loss

(842
)


--



(842
)Partners' capital as of June 30, 2003
$
34,165


$
--


$
34,165 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See accompanying notes to unaudited condensed financial statements.
 - - 
 PLM EQUIPMENT GROWTH & INCOME FUND VII(A Limited Partnership)CONDENSED STATEMENTS OF CASH FLOWS(in thousands of dollars)(unaudited)For the Six Months
Ended June 30,2003



2002Operating activitiesNet income (loss)
$
(842
)

$
650Adjustments to reconcile net income (loss) to net cashprovided by (used in) operating activities:Depreciation and amortization

3,099



3,266Amortization of debt placement fees

13



13(Recovery of) provision for bad debts

(265
)


529Loss on impairment of equipment

119



--Net gain on disposition of equipment

(20
)


(2
)Equity in net (income) loss of unconsolidated special-purpose entities

327



(35
)Changes in operating assets and liabilities:Accounts and note receivable

(254
)


(521
)Prepaid expenses and other assets

64



21Accounts payable and accrued expenses

241



59Due to affiliates

112



153Lessee deposits and reserve for repairs

(24
)


198Net cash provided by operating activities

2,570



4,331Investing activitiesPayments for purchase of equipment and capitalized improvements

(4,090
)


(14
)Distribution from unconsolidated special-purpose entities

913



857Payments for acquisition fees to affiliate

(184
)


--Payments for lease negotiation fees to affiliate

(41
)


--Proceeds from disposition of equipment

100



8Net cash (used in) provided by investing activities

(3,302
)


851Financing activitiesIncrease in restricted cash

--



(21
)Canceled purchase of limited partnership units

--



84Decrease in accounts payable and accrued expenses

--



(778
)Net cash used in financing activities

--



(715
)Net (decrease) increase in cash and cash equivalents

(732
)


4,467Cash and cash equivalents at beginning of period

9,339



3,129Cash and cash equivalents at end of period
$
8,607


$
7,596Supplemental informationInterest paid
$
406


$
509 
 
 
 
 
 
 
 
 See accompanying notes to unaudited condensed financial statements.
 - - PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 1.  Basis of Presentation
 
 The accompanying unaudited condensed financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the unaudited condensed financial position of PLM Equipment Growth & Income Fund VII (the Partnership) as of June 30, 2003 and December 31, 2002, the unaudited condensed statements of operations for the three and six months ended June 30, 2003 and 2002, the unaudited condensed statements of changes in partners capital for the period from December 31, 2002 to June 30, 2003 and the unaudited condensed statements of cash flows for the six months ended June 30, 2003 and 2002. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the accompanying condensed financial statements. For further information, reference should be made to the financial statements and notes thereto included in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2002, on file at the Securities and Exchange Commission.
 
 2.  Schedule of Partnership Phases
 
 The Partnership is currently in its investment phase during which the Partnership uses cash generated from operations and proceeds from asset dispositions to purchase additional equipment. The General Partner believes these acquisitions may cause the Partnership to generate additional earnings and cash flow for the Partnership.
 
 The Partnership may reinvest its cash flow, surplus cash and equipment disposition proceeds in additional equipment, consistent with the objectives of the Partnership, until December 31, 2004. The Partnership will terminate on December 31, 2013, unless terminated earlier upon sale of all equipment and by certain other events.
 
 3.  Reclassifications
 
 Certain amounts in the 2002 financial statements have been reclassified to conform to the 2003 presentations. These reclassifications did not have any effect on total assets, total liabilities, partners capital, or net income (loss).
 
 4.  Transactions with General Partner and Affiliates
 
 The balance due to affiliates as of June 30, 2003 and December 31, 2002, included $0.1 million and $0.2 million due to PLM Financial Services, Inc. (FSI or the General Partner) and its affiliates for management fees, respectively, and $0.8 million and $0.7 million due to affiliated unconsolidated special-purpose entities (USPEs), respectively.
 
 The Partnerships proportional share of the affiliated expenses incurred by USPEs during 2003 and 2002 is listed in the following table (in thousands of dollars):
 
 For the Three Months
Ended June 30,

For the Six Months
Ended June 30,2003



2002



2003



2002Management fees
$
40


$
33


$
72


$
57Data processing and administrativeexpenses

1



10



3



17 
 These affiliate expenses reduced the Partnership's proportional share of the equity interest in the income of USPEs.
 
 During the six months ended June 30, 2003, the Partnership purchased a fleet of railcars and paid FSI or its affiliates $0.2 million for acquisition fees and $41,000 for lease negotiation fees. No similar fees were paid during the same period of 2002.
 - - 
 PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 5.  Equipment
 
 Owned equipment held for operating leases is stated at cost. The components of owned equipment were as follows (in thousands of dollars):
 
 June 30,
December 31,2003



2002Marine containers
$
38,749


$
38,811Marine vessels

22,212



22,212Rail equipment

13,675



9,615Aircraft

5,483



5,483Trailers

3,728



3,72883,847



79,849Less accumulated depreciation

(52,941
)


(49,918
)Net equipment
$
30,906


$
29,931 
 As of June 30, 2003, all owned equipment in the Partnerships portfolio was on lease except for a commercial aircraft and 124 railcars with a net book value of $0.4 million. As of December 31, 2002, all owned equipment was on lease except for a commercial aircraft and 110 railcars with a net book value of $0.5 million.
 
 During the six months ended June 30, 2003, the Partnership purchased a fleet of railcars for $4.3 million including acquisition fees of $0.2 million.
 
 During the six months ended June 30, 2003, the Partnership disposed of marine containers and railcars with a net book value of $0.1 million for proceeds of $0.1 million. During the six months ended June 30, 2002, the Partnership disposed of marine containers with a net book value of $6,000 for proceeds of $8,000.
 
 Equipment held for operating leases is stated at cost less any reductions to the carrying value as required by Financial Accounting Standards Board (FASB) No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (FASB 144). In 2003, the Partnership recorded an impairment of $0.1 million to 26 owned railcars with corrosion damage. The General Partner determined that these railcars should be scrapped. This indicated that an impairment to these railcars may exist. The fair value of the railcars with this defect was determined by using industry expertise. No reductions were required to the carrying value of the owned equipment during the six months ended June 30, 2002.
 - - PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 6.  Investments in Unconsolidated Special-Purpose Entities
 
 The Partnership owns equipment jointly with affiliated programs. These are single purpose entities that do not have any debt or other financial encumbrances. Ownership interest is based on the Partnerships contribution towards the cost of the equipment in the USPEs. The Partnerships proportional share of equity and income (loss) in each entity is not necessarily the same as its ownership interest. The primary reason for this difference has to do with certain fees such as management and acquisition and lease negotiation fees varying among the owners of the USPEs.
 
