UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               -------------------
                                    FORM 10-Q




[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the fiscal quarter ended September 30, 1998


[ ]  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 33-55796
                             -----------------------




                     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. Employer
incorporation or organization)                          Identification No.)

One Market, Steuart Street Tower
Suite 800, San Francisco, CA                                94105-1301
(Address of principal                                       (Zip code)
executive offices)



       Registrant's telephone number, including area code: (415) 974-1399
                             -----------------------


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. Yes X No ____


<PAGE>






                     PLM EQUIPMENT GROWTH & INCOME FUND VII
                            (A Limited Partnership)
                                 BALANCE SHEETS
                 (in thousands of dollars, except unit amounts)


<TABLE>
<CAPTION>



                                                                            September 30,           December 31,
                                                                               1998                 1997
                                                                        --------------------------------------
<S>                                                                       <C>                   <C>        
Assets

Equipment held for operating lease, at cost                               $       69,514        $    58,844
Less accumulated depreciation                                                    (33,364)           (24,650)
                                                                        ---------------------------------------
                                                                                  36,150             34,194
Equipment held for sale                                                               --              4,148
                                                                        ---------------------------------------
  Net equipment                                                                   36,150             38,342

Cash and cash equivalents                                                            929              9,327
Restricted cash                                                                      197                191
Accounts receivable, less allowance for doubtful accounts
    of $464 in 1998 and $522 in 1997                                               1,060                887
Investments in unconsolidated special-purpose entities                            37,463             31,377
Deferred charges, net of accumulated amortization
    of $189 in 1998 and $274 in 1997                                                 235                296
Prepaid expenses and other assets                                                     52                 49
                                                                        ---------------------------------------

      Total assets                                                        $       76,086        $    80,469
                                                                        =======================================


Liabilities and partners' capital

Liabilities:
Accounts payable and accrued expenses                                     $          711        $       367
Due to affiliates                                                                  1,081              4,563
Lessee deposits and reserve for repairs                                            1,278              1,477
Notes payable                                                                     23,000             23,000
                                                                        ---------------------------------------
  Total liabilities                                                               26,070             29,407

Partners' capital:
Limited partners (5,334,211 limited partnership units as of
    September 30, 1998 and 5,370,297 as of December 31, 1997)                     50,016             51,062
General Partner                                                                       --                 --
                                                                        ---------------------------------------
  Total partners' capital                                                         50,016             51,062
                                                                        ---------------------------------------

      Total liabilities and partners' capital                             $       76,086        $    80,469
                                                                        =======================================

</TABLE>



                       See accompanying notes to financial
                                  statements.

<PAGE>

                     PLM EQUIPMENT GROWTH & INCOME FUND VII
                            (A Limited Partnership)
                            STATEMENTS OF OPERATIONS
        (in thousands of dollars, except weighted-average unit amounts)

<TABLE>
<CAPTION>

                                                     For the Three Months                 For the Nine Months
                                                      Ended September 30,                 Ended September 30,
                                                        1998         1997                1998            1997
                                                 ------------------------------------------------------------------
<S>                                                <C>             <C>                 <C>              <C>      
Revenues


Lease revenue                                      $   3,800       $   2,958           $  10,424        $   9,413
Interest and other income                                145             121                 285              226
Net gain on disposition of equipment                       3               2                  35            1,802
                                                 --------------------------------------------------------------------
    Total revenues                                     3,948           3,081              10,744           11,441
                                                 --------------------------------------------------------------------

Expenses

Depreciation and amortization                          1,841           2,143               5,685            6,701
Repairs and maintenance                                  642             365               1,477              992
Interest expense                                         427             418               1,259            1,273
Management fees to affiliate                             212             163                 588              524
Equipment operating expense                              409              15                 515               43
Insurance expense                                        130              28                 191               65
General and administrative expenses
      to affiliates                                      166             207                 517              510
Other general and administrative expenses                100              98                 367              262
Provision for (recovery of) bad debts                    (42)            171                   1              226
                                                 --------------------------------------------------------------------
    Total expenses                                     3,885           3,608              10,600           10,596
                                                 --------------------------------------------------------------------

Equity in net income (loss) of unconsolidated
      special-purpose entities                          (848)            168               6,922              686
                                                 --------------------------------------------------------------------

Net income (loss)                                  $    (785)      $    (359 )         $   7,066        $   1,531
                                                 ====================================================================

Partners' share of net income (loss)

Limited partners                                   $    (912)      $    (486 )         $   6,686        $   1,149
General Partner                                          127             127                 380              382
                                                 --------------------------------------------------------------------

Total                                              $    (785)      $    (359 )         $   7,066        $   1,531
                                                 ====================================================================

Net income (loss) per weighted-average
      limited partnership unit                     $   (0.17)      $   (0.09 )         $    1.25        $    0.21
                                                 ====================================================================



Cash distributions                                 $   2,529       $   2,544           $   7,600        $   7,633
                                                 ====================================================================
Cash distributions per weighted-average
      limited partnership unit                     $    0.45       $    0.45           $    1.35        $    1.35
                                                 ====================================================================

</TABLE>










                       See accompanying notes to financial
                                  statements.

