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 quarterly period ended June 30, 2004
 
 
 [ ]  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.)200 Nyala Farms RoadWestport, CT

06880(Address of principal

(Zip code)executive offices) 
 Former Address: 235 3rd Street South, Suite 200, St. Petersburg, FL. 33701
 
 Registrant's telephone number, including area code: (203) 341-0555
 _______________________
 
 
 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 ____
 
 Transitional Small Business Disclosure Format: Yes  No  X
 
 Aggregate market value of voting stock: N/A
 
  
 PLM EQUIPMENT GROWTH & INCOME FUND VII(A Limited Partnership)CONDENSED BALANCE SHEETS(in thousands of dollars, except unit amounts) (unaudited)
 
 
 June 30,

December 31,2004


2003AssetsEquipment held for operating leases, at cost




$86,025


$84,873Less accumulated depreciation




(56,050)


(55,810)Net equipment




29,975


29,063Cash and cash equivalents




9,420


8,635Restricted cash




--


60Accounts and note receivable, less allowance for doubtfulaccounts of $385 in 2004 and $640 in 2003




2,655


2,501Equity investments in affiliated entities




4,332


4,876Deferred charges, net of accumulated amortizationof $249 in 2004 and $492 in 2003




133


119Prepaid expenses and other assets




347


324Total assets




$46,862


$45,578Liabilities and partners capitalLiabilities:Accounts payable and accrued expenses





$725


$861Due to affiliates





855


996Reserve for repairs





1,212


1,033Lessee deposits





164


157Notes payable





8,000


8,000Total liabilities





10,956


11,047Commitments and contingenciesPartners' capital:Limited partners (4,981,450 limited partnership units)





35,906


34,531General Partner





--


--Total partners' capital





35,906


34,531Total liabilities and partners capital





$46,862


$45,578 
 
 
 
 
 
 
 
 
 
 
 
 
 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 limited partnership unit amounts) (unaudited)
 
 For the Three Months
Ended June 30,
For the Six Months
Ended June 30,2004

2003

2004

2003RevenuesLease revenue

$3,551
$3,163

$7,029
$6,600Interest and other income

15
41

36
83Gain on disposition of equipment

312
5

472
20Loss on disposition of equipment

--
(1)

--
--Total revenues

3,878
3,208

7,537
6,703ExpensesDepreciation and amortization

1,513
1,631

2,983
3,099Repairs and maintenance

445
720

875
1,430Equipment operating expense

628
492

1,119
993Insurance expense

189
214

421
379Management fees to affiliate

204
178

399
363Interest expense

153
210

306
419General and administrative expensesto affiliates

74
20

157
57Other general and administrative expenses

224
349

455
624Impairment loss on equipment

--
7

--
119Recovery of bad debts

(162)
(180)

(253)
(265)Total expenses

3,268
3,641

6,462
7,218Equity in net income (loss) ofequity investments

167
(420)

300
(327)Net income (loss)

$777
$(853)

$1,375
$(842)Partners' share of net income (loss)Limited partners

$777
$(853)

$1,375
$(842)General Partner

--
--

--
--Total

$777
$(853)

$1,375
$(842)Limited partners net income (loss) perweighted-average limited partnership unit

$0.16
$(0.17)

$0.28
$(0.17) 
 
  
 
 
 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, 2003 to June 30, 2004(in thousands of dollars) (unaudited)
 
 
 Limited
Partners

General
Partner
TotalPartners' capital as of December 31, 2003

$
34,531


$
--


$
34,531Net income


1,375



--



1,375Partners' capital as of June 30, 2004

$
35,906


$
--


$
35,906 
 
  
 
 
 
 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 30,2004


2003Operating activitiesNet income (loss)
$
1,375

$
(842
)Adjustments to reconcile net income (loss)to net cash provided by (used in) operating activities:Depreciation and amortization

2,983


3,099Amortization of debt issuance costs

13


13Recovery of bad debts

(253
)

(265
)Impairment loss on equipment

--


119Gain on disposition of equipment

(472
)

(20
)Equity in net (income) loss from equity investments

(300
)

327Distribution from equity investments

844


913Changes in operating assets and liabilities:Accounts and note receivable

99


(254
)Prepaid expenses and other assets

(23
)

64Accounts payable and accrued expenses

(136
)

241Due to affiliates

(141
)

112Reserve for repairs

179


(97
)Lessee deposits

7


73Net cash provided by operating activities

4,175


3,483Investing activitiesPayments for purchase of equipment and capitalized repairs

(4,000
)

(4,090
)Payments of acquisition fees to affiliate

(180
)

(184
)Payments of lease negotiation fees to affiliate

(40
)

(41
)Proceeds from disposition of equipment

770


100Net cash used in investing activities

(3,450
)

(4,215
)Financing activitiesDecrease in restricted cash

60


--Net cash provided by financing activities

60


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

785


(732
)Cash and cash equivalents at beginning of period

8,635


9,339Cash and cash equivalents at end of period
$
9,420

$
8,607 
 
 
 
 
 
 
 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 unaudited financial statements presented herein are prepared in conformity with generally accepted accounting principles in the United States of America and the instructions for preparing Form 10-QSB under Rule 310 of Regulation S-B of the Securities and Exchange Commission. Rule 310 provides that disclosures that would substantially duplicate those contained in the most recent annual report to the limited partners may be omitted from interim financial statements. The accompanying unaudited condensed financial statements have been prepared on that basis and, therefore, should be read in conjunction with the financial statements and notes presented in the 2003 Annual Report (Form 10-KSB) of PLM Equipment Growth & Income Fund VII (the Partnership) on file with the United States Securities and Exchange Commission. Except as disclosed herein, there have been no material changes to the information presented in the notes to the 2003 Annual Report in Form 10-KSB.
 