 The tables below set forth 100% of the assets, liabilities, and equity of the entities in which the Partnership has an interest and the Partnerships proportional share of equity in each entity as of June 30, 2003 and December 31, 2002 (in thousands of dollars):
 
 TWA

TWA

BoeingS/N 49183

MD-82

737-300As of June 30, 2003

Trust 1

Trust 2

Trust 3

Total 
 AssetsEquipment less accumulated depreciation
$
--

$
3,564

$
10,000Due from affiliates

--


--


2,154Other assets

--


--


2Total assets
$
--

$
3,564

$
12,156LiabilitiesDue to affiliates
$
5

$
5

$
8Lessee deposits and reserve for repairs

--


--


2,154Total liabilities

5


5


2,162Equity

(5
)

3,559


9,994Total liabilities and equity
$
--

$
3,564

$
12,156Partnerships share of equity
$
--

$
1,816

$
3,701

$
5,517 
 TWA

TWA

BoeingS/N 49183

MD-82

737-300As of December 31, 2002

Trust 1

Trust 2

Trust 3

Total 
 AssetsEquipment less accumulated depreciation
$
--

$
4,192

$
12,355Due from affiliates

--


--


1,825Other assets

--


--


3Total assets
$
--

$
4,192

$
14,183LiabilitiesAccounts payable
$
1

$
1

$
--Due to affiliates

5


5


7Lessee deposits and reserve for repairs

--


--


1,825Total liabilities

6


6


1,832Equity

(6
)

4,186


12,351Total liabilities and equity
$
--

$
4,192

$
14,183Partnerships share of equity
$
--

$
2,139

$
4,618

$
6,757 
 
 
 
 
 
 
 
 
 
 1   The Partnership owns a 50% interest in the TWA S/N 49183 Trust that owns a MD-82 stage III commercial aircraft.
 2   The Partnership owns a 50% interest in the TWA MD-80 Trust that owns a MD-82 stage III commercial aircraft.
 3   The Partnership owns a 38% interest in the Boeing 737-300 Trust that owns a Boeing stage III commercial aircraft.
 - - PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 6.  Investments in Unconsolidated Special-Purpose Entities (continued)
 
 The tables below set forth 100% of the revenues, direct and indirect expenses, loss on impairment of equipment and net income (loss) of the entities in which the Partnership has an interest, and the Partnerships proportional share of income (loss) in each entity for the three and six months ended June 30, 2003 and 2002 (in thousands of dollars):
 
 TWA

TWA

BoeingFor the three months ended

S/N 49183

MD-82

737-300June 30, 2003

Trust 1

Trust 2

Trust 3

Total 
 Revenues
$
310

$
310

$
465Less: Direct expenses

--


--


2Indirect expenses

22


336


547Loss on impairment of equipment

--


--


1,321Net income (loss)
$
288

$
(26
)
$
(1,405
)Partnerships share of net income (loss)
$
144

$
(16
)
$
(548
)

$
(420
) 
 TWA

TWA

BoeingFor the three months ended

S/N 49183

MD-82

737-300June 30, 2002

Trust 1

Trust 2

Trust 3

Other

Total 
 Revenues
$
315

$
315

$
465

$
12Less: Direct expenses

(1
)

--


1


--Indirect expenses

26


377


708


--Net income (loss)
$
290

$
(62
)
$
(244
)
$
12Partnerships share of net income (loss)
$
145

$
(36
)
$
(102
)
$
5

$
12 
 TWA

TWA

BoeingFor the six months ended

S/N 49183

MD-82

737-300June 30, 2003

Trust 1

Trust 2

Trust 3

Total 
 Revenues
$
625

$
625

$
930Less: Direct expenses

(1
)

(1
)

7Indirect expenses

43


671


1,097Loss on impairment of equipment

--


--


1,321Net income (loss)
$
583

$
(45
)
$
(1,495
)Partnerships share of net income (loss)
$
292

$
(30
)
$
(589
)

$
(327
) 
 TWA

TWA

BoeingFor the six months ended

S/N 49183

MD-82

737-300June 30, 2002

Trust 1

Trust 2

Trust 3

Other

Total 
 Revenues
$
630

$
630

$
930

$
73Less: Direct expenses

(1
)

--


17


--Indirect expenses

41


743


1,451


2Net income (loss)
$
590

$
(113
)
$
(538
)
$
71Partnerships share of net income (loss)
$
295

$
(67
)
$
(224
)
$
31

$
35 
 In accordance to FASB No. 144, during 2003 the General Partner recorded an impairment of $1.3 million to a Boeing 727-300 commercial aircraft. The General Partner determined the fair value of the aircraft based on the valuation given by its independent third party aircraft equipment manager that considered, among other factors, expected income to be earned from the asset, condition of the aircraft, estimated sales proceeds and holding costs excluding interest. No reductions were required to the carrying value of the remaining jointly-owned equipment during the six months ended June 30, 2002.
 
 
 
 
 1   The Partnership owns a 50% interest in the TWA S/N 49183 Trust that owns a MD-82 stage III commercial aircraft.
 2   The Partnership owns a 50% interest in the TWA MD-82 Trust that owns a MD-82 stage III commercial aircraft.
 3   The Partnership owns a 38% interest in the Boeing 737-300 Trust that owns a Boeing stage III commercial aircraft.
 - - PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 6.  Investments in Unconsolidated Special-Purpose Entities (continued)
 
 As of June 30, 2003 and December 31, 2002, all jointly-owned equipment in the Partnerships USPE portfolio was on lease. `
 
 7.  Operating Segments
 
 The Partnership operates in five primary operating segments: marine vessel leasing, trailer leasing, aircraft leasing, railcar leasing, and marine container leasing. Each equipment leasing segment engages in short-term to mid-term operating leases to a variety of customers.
 
 The following tables present a summary of the operating segments (in thousands of dollars):
 
 Marine







MarineFor the three months ended

Vessel

Trailer

Aircraft

Railcar

ContainerJune 30, 2003

Leasing

Leasing

Leasing

Leasing

Leasing
Other 1

Total 
 RevenuesLease revenue
$
1,030

$
62

$
--

$
553

$
1,518

$
--

$
3,163Interest income and other income

--


--


18


--


--


23


41Gain (loss) on disposition of equipment

--


--


--


(1
)

5


--


4Total revenues

1,030


62


18


552


1,523


23


3,208ExpensesOperations support

1,158


59


26


151


13


19


1,426Depreciation and amortization

310


52


--


331


937


1


1,631Interest expense

--


--


--


--


--


210


210Management fees to affiliate

51


3


12


36


76


--


178General and administrative expenses

30


25


76


38


--


200


369Loss on impairment of equipment

--


--


--


7


--


--


7Recovery of bad debts

--


--


(163
)

(17
)

--


--


(180
)Total expenses

1,549


139


(49
)

546


1,026


430


3,641Equity in net loss of USPEs

--


--


(420
)

--


--


--


(420
)Net income (loss)
$
(519
)
$
(77
)
$
(353
)
$
6

$
497

$
(407
)
$
(853
)Total assets as of June 30, 2003
$
4,327

$
618

$
5,588

$
6,207

$
21,983

$
9,088

$
47,811 
 
 Marine







MarineFor the three months ended

Vessel

Trailer

Aircraft

Railcar

ContainerJune 30, 2002

Leasing

Leasing

Leasing

Leasing

Leasing
Other 2

Total 
 RevenuesLease revenue
$
1,319

$
124

$
272

$
532

$
1,512

$
--

$
3,759Interest income and other income

--


--


--


--


--


25


25Loss on disposition of equipment

--


--


--


--


(1
)