<PAGE>

                     PLM EQUIPMENT GROWTH & INCOME FUND VII
                            ( A Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                     For the period from December 31, 1996
                              to September 30, 1998
                            (in thousands of dollars)

<TABLE>
<CAPTION>



                                                            Limited               General
                                                            Partners              Partner                     Total
                                                        ------------------------------------------------------------

<S>                                                       <C>                    <C>                  <C>        
Partners' capital as of December 31, 1996                 $    60,137            $     --             $    60,137

Net income                                                        593                 508                   1,101

Cash distribution                                              (9,668)               (508)                (10,176)
                                                        ------------------------------------------------------------

  Partners' capital as of December 31, 1997                    51,062                  --                  51,062

Net income                                                      6,686                 380                   7,066

Repurchase of limited partnership units                          (512)                 --                    (512)

Cash distribution                                              (7,220)               (380)                 (7,600)
                                                        ------------------------------------------------------------

  Partners' capital as of September 30, 1998              $    50,016            $     --             $    50,016
                                                        ============================================================


</TABLE>












                       See accompanying notes to financial
                                  statements.





<PAGE>


                     PLM EQUIPMENT GROWTH & INCOME FUND VII
                            (A Limited Partnership)
                            STATEMENTS OF CASH FLOWS
                           (in thousands of dollars)

<TABLE>
<CAPTION>

                                                                                      For the Nine Months
                                                                                      Ended September 30,
                                                                                   1998            1997
                                                                                ----------------------------

<S>                                                                              <C>              <C>       
Operating activities


Net income                                                                       $    7,066       $    1,531
Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
  Depreciation and amortization                                                       5,685            6,701
  Net gain on disposition of equipment                                                  (35)          (1,802)
  Equity in net income from unconsolidated
      special-purpose entities                                                       (6,922)            (686)
  Changes in operating assets and liabilities:
    Restricted cash                                                                      (6)             (31)
    Accounts receivable, net                                                           (204)             393
    Prepaid expenses and other assets                                                    (3)              55
    Accounts payable and accrued expenses                                               344              384
    Due to affiliates                                                                   100              343
    Lessee deposits and reserve for repairs                                            (199)             490
                                                                               -------------------
                                                                                                ----------------
      Net cash provided by operating activities                                       5,826            7,378
                                                                               ---------------------------------

Investing activities

Payments for equipment and capitalized repairs                                       (3,466)             (91)
Investment in and equipment purchased and placed in
    unconsolidated special-purpose entities                                         (22,261)              --
Distributions from unconsolidated special-purpose entities                            8,295            5,805
Distributions from liquidation of unconsolidated special-purpose entities            14,802               --
Payments of acquisition fees to affiliate                                              (155)              --
Payments of lease negotiation fees to affiliate                                         (34)              --
Proceeds from disposition of equipment                                                  289            4,411
                                                                               ---------------------------------
      Net cash (used in) provided by investing activities                            (2,530)          10,125
                                                                               ---------------------------------

Financing activities

Payments of short-term note payable                                                      --           (2,000)
Payments of due to affiliates                                                        (5,092)              --
Cash recieved from affiliates                                                         1,510               --
Cash distribution paid to limited partners                                           (7,220)          (7,251)
Cash distribution paid to General Partner                                              (380)            (382)
Repurchase of limited partnership units                                                (512)              --
                                                                               ---------------------------------
      Net cash used in financing activities                                         (11,694)          (9,633)
                                                                               ---------------------------------

Net (decrease) increase in cash and cash equivalents                                 (8,398)           7,870
Cash and cash equivalents at beginning of period                                      9,327            2,468
                                                                                                ----------------
                                                                               -------------------
Cash and cash equivalents at end of period                                       $      929       $   10,338
                                                                               =================================

Supplemental information

Interest paid                                                                    $      869       $      864
                                                                               =================================
Supplemental disclosure of noncash investing and financing activities:
  Sale proceeds included in accounts receivable                                  $       16       $        5
                                                                               =================================
</TABLE>

                       See accompanying notes to financial
                                  statements.
           
<PAGE>

                     PLM EQUIPMENT GROWTH & INCOME FUND VII
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998

1.   Opinion of Management

In the opinion of the  management  of PLM Financial  Services,  Inc. (FSI or the
General Partner),  the accompanying  unaudited financial  statements contain all
adjustments  necessary,  consisting  primarily of normal recurring accruals,  to
present fairly the financial  position of PLM Equipment Growth & Income Fund VII
(the Partnership) as of September 30, 1998 and December 31, 1997, the statements
of operations  for the three and nine months ended  September 30, 1998 and 1997,
the  statements  of cash flows for the nine months ended  September 30, 1998 and
1997,  and the  statements  of changes in partners'  capital for the period from
December  31,  1996  to  September  30,  1998.  Certain   information  and  note
disclosures  normally  included in financial  statements  prepared in accordance
with generally  accepted  accounting  principles  have been condensed or omitted
from the accompanying 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, 1997,
on file with the Securities and Exchange Commission.