 In the opinion of the management of PLM Financial Services, Inc. (FSI or the General Partner) all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the Partnerships unaudited condensed balance sheets at June 30, 2004, condensed statements of operations for the three and six months ended June 30, 2004 and 2003, condensed statements of changes in partners capital for the period from December 31, 2003 to June 30, 2004, and the condensed statements of cash flows for the six months ended June 30, 2004 and 2003 have been made and are reflected.
 
 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 commit its cash flow, surplus cash and equipment disposition proceeds to purchase 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 previously reported have been reclassified to conform to the 2004 presentation. 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, 2004 included $0.3 million due to FSI or its affiliates for management fees and $0.6 million due to affiliated equity investments. The balance due to affiliates as of December 31, 2003 included $0.2 million due to FSI or its affiliates for management fees and $0.8 million due to affiliated equity investments.
 
 The Partnerships proportional share of the affiliated expenses incurred by affiliated equity investments during 2004 and 2003 is listed in the following table (in thousands of dollars):
 
 For the Three Months
Ended June 30,
For the Six Months
Ended June 30,2004


2003




2004


2003Management fees
$
26

$
40



$
53

$
72Data processing and administrativeexpenses

2


1




5


3 
  
 PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 4.  Transactions with General Partner and Affiliates (continued)
 
 These affiliate expenses reduced the Partnership's proportional share of the equity interest in the income of equity investments.
 
 During the six months ended June 30, 2004, the Partnership purchased $4.0 million in railcars from FSI or its affiliates and paid $0.2 million for acquisition fees and $40,000 for lease negotiation fees. The Partnership's cost for these railcars was the lower of FSI's or its affiliates cost or the fair market value at the time of purchase. During the six months ended June 30, 2003, the Partnership purchased $4.1 million in railcars from an unaffiliated third party and paid FSI or its affiliates $0.2 million for acquisition fees and $41,000 for lease negotiation fees.
 
 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 31,2004


2003Marine containers
$
38,558

$
38,667Marine vessels

22,212


22,212Rail equipment

16,090


14,799Aircraft

5,483


5,483Trailers

3,682


3,71286,025


84,873Less accumulated depreciation

(56,050


(55,810Net equipment
$
29,975

$
29,063 
 Equipment held for operating leases is stated at cost less depreciation and any reductions to the carrying value.
 
 As of June 30, 2004, all owned equipment in the Partnerships portfolio was on lease except for 56 railcars with a net book value of $0.3 million. As of December 31, 2003, all owned equipment was on lease except for 158 railcars with a net book value of $0.7 million.
 
 During the six months ended June 30, 2004, the Partnership purchased railcars for $4.2 million including acquisition fees of $0.2 million. During the six months ended June 30, 2003, the Partnership purchased railcars for $4.3 million including acquisition fees of $0.2 million.
 
 During the six months ended June 30, 2004, the Partnership disposed of marine containers, railcars and trailers with a net book value of $0.3 million for proceeds of $0.8 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.
 
 In the six months ended June 30, 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, 2004.
  PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 6.  Equity Investments in Affiliated Entities
 
 The Partnership owns equipment and other assets jointly with affiliated programs.
 
 Ownership interest is based on the Partnerships contribution towards the cost of the assets in the equity investments. 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 is that certain fees such as management fees, acquisition fees, and lease and re-lease negotiation fees vary among the owners of the equity investments. The Partnerships investment in equity investments includes acquisition and lease negotiation fees paid by the Partnership to the General Partner or its affiliates. The Partnerships equity interest in the net income (loss) of equity investments is reflected net of management fees paid or payable and the amortization of acquisition and lease negotiation fees.
 
 The tables below set forth 100% of the revenues, direct and indirect expenses, impairment loss on equipment, and net income or loss of the entities in which the Partnership has an interest, and the Partnerships proportional share of income or loss in each entity for the three and six months ended June 30, 2004 and 2003 (in thousands of dollars):
 
 TWA


TWA


Boeing


PLMFor the three months ended


S/N 49183


MD-82


737-300


WorldwideJune 30, 2004


Trust1


Trust2


Trust3


Leasing4


Total 
 Revenues

$
308

$
308

$
390Less: Direct expenses


--


--


5Indirect expenses


17


332


407Net income (loss)

$
291

$
(24
)
$
(22
)Partnerships share of net income (loss)

$
145

$
(15
)
$
(11
)
$
48

$
167 
 TWA


TWA


BoeingFor the three months ended


S/N 49183


MD-82


737-300June 30, 2003


Trust1


Trust2


Trust3


Total 
 Revenues

$
310

$
310

$
465Less: Direct expenses


--


--


2Indirect expenses


22


336


547Impairment loss on equipment


--


--


1,321Net income (loss)

$
288

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

$
144

$
(16
)
$
(548
)
$
(420
) 
    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.
 4   The Partnership owns a 25% interest in PLM Worldwide Leasing Corp.
  PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 6.  Equity Investments in Affiliated Entities (continued)
 