--


(1
)Total revenues

1,319


124


272


532


1,511


25


3,783ExpensesOperations support

604


87


2


133


17


15


858Depreciation and amortization

310


52


--


119


1,152


7


1,640Interest expense

--


--


--


--


--


257


257Management fees to affiliate

66


7


--


37


76


--


186General and administrative expenses

18


27


9


20


--


255


329Provision for bad debts

--


--


272


11


--


--


283Total expenses

998


173


283


320


1,245


534


3,553Equity in net income of USPEs

5


--


7


--


--


--


12Net income (loss)
$
326

$
(49
)
$
(4
)
$
212

$
266

$
(509
)
$
242 
 1  Includes certain assets not identifiable to a specific segment such as cash, restricted cash, deferred charges and certain prepaid expenses and other assets . Also includes certain interest income and costs not identifiable to a particular segment, such as interest expense, and certain amortization, general and administrative and operations support expenses.
 2  Includes interest income and costs not identifiable to a particular segment, such as interest expense, and certain amortization, general and administrative and operations support expenses.
 - - PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 7.  Operating Segments (continued)
 
 Marine







MarineFor the six months ended

Vessel

Trailer

Aircraft

Railcar

ContainerJune 30, 2003

Leasing

Leasing

Leasing

Leasing

Leasing
Other 1

Total 
 RevenuesLease revenue
$
2,300

$
227

$
--

$
948

$
3,125

$
--

$
6,600Interest income and other income

--


--


28


--


--


55


83Gain on disposition of equipment

--


--


--


6


14


--


20Total revenues

2,300


227


28


954


3,139


55


6,703ExpensesOperations support

2,249


124


29


337


26


37


2,802Depreciation and amortization

620


104


--


498


1,875


2


3,099Interest expense

--


--


--


--


--


419


419Management fees to affiliate

115


12


17


63


156


--


363General and administrative expenses

51


53


90


72


--


415


681Loss on impairment of equipment

--


--


--


119


--


--


119Provision for (recovery of) bad debts

--


--


(270
)

5


--


--


(265
)Total expenses

3,035


293


(134
)

1,094


2,057


873


7,218Equity in net loss of USPEs

--


--


(327
)

--


--


--


(327
)Net income (loss)
$
(735
)
$
(66
)
$
(165
)
$
(140
)
$
1,082

$
(818
)
$
(842
)Equipment purchases andcapitalized improvements
$
--

$
--

$
--

$
4,274

$
--

$
--

$
4,274 
 
 Marine







MarineFor the six months ended

Vessel

Trailer

Aircraft

Railcar

ContainerJune 30, 2002

Leasing

Leasing

Leasing

Leasing

Leasing
Other 1

Total 
 RevenuesLease revenue
$
2,624

$
319

$
543

$
1,144

$
3,070

$
--

$
7,700Interest income and other income

--


--


--


--


--


42


42Gain on disposition of equipment

--


--


--


--


2


--


2Total revenues

2,624


319


543


1,144


3,072


42


7,744ExpensesOperations support

1,397


185


4


271


35


31


1,923Depreciation and amortization

620


104


--


237


2,304


14


3,279Interest expense

--


--


--


--


--


509


509Management fees to affiliate

131


16


--


82


154


--


383General and administrative expenses

31


54


7


42


--


372


506Provision for (recovery of) bad debts

--


10


543


(24
)

--


--


529Total expenses

2,179


369


554


608


2,493


926


7,129Equity in net income of USPEs

31


--


4


--


--


--


35Net income (loss)
$
476

$
(50
)
$
(7
)
$
536

$
579

$
(884
)
$
650 
 8.  Net Income (Loss) Per Weighted-Average Limited Partnership Unit
 
 Net income (loss) per weighted-average limited partnership unit was computed by dividing net income or loss attributable to limited partners by the weighted-average number of limited partnership units deemed outstanding during the period. The weighted-average number of limited partnership units deemed outstanding during the three and six months ended June 30, 2003 was 4,981,450. The weighted-average number of limited partnership units deemed outstanding during the three and six months ended June 30, 2002 was 4,981,450 and 4,991,809, respectively.
 
 
 
 
 
 
 
 1  Includes certain interest income and costs not identifiable to a particular segment, such as interest expense, and certain amortization, general and administrative and operations support expenses.
 - - PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 9.  Debt
 
 The Partnership is a participant in a $10.0 million warehouse facility. The warehouse facility, which was scheduled to expire on June 30, 2003, was extended until September 30, 2003 during June 2003. As of June 30, 2003 and December 31, 2002, the Partnership had no borrowings outstanding under this facility.
 
 10.  Commitments and Contingencies
 
 In 2002, PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned subsidiary of FSI, arranged for the lease or purchase of a total of 1,050 pressurized tank railcars by (i) partnerships and managed programs in which FSI serves as the general partner or manager and holds an ownership interest (Program Affiliates) or (ii) managed programs in which FSI provides management services but does not hold an ownership interest or third parties (Non-Program Affiliates). These railcars will be delivered between 2002 - 2004. A leasing company affiliated with the manufacturer will acquire approximately 70% of the railcars and lease  them to a Non-Program Affiliate. The remaining 30% will either be purchased by other third parties to be managed by PLM  I nternational, Inc. , or by the Program Affiliates. An affiliate of TEC will manage the leased and purchased railcars. Neither TEC nor its affiliate will be liable for these railcars. TEC estimates that the total value of purchased railcars will not exceed $26.0 million with approximately one third of the railcars being purchased in each of 2002, 2003, and 2004. As of June 30, 2003, $8.7 million in railcars had been purchased by Program Affiliates and FSI committed one Program Affiliate, other than the Partnership, to purchase $1.6 million in railcars during the remainder of 2003. Although FSI has neither determined which Program Affiliates will purchase the remaining railcars nor the timing of any purchases, it is possible the Partnership may purchase some of the railcars.
 
 In 2003, FSI entered into three additional commitments to purchase a total of $12.1 million in railcars during 2003. While FSI has neither determined if a Program Affiliate s will purchase these railcars nor the timing of any purchases, it is possible the Partnership may purchase some of the railcars.
 
 Notes Payable
 
 Warehouse Credit Facility
 
 See Note 9 for discussion of the Partnerships debt facility.
 
 Commitments and contingencies as of June 30, 2003 are as follows (in thousands of dollars):
 
 Current Obligations
Total
Less Than 1 Year
1-3 Years
4-5   Years
After 5 Years  Commitment to purchase railcars
$
26,880
1
$
18,438

$
8,442

--

--Notes payable

11,000


3,000


8,000

--

--Line of credit

--


--


--

--

--$
37,880

$
21,438

$
16,442

--

--
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1  While FSI has neither determined if a Program Affiliate will purchase these railcars nor the timing of any purchases, it is possible the Partnership may purchase some of the railcars.
 