2.   Repurchase of Limited Partnership Units

In 1997, the Partnership  agreed to repurchase up to 46,000 limited  partnership
units for an aggregate purchase price of up to a maximum of $0.7 million.  As of
September 30, 1998, the Partnership had repurchased  36,086 limited  partnership
units for $0.5 million.  The General Partner may repurchase the additional units
in the future.

3.   Cash Distributions

Cash  distributions  are  recorded  when paid and totaled  $2.5 million and $7.6
million for the three and nine months ended  September  30, 1998 and 1997.  Cash
distributions  to limited  partners  in excess of net income are  considered  to
represent a return of capital.  Cash  distributions  to the limited  partners of
$0.5 million and $6.1 million for the nine months ended  September  30, 1998 and
1997,  respectively,  were deemed to be a return of capital.  Cash distributions
related to the results from the third quarter of 1998, of $1.2 million,  will be
paid during the fourth quarter of 1998.

4.   Transactions with General Partner and Affiliates

The Partnership's  proportional share of the affiliated expenses incurred by the
unconsolidated  special-purpose  entities (USPEs) during 1998 and 1997 is listed
in the following table (in thousands of dollars):

<TABLE>
<CAPTION>

                                                     For the Three Months                 For the Nine Months
                                                      Ended September 30,                 Ended September 30,
                                                      1998            1997                1998             1997
                                                 --------------------------------------------------------------------
<S>                                                <C>             <C>                 <C>              <C>      
Management fees                                    $     112       $     127           $     333        $     374
Data processing and administrative
   expenses                                               30              34                 102              101
Insurance expense                                          3              35                  18              141

</TABLE>

Transportation  Equipment  Indemnity  Company,  Ltd.  (TEI), an affiliate of the
General  Partner,  provides  marine  insurance  coverage  for the  Partnership's
investment in USPEs and other insurance brokerage services.  TEI did not provide
the same level of insurance  coverage  during 1998 as had been  provided  during
1997. These services were provided by an unaffiliated third party.

The  Partnership  paid FSI $0.2  million  for  equipment  acquisition  and lease
negotiation  fees during the nine months ended  September  30, 1998.  No similar
fees were paid to FSI during the same period of 1997.

<PAGE>



                     PLM EQUIPMENT GROWTH & INCOME FUND VII
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998

Transactions with General Partner and Affiliates (continued)

The balance due to affiliates as of September 30, 1998 includes $0.1 million due
to FSI and its affiliates for management fees and $0.9 million due to affiliated
USPEs.  The balance due to  affiliates  as of December  31, 1997  includes  $0.1
million due to FSI and its affiliates  for management  fees and $4.5 million due
to an affiliated USPE.

The Partnership's proportional share of USPE-affiliated management fees, of $0.1
million and $0.2 million,  was payable as of September 30, 1998 and December 31,
1997, respectively.

The  Partnership's   proportional  share  of  equipment  acquisition  and  lease
negotiation fees paid by USPEs to FSI during the nine months ended September 30,
1998 was $1.2 million. No similar fees were paid during the same period of 1997.

During the nine months ended  September  30,  1998,  the  Partnership  paid $5.1
million to affiliated USPEs.

5.   Equipment

Owned equipment held for operating  lease is stated at cost.  Equipment held for
sale is stated at the lower of the equipment's  depreciated  cost or fair value,
less cost to sell, and is subject to a pending contract for sale. The components
of owned equipment are as follows (in thousands of dollars):

<TABLE>
<CAPTION>

                                              September 30,       December 31,
                                                 1998                 1997
                                            -------------------------------------

<S>                                          <C>                  <C>        
Marine vessels                               $    22,212          $    22,212
Trailers                                          17,547               18,111
Aircraft                                          15,933                8,305
Rail equipment                                    10,074               10,063
Portable heaters                                   3,595                   --
Modular buildings                                    153                  153
                                            -------------       --------------
                                                  69,514               58,844
Less accumulated depreciation                    (33,364)             (24,650)
                                            -------------       --------------
                                                  36,150               34,194
Equipment held for sale                               --                4,148
                                            -------------       --------------
    Net equipment                            $    36,150          $    38,342
                                            =============       ==============
</TABLE>

As of September  30,  1998,  all of the  equipment  was on lease or operating in
PLM-affiliated  short-term  trailer rental  facilities,  except for two commuter
aircraft and five railcars. As of December 31, 1997, all of the equipment was on
lease or operating  in  PLM-affiliated  short-term  trailer  rental  facilities,
except for two commuter aircraft that were held for sale and a railcar.  The net
book value of the  equipment  off lease was $3.6  million and $4.1 million as of
September 30, 1998 and December 31, 1997, respectively.