 TWA


TWA


Boeing


PLMFor the six months ended


S/N 49183


MD-82


737-300


WorldwideJune 30, 2004


Trust1


Trust2


Trust3


Leasing4


Total 
 Revenues

$
634

$
634

$
780Less: Direct expenses


--


--


12Indirect expenses


37


666


816Net income (loss)

$
597

$
(32
)
$
(48
)Partnerships share of net income (loss)

$
299

$
(23
)
$
(24
)
$
48

$
300 
 TWA


TWA


BoeingFor the six months ended


S/N 49183


MD-82


737-300June 30, 2003


Trust1


Trust2


Trust3


Total 
 Revenues

$
625

$
625

$
930Less: Direct expenses


(1
)

(1
)

7Indirect expenses


43


671


1,097Impairment loss on equipment


--


--


1,321Net income (loss)

$
583

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

$
292

$
(30
)
$
(589
)
$
(327
) 
 As of June 30, 2004 and December 31, 2003, all jointly-owned equipment in the Partnerships equity investment portfolio was on lease.
 
 7.  Operating Segments
 
 The Partnership operates in five primary operating segments: marine container leasing, trailer leasing, aircraft leasing, railcar leasing, and marine vessel leasing. Each equipment leasing segment engages in short-term to mid-term operating leases to a variety of customers.
 
 
  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.
 4   The Partnership owns a 25% interest in PLM Worldwide Leasing Corp.
  PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 7.  Operating Segments (continued)
 
 The following tables present a summary of the operating segments (in thousands of dollars):
 
 Marine



MarineFor the three months ended



Container
Trailer
Aircraft
Railcar
VesselJune 30, 2004



Leasing
Leasing
Leasing
Leasing
Leasing
Other1
Total 
 RevenuesLease revenue

$1,499
$149
$97
$582
$1,224
$--
$3,551Interest income and other income

--
--
4
--
--
11
15Gain on disposition of equipment

28
--
--
284
--
--
312Total revenues

1,527
149
101
866
1,224
11
3,878ExpensesDepreciation and amortization

775
51
--
376
310
1
1,513Operations support

24
112
3
245
846
32
1,262Management fees to affiliate

75
8
28
32
61
--
204Interest expense

--
--
--
--
--
153
153General and administrative expenses

--
--
13
70
28
187
298(Recovery of) provision for bad debts

--
(1)
(172)
11
--
--
(162)Total expenses

874
170
(128)
734
1,245
373
3,268Equity in net income of equityinvestments

--
--
167
--
--
--
167Net income (loss)

$653
$(21)
$396
$132
$(21)
$(362)
$777Total assets as of June 30, 2004

$18,438
$459
$4,550
$10,436
$3,180
$9,799
$46,862 
 Marine



MarineFor the three months ended



Container
Trailer
Aircraft
Railcar
VesselJune 30, 2003



Leasing
Leasing
Leasing
Leasing
Leasing
Other2
Total 
 RevenuesLease revenue

$1,518
$62
$--
$553
$1,030
$--
$3,163Interest income and other income

--
--
18
--
--
23
41Gain (loss) on disposition of equipment

5
--
--
(1)
--
--
4Total revenues

1,523
62
18
552
1,030
23
3,208ExpensesDepreciation and amortization

937
52
--
331
310
1
1,631Operations support

13
59
26
151
1,158
19
1,426Management fees to affiliate

76
3
12
36
51
--
178Interest expense

--
--
--
--
--
210
210General and administrative expenses

--
25
76
38
30
200
369Impairment loss on equipment

--
--
--
7
--
--
7Recovery of bad debts

--
--
(163)
(17)
--
--
(180)Total expenses

1,026
139
(49)
546
1,549
430
3,641Equity in net loss of equity investments

--
--
(420)
--
--
--
(420)Net income (loss)

$497
$(77)
$(353)
$6
$(519)
$(407)
$(853) 
   1  Includes certain assets not identifiable to a specific segment such as 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


Container
Trailer
Aircraft
Railcar
VesselJune 30, 2004


Leasing
Leasing
Leasing
Leasing
Leasing
Other1
Total 
 RevenuesLease revenue

$2,984
$295
$194
$1,102
$2,454
$--
$7,029Interest income and other income

--
--
11
--
--
25
36Gain on disposition of equipment

50
8
--
414
--
--
472Total revenues

3,034
303
205
1,516
2,454
25
7,537ExpensesDepreciation and amortization

1,553
103
--
705
620
2
2,983Operations support

43
204
6
347
1,753
62
2,415Management fees to affiliate

149
15
36
76
123
--
399Interest expense

--
--
--
--
--
306
306General and administrative expenses

--
19
14
139
58
382
612(Recovery of) provision for bad debts

--
(2)
(286)
35
--
--
(253)Total expenses

1,745
339
(230)
1,302
2,554
752
6,462Equity in net income of equityinvestments

--
--
300
--
--
--
300Net income (loss)

$1,289
$(36)
$735
$214
$(100)
$(727)
$1,375Equipment purchases andcapitalized improvements