 - - 
 PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 11.  Recent Accounting Pronouncements
 
 In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). This interpretation clarifies existing accounting principles related to the preparation of consolidated financial statements when the owners of an USPE do not have the characteristics of a controlling financial interest or when the equity at risk is not sufficient for the entity to finance its activities without additional subordinated financial support from others. FIN 46 requires the Partnership to evaluate all existing arrangements to identify situations where the Partnership has a variable interest, commonly evidenced by a guarantee arrangement or other commitment to provide financial support, in a variable interest entity, commonly a thinly capitalized entity, and further determine when such variable interest requires the Partnership to consolidate the variable interest entities financial statements with its own. The Partnership is required to perform this assessment by September 30, 2003 and consolidate any variable interest entities for which the Partnership will absorb a majority of the entities expected losses or receive a majority of the expected residual gains. The General Partner has not determined the impact FIN 46 will have on the financial condition or results of operation of the Partnership. The Partnership believes that the adoption of FIN 46 will not have a material effect on the financial statements.
 
 In May 2003, FASB issued Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No. 150) establishes standards for how the Partnership classifies and measures certain financial instruments with characteristics of both liabilities and equity. In addition, SFAS No. 150 requires the Partnership to classify certain instruments with specific characteristics described in it as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The General Partner does not expect that the adoption of SFAS No. 150 will have a significant impact on either its financial position or results of operations.
 
 - - 
 ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 (I)  RESULTS OF OPERATIONS
 
 Comparison of the PLM Equipment Growth & Income Fund VIIs (the Partnerships) Operating Results for the Three Months Ended June 30, 2003 and 2002
 
 (A)  Owned Equipment Operations
 
 For purposes of this discussion, lease revenues less direct expenses (defined as repairs and maintenance, equipment operating, and asset-specific insurance expenses) on owned equipment decreased during the three months ended June 30, 2003 compared to the same period of 2002. Gains or losses from the disposition of equipment, interest and other income, and certain expenses such as management fees to affiliate, depreciation and amortization, Loss on impairment of equipment, general and administrative expenses, and (recovery of) provision for bad debts relating to the operating segments (see Note 7 to the unaudited condensed financial statements), are not included in the owned equipment operation discussion because they are indirect in nature and not a result of operations, but the result of owning a portfolio of equipment. The following table presents lease revenues less direct expenses by segment (in thousands of dollars):
 
 For the Three MonthsEnded June 30,2003

2002Marine containers
$
1,505


$
1,495Railcars

402



399Trailers

3



37Aircraft

(26
)


270Marine vessels

(128
)


715 
 Marine containers:  Lease revenues and direct expenses for marine containers were relatively the same at $1.5 million and $13,000 respectively, for the three months ended June 30, 2003, compared to $1.5 million and $17,000, respectively, during the same period of 2002. A significant number of the Partnerships marine containers currently on a fixed rate lease will be switching to a lease based on utilization. The General Partner anticipates that this will result in a significant decrease in lease revenues.
 
 Railcars:  Railcar lease revenues and direct expenses were $0.6 million and $0.2 million, respectively, for the three months ended June 30, 2003, compared to $0.5 million and $0.1 million, respectively, during the same period of 2002. Lease revenues increase of $0.2 million resulting from the purchase and lease of a fleet of railcars during the first quarter of 2003 was partially offset by a decrease of $0.2 million caused by an increase in the number of railcars off-lease compared to the same period of 2002.
 
 Trailers:  Trailer lease revenues and direct expenses remained relatively the same at $0.1 million and $0.1 million, respectively, for the three months ended June 30, 2003 and 2002.
 
 Aircraft:  Aircraft lease revenues and direct expenses were $-0- and $26,000, respectively, for the three months ended June 30, 2003, compared to $0.3 million and $2,000, respectively, during the same period of 2002. The decrease on lease revenues of $0.3 million was due to the Partnerships owned aircraft being off-lease during the second quarter of 2003 compared to the same period of 2002, during which this aircraft was on-lease.
 
 Marine vessels:  Marine vessel lease revenues and direct expenses were $1.0 million and $1.2 million, respectively, for the three months ended June 30, 2003, compared to $1.3 million and $0.6 million, respectively, during the same period of 2002. Lease revenues decreased $0.3 million during the second quarter of 2003 due to lower lease rates earned when compared to the same period of 2002. Direct expenses increased $0.6 million during the second quarter of 2003 resulting from higher repairs of $0.4 million, higher insurance premiums of $0.1 million and higher operating cost of $0.1 million compared to 2002.
 - - 
 (B)  Indirect Expenses Related to Owned Equipment Operations
 
 Total indirect expenses of $2.2 million for the three months ended June 30, 2003 decreased from $2.7 million for the same period in 2002. Significant variances are explained as follows:
 
 (i)  (Recovery of) provision for bad debts decreased $0.5 million compared to 2002. A provision for bad debts of $0.3 million recorded in the second quarter of 2002 was primarily based on PLM Financial Services, Inc.s (FSI or the General Partners) evaluation of the collectability of receivables related to one aircraft lessee. During 2003, the Partnership recorded a recovery of bad debts of $0.2 million due to the collection of bad debts that had been previously written off;
 
 (ii)  A $47,000 decrease in interest expense was due to a lower average outstanding debt balance in the second quarter of 2003 compared to the same period of 2002;
 
 (iii)  Depreciation and amortization expenses remained relatively the same for both periods however a decrease of approximately $0.2 million caused by the double-declining balance method of depreciation which results in greater depreciation in the first years an asset is owned, was offset in part, by an increase of $0.2 million resulting from the purchase of a fleet of railcars during 2003; and
 
 (iv)  A $40,000 increase in general and administrative expenses due to an increase in administrative services costs during 2003.
 
 (C)  Net Gain on Disposition of Owned Equipment
 
 The net gain on disposition of owned equipment for the second quarter of 2003 totaled $4,000, and resulted from the sale of marine containers and railcars with a net book value of $27,000 for proceeds of $31,000.
 
 (D)  Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities (USPEs)
 
 Equity in net income (loss) of USPEs represents the Partnership's share of the net income or loss generated from the operation of jointly owned assets accounted for under the equity method of accounting. These entities are single purpose and have no debt or other financial encumbrances. The following table presents equity in net income (loss) by equipment type (in thousands of dollars):
 
 For the Three MonthsEnded June 30,2003

2002Aircraft
$
(420
)

$
7Marine vessel

--



5Equity in net income (loss) of USPEs
$
(420
)

$
12 
 The following USPE discussion by equipment type is based on the Partnership's proportional share of revenues, depreciation expense, direct expenses, administrative expenses and loss on impairment of equipment in the USPEs:
 
 Aircraft: As of June 30, 2003 and 2002, the Partnership owned an interest in trusts that owned three commercial aircraft. During the three months ended June 30, 2003, lease revenues of $0.5 million were offset by depreciation expense, direct expenses, and administrative expenses of $0.4 million and the loss on impairment of $0.5 million. During the same period of 2002, lease revenues of $0.5 million were offset by depreciation expense, direct expenses, and administrative expenses of $0.5 million.
 