The Partnership purchased a portfolio of portable heaters during the nine months
ended September 30, 1998 for $3.6 million, including $0.2 million in acquisition
fees paid to FSI.

During the nine months ended September 30, 1998, the Partnership  disposed of or
sold  trailers  and a railcar  with a net book  value of $0.2  million  for $0.3
million.  The Partnership also  reclassified the two commuter aircraft that were
held for sale at December 31, 1997 to owned equipment held for operating  lease.
The sale of this aircraft has been postponed until a future date.

During the nine months ended September 30, 1997, the Partnership  disposed of or
sold modular  buildings  and trailers  with a net book value of $2.5 million for
$4.3 million.

<PAGE>

                     PLM EQUIPMENT GROWTH & INCOME FUND VII
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998

6.   Investments in Unconsolidated Special-Purpose Entities

The net investments in USPEs include the following  jointly-owned  equipment and
related assets and liabilities (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                                   September 30,   December 31,
                                                                                       1998            1997
                                                                                ---------------------------------



  <S>                                                                             <C>                <C>       
  75% interest in an entity owning marine containers                              $     7,481        $       --
  50% interest in a trust owning an MD-82 commercial aircraft                           7,212                --
  80% interest in an entity owning a bulk-carrier marine vessel                         5,343             6,014
  50% interest in a trust owning an MD-82 commercial aircraft                           4,442               682

  33% interest in two trusts owning three 737-200A commercial aircraft,
            two aircraft engines, and a portfolio of aircraft rotables                  4,429             8,036

  24% interest in a trust owning a 767-200ER commercial aircraft                        4,321             4,824
  44% interest in an entity owning a bulk-carrier marine vessel                         2,312             2,439
  10% interest in an entity owning a mobile offshore drilling unit                      1,526             1,712
  50% interest in a trust that owned four 737-200A commercial aircraft                    241             4,362
  25% interest in a trust that owned four 737-200A commercial aircraft                    156             3,308
      Net investments                                                             $    37,463        $   31,377
                                                                                 =============     =============

</TABLE>

As of September 30, 1998 and December 31, 1997, the  Partnership had an interest
in trusts that owned  multiple  aircraft (the Trusts).  As of December 31, 1997,
two of these Trusts  contained  provisions,  under  certain  circumstances,  for
allocating  specific aircraft to the beneficial  owners.  During the nine months
ended September 30, 1998, in one of these Trusts,  the Partnership  sold the two
commercial  aircraft assigned to it, with a net book value of $3.4 million,  for
proceeds  of $8.8  million.  During  the same  period,  in  another  trust,  the
Partnership  also sold the commercial  aircraft  assigned to it, with a net book
value of $2.7 million, for proceeds of $6.0 million.

During the nine months ended September 30, 1998, the  Partnership  completed its
commitment  to  purchase  an  interest  in a trust  owning  an MD-82  Stage  III
commercial   aircraft  for  $7.2  million,   including   acquisition  and  lease
negotiation  fees of $0.4 million that were paid to FSI for the purchase of this
equipment.  The Partnership  made a deposit of $0.7 million toward this purchase
in 1997. The  Partnership  also purchased an interest in another trust owning an
MD-82 Stage III commercial aircraft for $8.2 million,  including acquisition and
lease negotiation fees of $0.4 million that were paid to FSI for the purchase of
this  equipment.  The  remaining  interest  in this  trust was  purchased  by an
affiliated program.

In addition,  during the nine months ended  September 30, 1998, the  Partnership
purchased  an interest in an entity  owning  4,912  marine  containers  for $7.5
million,  including  acquisition and lease negotiation fees of $0.4 million that
were paid to FSI.  The  remaining  interest in this entity was  purchased  by an
affiliated program.

7.   Debt

The General  Partner  entered  into a  short-term,  joint $50.0  million  credit
facility that is due to expire on November 2, 1998. This facility was amended on
June 1, 1998 to temporarily  increase the borrowing capacity of American Finance
Group, Inc. (AFG), a subsidiary of PLM  International,  Inc., from $50.0 million
to $55.0  million until  September 1, 1998.  On June 8, 1998,  this facility was
amended  again to  temporarily  increase  AFG's  borrowing  capacity  from $55.0
million to $60.0  million  until July 8, 1998.  As of September  30,  1998,  the
Partnership  had no borrowings  under the short-term  joint $50.0 million credit
facility.  Among the  other  eligible  borrowers,  AFG had  borrowings  of $44.2
million,  and TEC  Acquisub,  Inc.,  had  borrowings  of $0.3 million  under the
short-term  joint,  $50.0 million  credit  facility as of September 30, 1998. No
other eligible borrower had any outstanding borrowings.

<PAGE>

                          PLM EQUIPMENT GROWTH FUND VII
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998

Debt (continued)

The  General  Partner  believes  it will  renew  the  credit  facility  upon its
expiration with similar terms as those in the current credit facility.