$--
$--
$--
$4,000
$--
$--
$4,000Acquisition fees to affiliate

$--
$--
$--
$180
$--
$--
$180 
 Marine



MarineFor the six months ended


Container
Trailer
Aircraft
Railcar
VesselJune 30, 2003


Leasing
Leasing
Leasing
Leasing
Leasing
Other1
Total 
 RevenuesLease revenue

$3,125
$227
$--
$948
$2,300
$--
$6,600Interest income and other income

--
--
28
--
--
55
83Gain on disposition of equipment

14
--
--
6
--
--
20Total revenues

3,139
227
28
954
2,300
55
6,703ExpensesDepreciation and amortization

1,875
104
--
498
620
2
3,099Operations support

26
124
29
337
2,249
37
2,802Management fees to affiliate

156
12
17
63
115
--
363Interest expense

--
--
--
--
--
419
419General and administrative expenses

--
53
90
72
51
415
681Impairment loss on equipment

--
--
--
119
--
--
119(Recovery of) provision for bad debts

--
--
(270)
5
--
--
(265)Total expenses

2,057
293
(134)
1,094
3,035
873
7,218Equity in net loss of equity investments

--
--
(327)
--
--
--
(327)Net income (loss)

$1,082
$(66)
$(165)
$(140)
$(735)
$(818)
$(842)Equipment purchases andcapitalized improvements

$--
$--
$--
$4,090
$--
$--
$4,090Acquisition fees to affiliate

$--
$--
$--
$184
$--
$--
$184 
 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, 2004 and 2003 was 4,981,450.
 
 
  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.  Accounts and Note Receivable
 
 Accounts and note receivable represent balances due from current or former lessees for unpaid balances incurred from leasing Partnership owned equipment and uncollected receivables from insurance claims. The components of accounts and note receivable were as follows (in thousands of dollars):
 
 June 30,
December 31,2004

2003Trade accounts receivable

$2,332
$2,093Note receivable

231
570Insurance receivables

477
478Allowance for doubtful accounts

(385)
(640)$2,655
$2,501 
 At June 30, 2004 and December 31, 2003, the balance in note receivable of $0.2 million and $0.6 million, respectively, was due from a former aircraft lessee. The note receivable is scheduled to be fully paid by October 2004. Unpaid outstanding balances accrue interest at a rate of 5%. Due to the uncertainty of ultimate collection of the note, the General Partner fully reserved the unpaid outstanding balance less any security deposits and any payments received through August 13, 2004.
 
 During March 2004, the General Partner received notification from the insurance carrier that the insurance receivable should be paid in 2004. The amount of the insurance receivable is net of any deductible and any commissions due to brokers.
 
 10.  Debt
 
 The Partnership is a participant in a $7.5 million warehouse facility. The warehouse facility is scheduled to expire on December 31, 2004 with all advances due no later than December 31, 2004. As of June 30, 2004 and December 31, 2003, the Partnership had no borrowings outstanding under this facility.
 
 11.  Commitments and Contingencies
 
 PLM Transportation Equipment Corp. (TEC), an affiliate of the General Partner, arranged for the lease or purchase of up to 1,050 railcars with a delivery date between 2002 and 2004. The commitment requires a minimum of 30% of the railcars delivered under the arrangement be purchased and the remaining 70% of the railcars may be leased or purchased. As of June 30, 2004, TEC or an affiliated program have purchased 354 railcars, at a cost of $25.8 million, and have leased 494 railcars, exceeding the minimum purchase requirement under this commitment. The remaining 202 railcars to be purchased or leased under this commitment with a cost of $15.0 million, will be delivered in 2004 and may be purchased or leased by TEC, the Partnership, an affiliated program, or an unaffiliated third party.
 
 In the fourth quarter of 2003, FSI exercised its option under the above agreement to purchase or lease 400 additional railcars which will be delivered in 2004 and 2005. The commitment requires that a minimum of 30% of the total railcars to be delivered under the original agreement and the option be purchased and the remaining railcars may be leased or purchased. If purchased, the total cost for the 400 railcars is $30.3 million. The Partnership, an affiliate, or unaffiliated third party may purchase or lease these railcars. While FSI has not determined which managed program will buy these railcars, it is possible that they will be purchased by the Partnership.
 
  PLM EQUIPMENT GROWTH & INCOME FUND VII
 (A Limited Partnership)
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (unaudited)
 
 11.  Commitments and Contingencies (continued)
 
 As of June 30, 2004, TEC is required to purchase an additional 13% of the total remaining railcars under the commitment to meet its overall requirement that 30% of the total commitment be purchased.
 
 At June 30, 2004, railcars with an original equipment cost of $3.4 million were owned by FSI, some of which were purchased from the above transaction. 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 these railcars.
 
 12.  Recent Accounting Pronouncements
 
 In January 2003, Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). 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 December 31, 2004 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 is still in the process of evaluating its impact and has not completed its analysis or concluded on the impact that FIN 46 will have on the Partnership.
 
 13.  Subsequent Event
 
 In July 2004, the Partnership transferred 406 railcars with a net book value of $9.8 million to PLM Rail Partners, LLC (PLM Rail Partners), a limited liability company jointly owned with two affiliated programs. The manager of PLM Rail Partners is PLM Financial Services, Inc. The Partnership owns a 33.8% interest in PLM Rail Partners. In July, PLM Rail Partners borrowed $25.3 million on a non-recourse basis. The loan is collateralized by railcars and future lease payments. This loan bears interest at rates from 5.65% to 7.25% and is to be amortized over 8 years.
 
 During July 2004, PLM Rail Partners distributed $7.7 million to the Partnership from the proceeds of this loan. The Partnership intends to purchase additional equipment with these proceeds.
 