 The decrease in direct expenses of $0.1 million during the second quarter of 2003 was caused by the lower administrative expenses compared to 2002. This decrease was offset by an $0.5 million increase in the loss on impairment of equipment resulting from the reduction of the carrying value of a Boeing 737-300 commercial aircraft to its estimated fair value. No impairment of equipment was required during the second quarter of 2002.
 
 Marine vessel: As of June 30, 2002 the Partnership had sold its interest in an entity that owned a marine vessel.
 
 (E)  Net Income (Loss)
 
 As a result of the foregoing, the Partnership had net loss of $0.9 million for the three months ended June 30, 2003, compared to net income of $0.2 million during the same period of 2002. The Partnership's ability to acquire, operate, and liquidate assets, secure leases and re-lease those assets whose leases expire is subject to many factors. Therefore, the Partnership's performance in the second quarter of 2003 is not necessarily indicative of future periods.
 
 Comparison of the Partnerships Operating Results for the Six Months Ended June 30, 2003 and 2002
 
 (A)  Owned Equipment Operations
 
 Lease revenues less direct expenses on owned equipment decreased during the six months ended June 30, 2003 compared to the same period of 2002. The following table presents lease revenues less direct expenses by segment (in thousands of dollars):
 
 For the Six MonthsEnded June 30,2003

2002Marine containers
$
3,099


$
3,035Railcars

611



873Trailers

103



134Marine vessels

51



1,227Aircraft

(29
)


539 
 Marine containers:  Lease revenues and direct expenses for marine containers were relatively the same at $3.1 million and $26,000 respectively, for the six months ended June 30, 2003, compared to $3.1 million and $38,000, respectively, during the same period of 2002. A significant number of the Partnerships marine containers currently on a fixed rate lease will be switching to a lease based on utilization. The General Partner anticipates that this will result in a significant decrease in lease revenues.
 
 Railcars:  Railcar lease revenues and direct expenses were $0.9 million and $0.3 million, respectively, for the six months ended June 30, 2003, compared to $1.1 million and $0.3 million, respectively, during the same period of 2002. During the six months ended June 30, 2003, the decrease in lease revenues of $0.4 million caused by an increase in the number of off-lease railcars was partially offset, by an increase of $0.2 million resulting from the purchase and lease of a fleet of railcars during 2003.
 
 Trailers:  Trailer lease revenues and direct expenses were $0.2 million and $0.1 million, respectively, for the six months ended June 30, 2003, compared to $0.3 million and $0.2 million, respectively, during the same period of 2002. The decrease in trailer lease revenues of $0.1 million was due to a decrease in earnings from utilization when compared to the same period of 2002. The decrease of $0.1 million in trailer direct expenses was due to a decrease in the repairs and maintenance.
 
 Marine vessels:  Marine vessel lease revenues and direct expenses were $2.3 million and $2.2 million, respectively, for the six months ended June 30, 2003, compared to $2.6 million and $1.4 million, respectively, during the same period of 2002. Lease revenues decreased $0.3 million during the six months ended June 30, 2003 due to lower lease rates earned when compared to the same period of 2002. Direct expenses increased $0.9 million during the second quarter of 2003 resulting from higher repairs of $0.6 million, higher insurance premiums of $0.1 million and higher operating cost of $0.1 million compared to 2002.
 
 Aircraft:  Aircraft lease revenues and direct expenses were $-0- and $29,000, respectively, for the six months ended June 30, 2003, compared to $0.5 million and $4,000, respectively, during the same period of 2002. The decrease on lease revenues of $0.5 million was due to the Partnerships owned aircraft being off-lease during the six months ended June 30, 2003 compared to the same period of 2002, during which this aircraft was on-lease.
 - - 
 (B)  Indirect Expenses Related to Owned Equipment Operations
 
 Total indirect expenses of $4.5 million for the six months ended June 30, 2003 decreased from $5.2 million for the same period in 2002. Significant variances are explained as follows:
 
 (i)  (Recovery of) provision for bad debts decreased $0.8 million compared to 2002. A provision for bad debts of $0.5 million recorded in the six months ended June 30, 2002 was primarily based on the General Partners evaluation of the collectability of receivables related to one aircraft lessee. During 2003, the Partnership recorded a recovery of bad debts of $0.3 million due to the collection of bad debts that had been previously written off;
 
 (ii)  A $0.2 million decrease in depreciation and amortization expenses from 2002 levels reflects the decrease of approximately $0.5 million caused by the double-declining balance method of depreciation which results in greater depreciation in the first years an asset is owned off set, in part, by an increase of $0.3 million resulting from the purchase of a fleet of railcars during 2003;
 
 (iii)  A $0.1 million decrease in interest expense was due to a lower average outstanding debt balance in the six months ended June 30, 2003 compared to the same period of 2002;
 
 (iv)  A $0.1 million increase in the loss on impairment of equipment resulted from the Partnership reducing the carrying value of 26 railcars to their estimated fair value during the six months ended June 30, 2003. No impairment of equipment was required during the six months ended June 30, 2002; and
 
 (v)  A $0.2 million increase in general and administrative expenses due to an increase of $0.1 million in administrative services costs and an increase of $0.1 million in professional services during 2003.
 
 (C)  Interest and Other Income
 
 Interest and other income increased $13,000 due to higher cash balances and increased $28,000 due to earnings from an outstanding note receivable in the six months ended June 30, 2003 compared to the same period of 2002.
 
 (D)  Gain on Disposition of Owned Equipment
 
 The gain on disposition of owned equipment for the six months ended June 30, 2003 totaled $20,000, and resulted from the sale of marine containers and railcars with a net book value of $0.1 million for proceeds of $0.1 million. The gain on disposition of equipment for the six months ended June 30, 2002 totaled $2,000 and resulted from the sale of marine containers with a net book value of $6,000 for $8,000.
 
 (E)  Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
 
 Equity in net income (loss) of USPEs represents the Partnership's share of the net income or loss generated from the operation of jointly owned assets accounted for under the equity method of accounting. These entities are single purpose and have no debt or other financial encumbrances. The following table presents equity in net income (loss) by equipment type (in thousands of dollars):
 
 For the Six MonthsEnded June 30,2003

2002Aircraft
$
(327
)

$
4Marine vessel

--



31Equity in net income (loss) of USPEs
$
(327
)

$
35 
 The following USPE discussion by equipment type is based on the Partnership's proportional share of revenues, depreciation expense, direct expenses, administrative expenses and loss on impairment of equipment in the USPEs:
 
 Aircraft: As of June 30, 2003 and 2002, the Partnership owned an interest in trusts that owned three commercial aircraft. During the six months ended June 30, 2003, lease revenues of $1.0 million were offset by depreciation expense, direct expenses, and administrative expenses of $0.8 million and a loss on impairment of equipment of $0.5 million. During the same period of 2002, lease revenues of $1.0 million were offset by depreciation expense, direct expenses, and administrative expenses of $1.0 million.
 