8.   Net Income (Loss) Per Weighted-Average Partnership Unit

Net income (loss) per weighted-average Partnership unit was computed by dividing
net income  (loss)  attributable  to limited  partners  by the  weighted-average
number  of  Partnership  units  deemed   outstanding   during  the  period.  The
weighted-average number of Partnership units deemed outstanding during the three
and  nine  months  ended   September  30,  1998  was  5,334,211  and  5,343,769,
respectively.   The   weighted-average   number  of  Partnership   units  deemed
outstanding  during  the three and nine  months  ended  September  30,  1997 was
5,370,297.

9.   Contingencies

PLM  International,  Inc., (the Company) and various of its affiliates are named
as  defendants  in a lawsuit  filed as a class action on January 22, 1997 in the
Circuit Court of Mobile County,  Mobile,  Alabama,  Case No. CV-97-251 (the Koch
action).  The plaintiffs,  who filed the complaint on their own and on behalf of
all class members similarly situated, are six individuals who allegedly invested
in certain California  limited  partnerships (the Funds) for which the Company's
wholly-owned  subsidiary,  FSI,  acts  as the  general  partner,  including  PLM
Equipment Growth Funds IV, V, and VI, and the Partnership. The complaint asserts
eight causes of action  against all  defendants,  as follows:  fraud and deceit,
suppression, negligent misrepresentation and suppression,  intentional breach of
fiduciary  duty,   negligent  breach  of  fiduciary  duty,  unjust   enrichment,
conversion,  and conspiracy.  Additionally,  plaintiffs allege a cause of action
against PLM Securities Corp. for breach of third party beneficiary  contracts in
violation  of the  National  Association  of  Securities  Dealers  rules of fair
practice.  Plaintiffs  allege that each defendant owed  plaintiffs and the class
certain duties due to their status as fiduciaries,  financial advisors,  agents,
and control persons. Based on these duties,  plaintiffs assert liability against
the defendants for improper sales and marketing practices,  mismanagement of the
Funds, and concealing such mismanagement from investors in the Funds. Plaintiffs
seek  unspecified  compensatory  and  recissory  damages,  as well  as  punitive
damages,  and have offered to tender their limited partnership units back to the
defendants.

In March 1997,  the  defendants  removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama,  Southern
Division (Civil Action No. 97-0177-BH-C) based on the district court's diversity
jurisdiction,  following which plaintiffs filed a motion to remand the action to
the state court. In September 1997, the district court denied plaintiffs' motion
and dismissed  without  prejudice the individual  claims of the California class
representative,  reasoning that he had been fraudulently  joined as a plaintiff.
In October 1997,  defendants filed a motion to compel arbitration of plaintiffs'
claims,  based on an agreement to arbitrate contained in the limited partnership
agreement of each Fund, and to stay further  proceedings  pending the outcome of
such arbitration.  Notwithstanding  plaintiffs'  opposition,  the district court
granted the motion in December 1997.

Following  various  unsuccessful  requests  that the district  court  reverse or
otherwise amend its decisions,  plaintiffs  filed with the U.S. Court of Appeals
for the  Eleventh  Circuit a notice of appeal from the  district  court's  order
granting  defendants'  motion to compel arbitration and to stay the proceedings,
and of the  district  court's  order  denying  plaintiffs'  motion to remand and
dismissing the claims of the California  plaintiff.  This appeal was voluntarily
dismissed by plaintiffs in June 1998 pending  settlement of the Koch action,  as
discussed below.

On June 5, 1997, the Company and the  affiliates who are also  defendants in the
Koch action were named as defendants in another  purported class action filed in
the San Francisco  Superior Court,  San Francisco,  California,  Case No. 987062
(the Romei action). The plaintiff is an investor in PLM Equipment Growth Fund V,
and filed the  complaint  on her own behalf  and on behalf of all class  members
similarly situated who invested in certain  California limited  partnerships for
which FSI acts as the  general  partner,  including  the  Funds.  The  complaint
alleges the same facts and the same nine causes of action

<PAGE>

                          PLM EQUIPMENT GROWTH FUND VII
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998

Contingencies (continued)

as in the Koch action,  plus five additional causes of action against all of the
defendants,  as follows:  violations of California Business and Professions Code
Sections 17200, et seq. for alleged unfair and deceptive practices, constructive
fraud,  unjust  enrichment,  violations of California  Corporations Code Section
1507, and a claim for treble damages under California Civil Code Section 3345.