  
 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, 2004 and 2003
 
 (A)  Owned Equipment Operations
 
 Lease revenues less direct expenses (defined as repairs and maintenance, equipment operating, and asset-specific insurance expenses) on owned equipment increased during the three months ended June 30, 2004 compared to the same period of 2003. Gains or losses from the disposition of equipment, interest and other income, and certain expenses such as management fees to affiliate, depreciation and amortization, impairment loss of equipment, general and administrative expenses, and recovery of 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 30,2004

2003Marine containers
$
1,475


$
1,505Marine vessels

378



(128
)Railcars

337



402Aircraft

94



(26
)Trailers

37



3 
 Marine containers:  Lease revenues and direct expenses for marine containers were $1.5 million and $24,000 respectively, for the three months ended June 30, 2004, compared to $1.5 million and $13,000, respectively, during the same period of 2003.
 
 Marine vessels:  Marine vessel lease revenues and direct expenses were $1.2 million and $0.8 million, respectively, for the three months ended June 30, 2004, compared to $1.0 million and $1.2 million, respectively, during the same period of 2003.
 
 Lease revenues increased $0.2 million during the three months ended June 30, 2004 compared to the same period of 2003 due to the scheduled major maintenance of one of the Partnerships two marine vessels during 2003 during which the marine vessel was off-hire. A similar event did not occur during 2004.
 
 Direct expenses decreased $0.3 million during the three months ended June 30, 2004 compared to 2003 resulting from lower repairs and maintenance. During the three months ended June 30, 2003, repair costs of approximately $0.2 million was due to an unusual malfunction of a gauge that caused extensive damage to one of the Partnership's marine vessel's engine. A similar event did not occur during 2004.
 
 Railcars:  Railcar lease revenues and direct expenses were $0.6 million and $0.2 million, respectively, for the three months ended June 30, 2004 and 2003. The decrease in railcar contribution of $0.1 million was due to higher repairs and maintenance expense of $0.1 million being partially offset by higher lease revenues of $29,000 caused by the purchase and lease of railcars during 2004.
 
 Aircraft:  Aircraft lease revenues and direct expenses were $0.1 million and $3,000, respectively, for the three months ended June 30, 2004, compared to $-0- and $26,000, respectively, during the same period of 2003. The increase in lease revenues of $0.1 million was due to the Partnerships owned aircraft being on-lease during the three months ended June 30, 2004 compared to the same period of 2003, during which this aircraft was off-lease.
 
 Trailers:  Trailer lease revenues and direct expenses were $0.1 million and $0.1 million, respectively, for the three months ended June 30, 2004 and 2003.
 
 (B)  Indirect Expenses Related to Owned Equipment Operations
 
 Total indirect expenses of $2.0 million for the three months ended June 30, 2004 decreased from $2.2 million for the same period in 2003. Significant variances are explained as follows:
 
 (i)  A $0.1 million decrease in depreciation and amortization expenses from 2003 levels reflects the decrease of $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 and the decrease of $0.1 million caused by the sale of owned equipment. These decreases were partially offset by an increase of $0.2 million caused by the purchase of railcars during 2004 and 2003;
 
 (ii)  A $0.1 million decrease in interest expense was due to a lower average outstanding debt balance in the second quarter of 2004 compared to the same period of 2003;
 
 (iii)  A $0.1 million decrease in general and administrative expenses during the three months ended June 30, 2004 was primarily due to lower professional costs associated with aircraft equipment;
 
 (iv)  Recovery of bad debts decreased $18,000 in the three months ended June 30, 2004 compared to the same period of 2003 due to the collection of bad debts primarily from one former aircraft lessee that had been previously written off; and
 
 (v)  A $26,000 increase in management fees to affiliate in the three months ended June 30, 2004 compared to the same period of 2003 is due to an increase in lease revenues.
 
 (C)  Net Gain on Disposition of Owned Equipment
 
 Gain on disposition of owned equipment for the three months ended June 30, 2004 totaled $0.3 million, and resulted from the sale of marine containers and railcars with a net book value of $0.2 million for proceeds of $0.5 million. 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 Equity investments
 
 Equity in net income (loss) of equity investments represents the Partnership's share of the net income or loss generated from the operation of jointly owned entities accounted for under the equity method of accounting.
 
 The following equity investment discussion by equipment type is based on the Partnership's proportional share of revenues, depreciation expense, direct expenses, and administrative expenses in the equity investments:
 
 As of June 30, 2004 and 2003, the Partnership owned interests in three trusts that each own a commercial aircraft and an interest in an entity owning other assets. During the three months ended June 30, 2004, lease revenues from the three trust that each own a commercial aircraft of $0.5 million were partially offset by depreciation expense, direct expenses, and administrative expenses of $0.3 million. During the same period of 2003, lease revenues from the three trust that each own a commercial aircraft 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 three months ended June 30, 2004, contribution from the entity owning other assets increased $48,000 compared to 2003.
 
 A decrease in depreciation expense of $0.1 million was caused by the double-declining balance method of depreciation which results in greater depreciation in the first years an asset is owned. During the second quarter 2003, impairment loss of $0.5 million resulted from the reduction of the carrying value of a Boeing 737-300 commercial aircraft to its estimated fair value. No impairment was required during the second quarter of 2004.
  
 (E)  Net Income (Loss)
 
 As a result of the foregoing, the Partnership had net income of $0.8 million for the three months ended June 30, 2004, compared to net loss of $0.9 during the same period of 2003. 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 three months ended June 30, 2004 is not necessarily indicative of future periods.
 