 A decrease in direct expenses during the six months ended June 30, 2003 was caused by lower administrative expenses of $0.1 million and lower depreciation expense of $0.1 million caused by the double declining-balance method of depreciation which results in greater depreciation in the first years an asset is owned compared to 2002. This decrease was offset by an $0.5 million increase in the loss on impairment of equipment resulting from the reduction of the carrying value of a Boeing 737-300 commercial aircraft to its estimated fair value. No impairment of equipment was required during the second quarter of 2002.
 
 Marine vessel: As of June 30, 2002 the Partnership had sold its interest in an entity that owned a marine vessel.
 
 (F)  Net Income (Loss)
 
 As a result of the foregoing, the Partnership had net loss of $0.8 million for the six months ended June 30, 2003, compared to net income of $0.7 million during the same period of 2002. The Partnership's ability to acquire, operate, and liquidate assets, secure leases and re-lease those assets whose leases expire is subject to many factors. Therefore, the Partnership's performance in the six months ended June 30, 2003 is not necessarily indicative of future periods.
 
 (II)  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires PLM Financial Services, Inc. (FSI or the General Partner) to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, the General Partner reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets, allowance for doubtful accounts, reserves related to legally mandated equipment repairs  and contingencies and litigation. These estimates are based on the General Partner's historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The General Partner believes, however, that the estimates, including those for the above-listed items, are reasonable and that actual results will not vary significantly from the estimated amounts.
 
 The General Partner believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Partnership's financial statements:
 
 Revenue recognition: Lease revenues are earned by the Partnership monthly and no significant amounts are calculated on factors other than the passage of time. The Partnerships leases are accounted for as operating leases and are noncancellable. Rents received prior to their due dates are deferred.
 
 Asset lives and depreciation methods: The Partnerships primary business involves the purchase and subsequent lease of long-lived transportation and related equipment. The General Partner has chosen asset lives that it believes correspond to the economic life of the related asset. The General Partner has chosen a deprecation method that it believes matches the benefit to the Partnership from the asset with the associated costs. These judgments have been made based on the General Partners expertise in each equipment segment that the Partnership operates. If the asset life and depreciation method chosen does not reduce the book value of the asset to at least the potential future cash flows from the asset to the Partnership, the Partnership would be required to record an impairment loss. Likewise, if the net book value of the asset was less than the economic value, the Partnership may record a gain on sale upon final disposition of the asset.
 
 Impairment of long-lived assets: Whenever circumstances indicate that an impairment may exist, the General Partner reviews the carrying value of its equipment and investments in USPEs to determine if the carrying value of the assets may not be recoverable due to current economic conditions. This requires the General Partner to make estimates related to future cash flows from each asset as well as the determination if the deterioration is temporary or permanent. If these estimates or the related assumptions change in the future, the Partnership may be required to record additional impairment charges.
 
 Allowance for doubtful accounts: The Partnership maintains allowances for doubtful accounts for estimated losses resulting from the inability of the lessees to make the lease payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of the lessees to make the required payments. If the financial condition of the Partnerships lessees were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the lessees were to improve or if legal remedies to collect past due amounts were successful, the allowance for doubtful accounts may need to be reduced and income would be increased.
 
 Reserves for repairs: The Partnership accrues for legally required repairs to equipment such as dry docking for marine vessels and engine overhauls to aircraft engines over the period prior to the required repairs. The amount that is reserved is based on the General Partners expertise in each equipment segment, the past history of such costs for that specific piece of equipment and discussions with independent, third party equipment brokers. If the amount reserved for is not adequate to cover the cost of such repairs or if the repairs must be performed earlier than the General Partner estimated, the Partnership would incur additional repair and maintenance or equipment operating expenses.
 
 Contingencies and litigation: The Partnership is subject to legal proceedings involving ordinary and routine claims related to its business. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are disclosed if considered possible and accrued if considered probable after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, the Partnership may be required to record additional litigation expense.
 
 (III)  FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
 
 For the six months ended June 30, 2003, the Partnership generated operating cash of $2.6 million to meet its operating obligations, purchase additional equipment, pay debt and interest payments and maintain working capital reserves.
 
 During the six months ended June 30, 2003, the Partnership purchased a fleet of railcars for $4.1 million and paid FSI $0.2 million for acquisition fees and $41,000 for lease negotiation fees. The Partnership also disposed of owned equipment for proceeds of $0.1 million.
 
 Accounts and note receivable increased $0.5 million in the six months ended June 30, 2003. An increase of $0.6 million was due to the timing of lease receipts and an increase of $0.3 million was due to repairs to a marine vessel that are reimbursable. These increases were partially offset by a decrease in the allowance for bad debts of $0.1 million due to the collection of bad debts previously written-off and the collection of $0.3 million on note receivable.
 
 Investments in USPEs decreased $1.2 million during the six months ended June 30, 2003 due to cash distributions of $0.9 million from the USPEs to the Partnership and by the loss of $0.3 million that was recorded by the Partnership for its equity interests in the USPEs.
 
 Deferred charges increased $41,000 due to the payment of lease negotiation fees to FSI.
 
 Accounts payable increased $0.2 million during the six months ended June 30, 2003 due to the timing of cash payments.
 
 The Partnership is scheduled to make an annual debt payment of $3.0 million to the lenders of the notes payable on December 31, 2003. The cash for this payment will come from operations and proceeds from equipment dispositions.
 
 The Partnership is a participant in a $10.0 million warehouse facility. The warehouse facility is shared by the Partnership, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, Professional Lease Management Income Fund I, LLC and Acquisub LLC, a wholly owned subsidiary of PLM International Inc. (PLMI). The facility provides for financing up to 100% of the cost of the equipment and expires on September 30, 2003. Any borrowings by the Partnership are collateralized by equipment purchased with the proceeds of the loan. Outstanding borrowings by one borrower reduce the amount available to each of the other borrowers under the facility. Individual borrowings may be outstanding for no more than 270 days, with all advances due no later than September 30, 2003. Interest accrues either at the prime rate or LIBOR plus 2.0% at the borrowers option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by PLMI. The Partnership is not liable for the advances made to other borrowers.
 
 As of August 13, 2003, Acquisub LLC had outstanding borrowings on the warehouse facility of $2.5 million. There were no other outstanding borrowings on this facility by the Partnership or any of the other eligible borrowers.
 
 PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned subsidiary of FSI, arranged for the lease or purchase of a total of 1,050 pressurized tank railcars by (i) partnerships and managed programs in which FSI serves as the general partner or manager and holds an ownership interest (Program Affiliates) or (ii) managed programs in which FSI provides management services but does not hold an ownership interest or third parties (Non-Program Affiliates). These railcars will be delivered between 2002 - 2004. A leasing company affiliated with the manufacturer will acquire approximately 70% of the railcars and lease  them to a Non-Program Affiliate. The remaining 30% will either be purchased by other third parties to be managed by PLMI, or by the Program Affiliates. An affiliate of TEC will manage the leased and purchased railcars. Neither TEC nor its affiliate will be liable for these railcars. TEC estimates that the total value of purchased railcars will not exceed $26.0 million with approximately one third of the railcars being purchased in each of 2002, 2003, and 2004. As of August 13, 2003, $8.7 million in railcars had been purchased by Program Affiliates and FSI committed one Program Affiliate, other than the Partnership, to purchase $1.6 million in railcars during the remainder of 2003. Although FSI has neither determined which Program Affiliates will purchase the remaining railcars nor the timing of any purchases, it is possible the Partnership may purchase some of the railcars.
 
 In 2003, FSI entered into three additional commitments to purchase a total of $12.1 million in railcars during 2003. While FSI has neither determined if a Program Affiliate s will purchase these railcars nor the timing of any purchases, it is possible the Partnership may purchase some of the railcars.
 
 Commitments and contingencies as of August 13, 2003 are as follows (in thousands of dollars):
 
 Current Obligations
Total
Less than  1 Year
1-3  Years
4-5  Years
After 5 Years  Commitment to purchase railcars
$
26,880
1
$
18,438

$
8,442

$
--

--Notes payable

11,000


3,000


8,000


--

--Line of credit

--


--


--


--

--$
37,880

$
21,438

$
16,442


--

--
 
 (IV) RECENT ACCOUNTING PRONOUNCEMENT S
 
 In January 2003, Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). This interpretation clarifies existing accounting principles related to the preparation of consolidated financial statements when the owners of an USPE do not have the characteristics of a controlling financial interest or when the equity at risk is not sufficient for the entity to finance its activities without additional subordinated financial support from others. FIN 46 requires the Partnership to evaluate all existing arrangements to identify situations where the Partnership has a variable interest, commonly evidenced by a guarantee arrangement or other commitment to provide financial support, in a variable interest entity, commonly a thinly capitalized entity, and further determine when such variable interest requires the Partnership to consolidate the variable interest entities financial statements with its own. The Partnership is required to perform this assessment by September 30, 2003 and consolidate any variable interest entities for which the Partnership will absorb a majority of the entities expected losses or receive a majority of the expected residual gains. The General Partner has not determined the impact FIN 46 will have on the financial condition or results of operation of the Partnership. The Partnership believes that the adoption of FIN 46 will not have a material effect on the financial statements.
 
 
 
 
 
 
 In May 2003, FASB issued Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No. 150) establishes standards for how the Partnership classifies and measures certain financial instruments with characteristics of both liabilities and equity. In addition, SFAS No. 150 requires the Partnership to classify certain instruments with specific characteristics described in it as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The General Partner does not expect that the adoption of SFAS No. 150 will have a significant impact on either its financial position or results of operations.
 
 
 1  While FSI has neither determined if a Program Affiliate will purchase these railcars nor the timing of any purchases, it is possible the Partnership may purchase some of the railcars.
 - - 
 In May 2003, FASB issued Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No. 150) establishes standards for how the Partnership classifies and measures certain financial instruments with characteristics of both liabilities and equity. In addition, SFAS No. 150 requires the Partnership to classify certain instruments with specific characteristics described in it as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The General Partner does not expect that the adoption of SFAS No. 150 will have a significant impact on either its financial position or results of operations.
 - - 
 (V)  OUTLOOK FOR THE FUTURE
 
 Several factors may affect the Partnership's operating performance during the remainder of 2003 and beyond, including changes in the markets for the Partnership's equipment and changes in the regulatory environment in which that equipment operates.
 
 The Partnership's operation of a diversified equipment portfolio in a broad base of markets is intended to reduce its exposure to volatility in individual equipment sectors.
 
 Other factors affecting the Partnerships contribution operations during the remainder of 2003 and beyond include:
 
 (1)  Starting in 2003 and continuing through 2004, a significant number of the Partnerships marine containers currently on a fixed rate lease will be switching to a lease based on utilization. The General Partner anticipates that this will result in a significant decrease in lease revenues;
 
 (2)  Signs of economic recovery in the railcar segment continue to be mixed. Total industrial production rose in May for the first time in three months and Leading Economic Indicators remain positive. However, costs in the fertilizer industry have remained high, putting pressure on the profitability of ammonia producers, a key market segment for the demand of the types of railcars which are the core of Partnership's fleet. As manufacturing recovers, chemical and allied products carloadings are generally forecast to grow between 1% and 3% in the third and fourth quarters of 2003. North American railcar manufacturing capacity utilization, as reported informally by the manufacturers themselves, continues to increase and lead times are extending. Full service leasing has been on a slightly positive trend since the third quarter of 2002. The speed of recovery in lease rates will continue to be discounted as long as shippers have owned idle railcars in their fleet;
 
 (3)  Utilization of intermodal trailers owned by the Partnership was 52% in the three months ended June 30, 2003 which was approximately 3% below the three months ended June 30, 2002.  Industry-wide utilization of intermodal trailers was 46% in the three months ended June 30, 2003 compared to 51% in the same period of 2002.  As the Partnership's trailers are smaller than many shippers prefer, the General Partner expects utilization to have little opportunity to increase over the next few years;
 
 (4)  Market demand for new and used aircraft has been severely impacted by the poor financial condition of the airline industry caused by lower passenger travel following the events of September 11, 200 1, a weak domestic eco no my 1 and the war in Iraq. The General Partner believes that there is a significant oversupply of commercial aircraft available, that has caused a decrease in aircraft fair market values and that this oversupply will continue for some time. The General Partner does not expect these aircraft to return to their pre-September 11, 2001 values. During 2003, severe acute respiratory syndrome (SARS) has had a dramatic effect on passenger travel to countries in Asia and to certain extent, Canada . If this trend continues, it is possible that passenger travel will be reduced further.
 
 During 2001, the lessee of a Stage II Boeing 737-200 commercial aircraft notified the General Partner of its intention to return this aircraft and stopped making lease payments. During October 2002, the General Partner reached an agreement with the lessee of this aircraft for the past due lease payments. The lessee made an initial payment during October 2002, to be followed by 23 equal monthly installments beginning in November 2002. Unpaid outstanding amounts will accrue interest at a rate of 5%. The balance outstanding at June 30, 2003 was $0.9 million. Due to the uncertainty of ultimate collection, the General Partner will continue to fully reserve the unpaid outstanding balance less the security deposit from this lessee. As of August 13, 2003, the lessee was current with all the installment payments due to the Partnership except for the installment payment due during August.
 
 The lessee of two partially owned MD-80 commercial aircraft that are on lease until 2008 has encountered financial difficulty and may go into bankruptcy. If the airline does go into bankruptcy, the aircraft could be returned to the Partnership prior to its lease expiration date or, alternatively, the Partnership could attempt to renegotiate with the carrier at a significantly lower lease rate. Due to the poor market condition for equipment of this type, if the equipment is returned prior to its lease expiration date, it may either be off-lease for a considerable period of time or re-leased at a substantially lower rate. In an effort to assist the airline to stay out of bankruptcy, the Partnership has agreed to reduce the lease payment due on each aircraft by approximately 5% a month.
 