On July 31, 1997, the defendants  filed with the district court for the Northern
District of California  (Case No. C-97-2847 WHO) a petition (the petition) under
the Federal  Arbitration Act seeking to compel arbitration of plaintiff's claims
and for an order staying the state court proceedings  pending the outcome of the
arbitration.  In connection with this motion,  plaintiff agreed to a stay of the
state court  action  pending the  district  court's  decision on the petition to
compel  arbitration.  In October 1997,  the district  court denied the Company's
petition  to  compel  arbitration  and in  November  1997,  agreed  to hear  the
Company's motion for  reconsideration  of this order. The hearing on this motion
has been taken off calendar and the district  court has  dismissed  the petition
pending  settlement of the Romei  action,  as discussed  below.  The state court
action  continues to be stayed pending such  resolution.  In connection with her
opposition to the petition to compel arbitration, the plaintiff filed an amended
complaint  with the state court in August 1997 alleging two new causes of action
for violations of the California Securities Law of 1968 (California Corporations
Code  Sections  25400 and  25500) and for  violation  of  California  Civil Code
Sections 1709 and 1710.  Plaintiff  also served  certain  discovery  requests on
defendants.  Because of the stay, no response to the amended complaint or to the
discovery is currently required.

In May 1998, all parties to the Koch and Romei actions entered into a memorandum
of  understanding  (MOU)  related to the  settlement of those  actions.  The MOU
contemplates  a settlement  and release of all claims in exchange for payment of
up to $6.0  million.  The final  settlement  amount will depend on the number of
authorized   claims   filed  by   authorized   claimants,   the  amount  of  the
administrative costs incurred in connection with the settlement,  and the amount
of attorneys' fees awarded by the Alabama  district court.  The Company will pay
up to $0.3  million of the  settlement,  with the  remainder  being funded by an
insurance  policy.  The defendants  will continue to deny each of the claims and
contentions and admit no liability in connection  with the proposed  settlement.
The settlement remains subject to numerous conditions, including but not limited
to (a)  agreement and  execution by the parties of a settlement  agreement,  (b)
notice  to and  certification  of the  class  for  settlement  purposes  and (c)
preliminary and final approval of the settlement by the Alabama  district court.
The Company  continues  to believe  that the  allegations  of the Koch and Romei
actions  are  completely  without  merit and  intends to continue to defend this
matter vigorously if the settlement is not consummated.

10.      Subsequent Event

The General Partner received a commitment letter dated October 29, 1998 from the
lender of the  short-term  credit  facility  extending  the credit  facility  to
November 1, 1999. The terms of the credit facility  remained  substantially  the
same as the previous credit facility.











                      (this space intentionally left blank)



<PAGE>


Item 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

(I)      RESULTS OF OPERATIONS

Comparison  of PLM  Equipment  Growth & Income  Fund VII's  (the  Partnership's)
Operating Results for the Three Months Ended September 30, 1998 and 1997

(A)      Owned Equipment Operations

Lease  revenues  less  direct  expenses  (defined  as  expenses  for repairs and
maintenance,   equipment  operation,  and  asset-specific  insurance)  on  owned
equipment  increased  during the three  months  ended  September  30,  1998 when
compared to the same period of 1997. The following table presents lease revenues
less direct expenses by owned equipment type (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                           For the Three Months
                                                                           Ended September 30,
                                                                          1998              1997
                                                                      ------------------------------

<S>                                                                     <C>               <C>    
Trailers                                                                $   964           $   815
Marine vessels                                                              609               739
Rail equipment                                                              448               486
Aircraft                                                                    363               501
Portable heaters                                                            237                --
Modular buildings                                                            11                16

</TABLE>

Trailers:  Trailer lease revenues and direct expenses were $1.2 million and $0.2
million,  respectively,  for the three months ended September 30, 1998, compared
to $0.9 million and $0.1 million, respectively,  during the same period of 1997.
The  increase in trailer  contribution  was due to the  purchase  of  additional
equipment during the fourth quarter of 1997.

Marine  vessels:  Marine  vessel lease  revenues and direct  expenses  were $1.2
million and $0.6 million, respectively, for the three months ended September 30,
1998, compared to $0.8 million and $0.1 million,  respectively,  during the same
period of 1997.  Lease revenues and direct expenses  increased  during the third
quarter of 1998,  when  compared to the same period of 1997,  due to a change in
the lease  arrangement for the  Partnership's  marine vessels.  During the third
quarter of 1997, the marine vessels were operating  under a bareboat  charter in
which the  lessee  pays a flat lease  rate and also pays for  certain  operating
expenses  while on lease.  During the third quarter of 1998,  the marine vessels
were operating under a lease arrangement in which the lessee pays a higher lease
rate, however, the Partnership now pays for all operating expenses. The decrease
in marine  vessel  contribution  was due to the increase in  operating  expenses
exceeding the increase in the lease rate.

Rail  equipment:  Rail equipment  lease  revenues and direct  expenses were $0.7
million and $0.2 million, respectively, for the three months ended September 30,
1998 and 1997.  The decrease in railcar  contribution  during 1998 was due to an
increase in  required  repairs  during 1998 when  compared to the same period of
1997.