 Comparison of the Partnerships Operating Results for the Six Months Ended June 30, 2004 and 2003
 
 (A)  Owned Equipment Operations
 
 Lease revenues less direct expenses on owned equipment increased during the six months ended June 30, 2004 compared to the same period of 2003. The following table presents lease revenues less direct expenses by segment (in thousands of dollars):
 
 For the Six MonthsEnded June 30,2004

2003Marine containers
$
2,941


$
3,099Railcars

755



611Marine vessels

701



51Aircraft

188



(29
)Trailers

91



103 
 Marine containers:  Lease revenues and direct expenses for marine containers were $3.0 million and $43,000 respectively, for the six months ended June 30, 2004, compared to $3.1 million and $26,000, respectively, during the same period of 2003. The decrease in lease revenues of $0.1 million during the six months ended June 30, 2004 was due to certain marine containers owned by the Partnership switching from a fixed lease rate to utilization based rate resulting in lower lease revenues. Additional marine containers owned by the Partnership will be converting from a fixed term lease to one based on utilization over the next 18 months. This is expected to cause lease revenues to decline further.
 
 Railcars:  Railcar lease revenues and direct expenses were $1.1 million and $0.3 million, respectively, for the six months ended June 30, 2004, compared to $0.9 million and $0.3 million, respectively, during the same period of 2003. During the six months ended June 30, 2004, an increase in lease revenues of $0.2 million resulted from the purchase and lease of railcars during 2004 and in 2003.
 
 Marine vessels:  Marine vessel lease revenues and direct expenses were $2.5 million and $1.8 million, respectively, for the six months ended June 30, 2004, compared to $2.3 million and $2.2 million, respectively, during the same period of 2003. Lease revenues increased $0.2 million during the six months ended June 30, 2004 compared to the same period of 2003 due to one of the Partnerships two marine vessels being in scheduled major maintenance for three weeks of 2003. A similar scheduled major maintenance was not required during the six months ended June 30, 2004. Direct expenses decreased $0.5 million during the six months ended June 30, 2004 compared to 2003 resulting from lower repairs of $0.6 million partially offset by higher insurance costs of $43,000.
 
 Aircraft:  Aircraft lease revenues and direct expenses were $0.2 million and $6,000, respectively, for the six months ended June 30, 2004, compared to $-0- and $29,000, respectively, during the same period of 2003. The increase on lease revenues of $0.2 million was due to the Partnerships owned aircraft being on-lease during the six months ended June 30, 2004 compared to the same period of 2003, during which this aircraft was off-lease.
 
 Trailers:  Trailer lease revenues and direct expenses were $0.3 million and $0.2 million, respectively, for the six months ended June 30, 2004, compared to $0.2 million and $0.1 million, respectively, during the same period of 2003.
  
 (B)  Indirect Expenses Related to Owned Equipment Operations
 
 Total indirect expenses of $4.1 million for the six months ended June 30, 2004 decreased from $4.5 million for the same period in 2003. Significant variances are explained as follows:
 
 (i)  A $0.1 million decrease in depreciation and amortization expenses from 2003 levels reflects the decrease of $0.4 million caused by the double-declining balance method of depreciation which results in greater depreciation in the first years an asset is owned and the decrease of $0.1 million caused by the sale of owned equipment during 2004. These decreases were partially offset by an increase of approximately $0.4 million caused by the purchase of railcars during 2004 and 2003 ;
 
 (ii)  A $0.1 million decrease in interest expense was due to a lower average outstanding debt balance during the first six months of 2004 compared to the same period of 2003;
 
 (iii)  A $0.1 million decrease in general and administrative expenses during the six months ended June 30, 2004 was primarily due to lower professional costs associated with aircraft equipment; and
 
 (iv)  A $0.1 million decrease in the impairment loss 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 owned equipment was required during the six months ended June 30, 2004.
 
 (C)  Gain on Disposition of Owned Equipment
 
 Gain on disposition of owned equipment for the six months ended June 30, 2004 totaled $0.5 million, and resulted from the sale of marine containers, railcars and trailers with a net book value of $0.3 million for proceeds of $0.8 million. 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.
 
 (D)  Equity in Net Income (Loss) of Equity investments
 
 Equity in net income (loss) of equity investments represents the Partnership's share of the net income or loss generated from the operation of jointly owned entities accounted for under the equity method of accounting.
 
 The following equity investment discussion by equipment type is based on the Partnership's proportional share of revenues, depreciation expense, direct expenses, and administrative expenses in the equity investments:
 
 As of June 30, 2004 and 2003, the Partnership owned interests in three trusts that each own a commercial aircraft and an interest in an entity owning other assets. During the six months ended June 30, 2004, lease revenues from the three trusts that each own a commercial aircraft of $0.9 million were partially offset by depreciation expense, direct expenses, and administrative expenses of $0.7 million. During the same period of 2003, lease revenues from the three trusts that each own a commercial aircraft 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 six months ended June 30, 2004, contribution from the entity owning other assets increased $48,000 compared to 2003.
 
 Lease revenues from the three trust that each owned a commercial aircraft decreased $0.1 million during the six months ended June 30, 2004 due to a decrease in the lease rate on one of the trust's aircraft compared to the same period of 2003.
 
 A decrease in depreciation expense from the three trusts that each owned a commercial aircraft of $0.1 million was caused by the double-declining balance method of depreciation which results in greater depreciation in the first years an asset is owned. During the six months ended June 30, 2003, impairment loss of $0.5 million resulted from the reduction of the carrying value of a Boeing 737-300 commercial aircraft to its estimated fair value. No impairment was required during the same period of 2004.
  