 The Partnership currently has one Boeing 737 commercial aircraft off-lease. This aircraft is in excess of 25 years of age. Due to the age of this aircraft and the economic condition of the airline industry, this aircraft will be difficult to remarket and may be off-lease for a considerable period of time; and
 
 (5)  The General Partner has seen an increase in its insurance premiums on its equipment portfolio and is finding it more difficult to find an insurance carrier with which to place the coverage. Premiums for aircraft have increased over 50% and for other types of equipment the increases have been over 25%. The increase in insurance premiums caused by the increased rate will be partially mitigated by the reduction in the value of the Partnerships equipment portfolio caused by the events of September 11, 2001 and other economic factors. The General Partner has also experienced an increase in the deductible required to obtain coverage. This may have a negative impact on the Partnership in the event of an insurance claim; and
 
 (6)  As a result of the increase in off-lease equipment, the General Partner expects the Partnership will incur higher remarketing and storage costs during the remainder of 2003.
 
 The ability of the Partnership to realize acceptable lease rates on its equipment in the different equipment markets is contingent on many factors, such as specific market conditions and economic activity, technological obsolescence, and government or other regulations. The unpredictability of some of these factors, or of their occurrence, makes it difficult for the General Partner to clearly define trends or influences that may impact the performance of the Partnership's equipment. The General Partner continually monitors both the equipment markets and the performance of the Partnership's equipment in these markets. The General Partner may decide to reduce the Partnership's exposure to equipment markets in which it determines it cannot operate equipment to achieve acceptable rates of return. Alternatively, the General Partner may make a determination to enter equipment markets in which it perceives opportunities to profit from supply/demand instabilities or other market imperfections.
 
 The Partnership may reinvest its cash flow, surplus cash, and equipment sale proceeds in additional equipment, consistent with the objectives of the Partnership, until December 31, 2004. The General Partner believes that these acquisitions may cause the Partnership to generate additional earnings and cash flow for the Partnership. Surplus funds, if any, less reasonable reserves, may be distributed to the partners. The Partnership will terminate on December 31, 2013, unless terminated earlier upon sale of all equipment and by certain other events.
 
 The Partnership intends to use cash flow from operations to satisfy its operating requirements, purchase additional equipment, pay loan principal and interest on debt, and pay cash distributions to the partners.
 
 (VI)  FORWARD-LOOKING INFORMATION
 
 Except for the historical information contained herein, this Form 10-QSB contains forward-looking statements that involve risks and uncertainties, such as statements of the Partnerships plans, objectives, expectations, and intentions. The cautionary statements made in this Form 10-QSB should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-QSB. There are a number of important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made herein. These factors include, but are not limited to, the collection of the Partnerships contracted rents, the realization of residual proceeds, and future economic conditions. The Partnerships actual results could differ materially from those discussed here.
 - - 
 ITEM 3.  CONTROLS AND PROCEDURES
 
 Limitations on the Effectiveness of Controls
 
 The General Partners management, including its President and Chief Accounting Officer (CAO), does not expect that our internal controls or disclosure control will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
 
 Because of the inherent limitations in all control systems, no evaluation of control can provide absolute assurance that all control issues and instances of fraud, if any, within the Partnership have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or by management override of the control. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
 Notwithstanding the forgoing limitations, we believe that our internal controls and disclosure control provide reasonable assurances that the objectives of our control system are met.
 
 Quarterly Evaluation of the Partnership s Disclosure Controls and Internal Controls
 
 (1)  Within the 90-day period prior to the filing of this report, the General Partner carried out an evaluation, under the supervision and with the participation of the General Partners management, including its President and CAO, of the effectiveness of the design and operation of the Partnership s disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and CAO concluded that the Partnerships disclosure controls and procedures are effective in timely alerting them to material information relating to the Partnerships required to be included in the Partnership s exchange act filings.
 
 (2)  There have been no significant changes in the Partnerships internal controls or in other factors which could significantly affect internal controls subsequent to the date of the General Partner carried out its evaluations.
 
 
 CONTROLS AND PROCEDURES
 
 Within the 90-day period prior to the filing of this report, evaluations were carried out under the supervision and with the participation of the General Partner's management, including its President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon those evaluations, the President and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes have been made in the Partnerships internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluations.
 
 
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 PART II -- OTHER INFORMATION
 
 
 ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
 (a)  Exhibits
 
 10.1  Fifth amendment to the Warehouse Credit Agreement, dated June 30, 2003.
 
 (b)  Reports on Form 8-K
 
 Report dated June 5, 2003 announcing the engagement of Ernst & Young LLP as the Partnerships auditors and the dismissal of Deloitte & Touche LLP.
 
 - - CONTROL CERTIFICATION
 
 
 
 I, James A. Coyne, certify that:
 
 1.  I have reviewed this quarterly report on Form 10-QSB of PLM Equipment Growth & Income Fund VII.
 
 2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 4.  The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this quarterly report is prepared;
 
 b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
 
 c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 5.  The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and board of Managers:
 
 a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
 
 b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
 
 6.  The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
 
 
 
 Date: August 13, 2003  By:  /s/ James A. Coyne
 James A. Coyne
 President
 
 
 
 
 
 - - CONTROL CERTIFICATION
 
 
 
 I, Richard K Brock, certify that:
 
 1.  I have reviewed this quarterly report on Form 10-QSB of PLM Equipment Growth & Income Fund VII.
 
 2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 4.  The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this quarterly report is prepared;
 
 b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
 
 c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 5.  The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and board of Managers:
 
 a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
 
 b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
 
 6.  The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
 
 
 
 Date: August 13, 2003  By:  /s/ Richard K Brock
 Richard K Brock
 Chief Financial Officer
 (Principal Financial Officer)
 
 
 
 
 - - 
 
 
 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.
 
 
 
 PLM EQUIPMENT GROWTH & INCOME FUND VII
 
 By:  PLM Financial Services, Inc.
 General Partner
 
 
 
 Date: August 13, 2003  By:  /s/ Richard K Brock
 Richard K Brock
 Chief Financial Officer
 
 
 
 
 
 CERTIFICATION
 
 The undersigned hereby certifies, in his capacity as an officer of the General Partner of PLM Equipment Growth & Income Fund VII (the Partnership), that the Quarterly Report of the Partnership on Form 10-QSB for the period ended June 30, 2003, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Partnership at the end of such period and the results of operations of the Partnership for such period.
 
 
 
 PLM EQUIPMENT GROWTH & INCOME FUND VII
 
 By:  PLM Financial Services, Inc.
 General Partner
 
 
 
 
 Date: August 13, 2003  By:  /s/ James A. Coyne
 James A. Coyne
 President
 
 
 
 
 Date: August 13, 2003  By:  /s/ Richard K Brock
 Richard K Brock
 Chief Financial Officer