Aircraft: Aircraft lease revenues and direct expenses were $0.5 million and $0.1
million,  respectively,  for the three months ended September 30, 1998, compared
to $0.5 million and $5,000,  respectively,  during the same period of 1997.  The
decrease in aircraft  contribution was due to additional repairs required to the
commuter aircraft that was off-lease during the three months ended September 30,
1998 which were not needed during 1997.

Portable  heaters:  Lease revenues and direct expenses for portable heaters were
$0.2 million and $0,  respectively,  for the three months  ended  September  30,
1998. The Partnership purchased this equipment during the first quarter of 1998.

Modular  buildings:  Modular  building lease  revenues and direct  expenses were
$11,000 and $0,  respectively,  for the three months ended  September  30, 1998,
compared to $16,000 and $0,  respectively,  during the same period of 1997.  The
primary  reason for the  decrease  in lease  revenues  was due to fewer  modular
buildings on lease for the three months ended  September  30, 1998 when compared
to the same period of 1997.

(B) Indirect Expenses Related to Owned Equipment Operations

Total indirect  expenses were $2.7 million for the three months ended  September
30, 1998, a decrease from $3.2 million for the same period in 1997.  Significant
variances are explained as follows:

     (1) A $0.3 million decrease in depreciation and amortization  expenses from
1997 levels reflects the double-declining balance method of depreciation,  which
was offset in part by the purchase of portable heaters during 1998.

     (2) A $0.2 million  decrease in bad debt expense was due to the  collection
of $49,000 from past due receivables during the three months ended September 30,
1998  that had  previously  been  reserved  for as a bad  debt  and the  General
Partner's  evaluation  of the  collectability  of  receivables  due from certain
lessees.

(C) Net Gain on Disposition of Owned Equipment

The net gain on  disposition  of equipment for the third quarter of 1998 totaled
$3,000, and resulted from the sale of a trailer with an aggregate net book value
of $3,000 for proceeds of $6,000.  The net gain on  disposition of equipment for
the third quarter of 1997 totaled $2,000, and resulted from the sale of trailers
with a net book value of $29,000 for proceeds of $31,000.

(D)  Equity in Net  Income  (Loss) of  Unconsolidated  Special-Purpose  Entities
(USPEs)

Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity  method is shown in the following  table by equipment  type
(in thousands of dollars):

<TABLE>
<CAPTION>

                                                                             For the Three Months
                                                                             Ended September 30,
                                                                            1998             1997
                                                                        ------------------------------

<S>                                                                       <C>              <C>      
Mobile offshore drilling unit                                             $    21          $     (1)
Marine vessels                                                                 (4)             (133)
Marine containers                                                             (59)               --
Aircraft, rotable components, and aircraft engines                           (806)              302
                                    ------------------------------------------------     -------------
  Equity in net income (loss) of USPEs                                    $  (848)         $    168
                                    ================================================     =============
</TABLE>

Mobile offshore  drilling unit: During the three months ended September 30, 1998
and  1997,   revenues  of  $0.1   million  were  offset  by   depreciation   and
administrative  expenses  of $0.1  million.  The  increase  in  mobile  offshore
drilling unit contribution is due to lower  depreciation  expense as a result of
the double  declining-balance  method of  depreciation  which results in greater
depreciation in the first years an asset is owned.

Marine vessels: During the three months ended September 30, 1998, lease revenues
of $0.9 million were offset by depreciation and administrative  expenses of $0.9
million.  During the same period of 1997,  lease  revenues of $0.9  million were
offset by depreciation and administrative expenses of $1.1 million. The decrease
in  depreciation  and  administrative   expenses  was  due  primarily  to  lower
depreciation  expense  as a result  of the  double-declining  balance  method of
depreciation  which results in greater  depreciation in the first years an asset
is owned.

Marine  containers:  As of September 30, 1998, the Partnership owned an interest
in an entity  that owns  marine  containers.  During the third  quarter of 1998,
revenues of $0.1 million were offset by depreciation and administrative expenses
of $0.1 million. The Partnership purchased this interest during September 1998.

Aircraft,  rotable  components,  and aircraft  engines:  During the three months
ended  September  30,  1998,  lease  revenues  of $1.2  million  were  offset by
depreciation and administrative expenses of $2.0 million. During the same period
of 1997,  lease  revenues  of $1.9  million  were  offset  by  depreciation  and
administrative expenses of $1.6 million.  Revenues decreased $0.7 million due to
the sale of the Partnership's investment in two trusts containing ten commercial
aircraft  and a lower lease rate earned on certain  equipment.  The  decrease in
lease  revenues  was  offset  in part  by the  Partnership's  investment  in two
additional  trusts during 1998, each owning an MD-82  commercial  aircraft.  The
increase in expenses of $0.4 million was primarily due to  depreciation  expense
relating  to the  investment  in two  additional  trusts  during  1998 which was
partially offset by the sale of the Partnership's interest in two trusts.