 (E)  Net Income (Loss)
 
 As a result of the foregoing, the Partnership had net income of $1.4 million for the six months ended June 30, 2004, compared to net loss of $0.8 million during the same period of 2003. 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, 2004 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 non-cancelable. 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 depreciation 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 equity investments 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 scheduled major maintenance 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, 2004, the Partnership generated cash from operations of $4.2 million to meet its operating obligations, purchase additional equipment, pay debt and interest, and maintain working capital reserves.
 
 During the six months ended June 30, 2004, the Partnership purchased railcars for $4.0 million and paid FSI or its affiliates $0.2 million for acquisition fees and $40,000 for lease negotiation fees. During the six months ended June 30, 2004, the Partnership disposed of owned equipment for proceeds of $0.8 million.
 
 Restricted cash decreased $0.1 million resulting from the withdrawal of the lender from the Partnership's debt facility that required these deposits. No such deposits were required from the new lender.
 
 Accounts and note receivable increased $0.2 million during the six months ended June 30, 2004. The increase of $0.2 million due to the timing of lease receipts and a decrease in the allowance for bad debts of $0.3 million due to collection of outstanding receivables was partially offset by a decrease from the collection of $0.3 million from the note receivable.
 
 Equity investments in affiliated entities decreased $0.5 million during the six months ended June 30, 2004 due to cash distributions of $0.8 million from the equity investments to the Partnership being partially offset by the income of $0.3 million that was recorded by the Partnership for its interests in the equity investments.
 
 Accounts payable decreased $0.1 million during the six months ended June 30, 2004 due to the timing of payments to vendors.
 
 Due to affiliates decreased $0.1 million during the six months ended June 30, 2004 due to the timing of payments to vendors.
 
 Reserve for repairs increased $0.2 million during the six months ended June 30, 2004 due to repair accruals for the Partnership's owned marine vessel.
 
 The Partnership is scheduled to make a debt payment of $4.0 million to the lenders of the notes payable on December 31, 2004. The cash for this payment will come from operations and proceeds from equipment dispositions.
 
 In July 2004, the Partnership transferred 406 railcars with a net book value of $11.4 million to PLM Rail Partners, LLC (PLM Rail Partners), a limited liability company jointly owned with two affiliated programs. The manager of PLM Rail Partners is PLM Financial Services, Inc. The Partnership owns a 33.8% interest in PLM Rail Partners. In July, PLM Rail Partners borrowed $25.3 million on a non-recourse basis. The loan is collateralized by railcars and future lease payments. This loan bears interest at rates from 5.65% to 7.25% and is to be amortized over 8 years.
 
 During July 2004, PLM Rail Partners distributed $7.7 million to the Partnership from the proceeds of this loan. The Partnership intends to purchase additional equipment with these proceeds.
 
 The Partnership is a participant in a $7.5 million warehouse facility. The warehouse facility is shared by the Partnership, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, and MILPI Holdings LLC (MILPI), all of which are related parties. The facility provides for financing up to 100% of the cost of the equipment and expires on December 31, 2004. 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 December 31, 2004. 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 PLM International, Inc. and MILPI, the parent companies of the General Partner. The Partnership is not liable for the advances made to the other borrowers.
 
 As of August 13, 2004, there were no outstanding borrowings on this facility by the Partnership or any of the other eligible borrowers.
 
 PLM Transportation Equipment Corp. (TEC), an affiliate of the General Partner, arranged for the lease or purchase of up to 1,050 railcars with a delivery date between 2002 and 2004. The commitment requires a minimum of 30% of the railcars delivered under the arrangement be purchased and the remaining 70% of the railcars may be leased or purchased. As of June 30, 2004, TEC or an affiliated program have purchased 354 railcars, at a cost of $25.8 million, and have leased 494 railcars, exceeding the minimum purchase requirement under this commitment. The remaining 202 railcars to be purchased or leased under this commitment with a cost of $15.0 million, will be delivered in 2004 and may be purchased or leased by TEC, the Partnership, an affiliated program, or an unaffiliated third party.
 
 In the fourth quarter of 2003, FSI exercised its option under the above agreement to purchase or lease 400 additional railcars which will be delivered in 2004 and 2005. The commitment requires that a minimum of 30% of the total railcars to be delivered under the original agreement and the option be purchased and the remaining railcars may be leased or purchased. If purchased, the total cost for the 400 railcars is $30.3 million. The Partnership, an affiliate, or unaffiliated third party may purchase or lease these railcars. While FSI has not determined which managed program will buy these railcars, it is possible that they will be purchased by the Partnership.
 
 As of June 30, 2004, TEC is required to purchase an additional 13% of the total remaining railcars under the commitment to meet its overall requirement that 30% of the total commitment be purchased.
 
 At June 30, 2004, railcars with an original equipment cost of $3.4 million were owned by FSI, some of which were purchased from the above transaction. 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 these railcars.
 
 Commitments and contingencies as of June 30, 2004 are as follows (in thousands of dollars):
 
 Less than
1-3Partnership Obligations:



Total

1 Year

YearsNotes payable




$8,000

$4,000

$4,000Affiliate Obligations:Commitment to purchase railcars




$44,982
1
$23,329

$21,653  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.
 
 (IV) RECENT ACCOUNTING PRONOUNCEMENTS
 
 In January 2003, Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). 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 December 31, 2004 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 is still in the process of evaluating its impact and has not completed its analysis or concluded on the impact that FIN 46 will have on the Partnership.
 
 (V)  OUTLOOK FOR THE FUTURE
 
 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 these factors 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.
 
 Several factors may affect the Partnership's operating performance during the remainder of 2004 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 operations during the remainder of 2004 and beyond include:
 
 (1)  Over the next 18 months, 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)  Economic recovery in the railcar segment continues to be strong. Orders for new tank railcars, a key leading indicator for the railcar fleet, indicate a backlog of a full year production of approximately 11,000 units. Overall railcar loadings are now forecast to grow approximately 6% in 2004 which is an extremely strong outlook and an increase in the industry consensus forecast since last quarter. The railcar fleet is largely used by a broadly defined chemical sector. Chemical production has grown 3% per year on average over the last two decades.
 
 Although chemical and petroleum railcar loadings are projected to grow by 5% this year, the rapid increase in steel prices which has resulted in increases in the price of a new tank car by over 20%, may cause the industry recovery to slow. The speed of recovery in lease rates continues to lag behind this price increase and lease rates remain low compared to historical norms. While this is likely to change, reduced railcar availability and higher lease costs may slow the industry growth and perhaps cause a shift to other forms of transportation;
 
 (3)  Market demand for new and used aircraft has been severely impacted by the poor financial condition of the airline industry. The General Partner believes that there is a significant oversupply of commercial aircraft available that has caused a decrease in aircraft fair market values. The General Partner believes aircraft prices have decreased to a level which may make them attractive investment opportunities. Accordingly, the Partnership may purchase aircraft in 2004.
 
 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 accrue interest at a rate of 5%. The balance outstanding at June 30, 2004 was $0.2 million. Due to the uncertainty of ultimate collection, the General Partner fully reserved the unpaid outstanding balance less the security deposit from this lessee and any payments received through August 13, 2004. As of August 13, 2004, the lessee was current with all the installment payments due to the Partnership except for the payment due during August 2004;
 
 (4)  The Partnership's two owned marine vessels are on a fixed rate lease through November 2004 and April 2005. Over the last several months, the lease rates earned on similar marine vessels have significantly increased. The General Partner is currently negotiating with the lessee of the marine vessels to extend the leases at current market rates. Alternatively, the General Partner may market the marine vessels for sale at the end of their current lease;
 
 (5)  The management fee rate paid by the Partnership will be reduced by 25% for the period starting January 1, 2005 and ending June 30, 2006;
 
 (6)  The Partnership is expected to continue to have increased general and administrative costs due to costs associated with the acquisition of additional equipment and as it liquidates other investment programs that currently share certain shared general and administrative expenses; and
 
 (7)  General and administrative expenses are expected to increase over the next 18 months due to additional expenses required to meet compliance standards of the Sarbanes - Oxley Act.
 
 The Partnership may commit to purchase additional equipment with its cash flow, surplus cash, and equipment sale proceeds generated prior to December 31, 2004, consistent with the objectives of the Partnership. 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, and pay loan principal and interest on debt.
 
 The General Partner believes prices on certain transportation equipment, primarily railcar equipment and selected aircraft equipment, have reached attractive levels and is currently in the market to make investments in 2004. The General Partner believes that transportation equipment purchased in today's economic environment may appreciate. Accordingly, the General Partner believes that most of the cash currently held by the Partnership will be used to purchase additional equipment or make debt payments.
 
 The General Partner does not anticipate declaring any cash distributions to the partners until at least the end of the investment phase of the Partnership. Cash distributions when paid to the partners generally consist of both a return of and a return on capital. Cash distributions do not represent and are not indicative of yield on investment. Actual yield on investment cannot be determined with any certainty until conclusion of the Partnership and will be dependent upon the collection of all future contracted rent, the generation of renewal and/or re-lease rents and the residual value realized for each asset at its disposal.
 
 (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.
 
 ITEM 3.  CONTROLS AND PROCEDURES
 
 Limitations on the Effectiveness of Controls
 
 The General Partners management, including its President and Chief Financial Officer (CFO), 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 CFO, 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 President and CFO 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 the General Partner carried out its evaluations.
 
  
 PART II -- OTHER INFORMATION
 
 
 ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
 (a)  Exhibits
 
 10.1  Loan agreement between PLM Rail Partners, LLC and HSH Nordbank AG, New York, dated June 30, 2004.
 
 10.2  Asset Transfer Agreement between PLM Equipment Growth & Income Fund VII and PLM Rail Partners, LLC, dated July 1, 2004.
 
 10.3  Limited Liability Company Agreement of PLM Railcars Partners dated June 29, 2004.
 
 31.1  Certificate of President of the General Partner pursuant to Section 302 of Sarbanes - Oxley Act.
 
 31.2  Certificate of Chief Financial Officer of the General Partner pursuant to Section 302 of Sarbanes - Oxley Act.
 
 32.1  Certificate of President of the General Partner pursuant to Section 906 of Sarbanes - Oxley Act.
 
 32.2  Certificate of Chief Financial Officer of the General Partner pursuant to Section 906 of Sarbanes - Oxley Act.
 
 (b)  Reports on Form 8-K
 
 None.
 
  
 
 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, 2004 By:  /s/ Richard K Brock
 Richard K Brock
 Chief Financial Officer