(E)      Net Loss

As a result of the foregoing, the Partnership had a net loss of $0.8 million for
the period  ended  September  30,  1998,  compared to a net loss of $0.4 million
during the same period of 1997. 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,  and the  Partnership's  performance  in the
third quarter of 1998 is not necessarily  indicative of future  periods.  In the
third quarter of 1998, the Partnership  distributed  $2.4 million to the limited
partners, or $0.45 per weighted-average limited partnership unit.

Comparison  of the  Partnership's  Operating  Results for the Nine Months  Ended
September 30, 1998 and 1997

(A)      Owned Equipment Operations

Lease  revenues  less  direct  expenses  (defined  as  expenses  for repairs and
maintenance,   equipment  operation,  and  asset-specific  insurance)  on  owned
equipment  decreased  during the nine months  ended  September  30,  1998,  when
compared to the same period of 1997. The following table presents lease revenues
less direct expenses by owned equipment type (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                           For the Nine Months
                                                                           Ended September 30,
                                                                          1998              1997
                                                                      ------------------------------
<S>                                                                     <C>               <C>    
Trailers                                                                $ 2,930           $ 2,283
Marine vessels                                                            2,056             2,539
Rail equipment                                                            1,511             1,589
Aircraft                                                                  1,255             1,502
Portable heaters                                                            486                --
Modular buildings                                                            37               424

</TABLE>

Trailers:  Trailer lease revenues and direct expenses were $3.5 million and $0.6
million, respectively, for the nine months ended September 30, 1998, compared to
$2.7 million and $0.4 million, respectively, during the same period of 1997. The
increase in trailer contribution was due to the purchase of additional equipment
during the fourth quarter of 1997.

Marine  vessels:  Marine  vessel lease  revenues and direct  expenses  were $2.8
million and $0.7 million,  respectively, for the nine months ended September 30,
1998, compared to $2.7 million and $0.2 million,  respectively,  during the same
period of 1997.  Lease revenues and direct  expenses  increased  during the nine
months ended  September 30, 1998,  when compared to the same period of 1997, due
to a change in the lease  arrangement with the current lessee.  During 1997, the
marine vessels were operating under a bareboat  charter in which the lessee pays
a flat lease rate and also pays for certain  operating  expenses while on lease.
During the third quarter of 1998,  the marine  vessels  switched from a bareboat
charter to a lease  arrangement  in which the lessee  pays a higher  lease rate,
however,  the  Partnership now pays operating  expenses.  The decrease in marine
vessel  contribution was due to the increase in operating expenses exceeding the
increase in the lease rate.

Rail  equipment:  Rail equipment  lease  revenues and direct  expenses were $2.1
million and $0.5 million,  respectively, for the nine months ended September 30,
1998 and 1997.  The decrease in railcar  contribution  was due to higher repairs
required during 1998 when compared to the same period of 1997.

Aircraft: Aircraft lease revenues and direct expenses were $1.5 million and $0.3
million, respectively, for the nine months ended September 30, 1998, compared to
$1.5  million and  $13,000,  respectively,  during the same period of 1997.  The
decrease in aircraft  contribution  was due to required  repairs to the commuter
aircraft that was off-lease during 1998.  Similar repairs were not needed during
1997.

Portable  heaters:  Portable heater lease revenues and direct expenses were $0.5
million and $0, respectively,  for the nine months ended September 30, 1998. The
Partnership purchased this equipment during the first quarter of 1998.

Modular  buildings:  Modular  building lease  revenues and direct  expenses were
$37,000 and $0,  respectively,  for the nine months  ended  September  30, 1998,
compared to $0.4 million and $12,000,  respectively,  during the same quarter of
1997. The primary reason for the decrease in lease revenues and direct  expenses
was the sale of the  majority  of this  equipment  during the second  quarter of
1997.

(B) Indirect Expenses Related to Owned Equipment Operations

Total  indirect  expenses were $8.4 million for the nine months ended  September
30, 1998,  decreased from $9.5 million for the same period in 1997.  Significant
variances are explained as follows:

     (1) A $1.0 million decrease in depreciation and amortization  expenses from
1997 levels reflects the  double-declining  balance method of depreciation which
was offset in part by the purchase of portable heaters during 1998.

     (2) A $0.2 million  decrease in bad debt  expense was due, in part,  to the
collection  of $0.1  million  from past due  receivables  during the nine months
ended September 30, 1998 that had previously been reserved for as a bad debt and
the General Partner's  evaluation of the  collectability of receivables due from
certain lessees.

     (3) A $0.1 million  increase in  administrative  expenses was due to higher
professional services during 1998, which were not needed during 1997, and higher
data processing costs.

     (4) A $0.1  million  increase in  management  fees was due to higher  lease
revenues earned by the Partnership during 1998, when compared to the same period
in 1997.

(C) Net Gain on Disposition of Owned Equipment

The net gain on disposition of equipment for the nine months ended September 30,
1998 totaled $35,000,  and resulted from the sale of trailers and a railcar with
an aggregate  net book value of $0.2 million for proceeds of $0.3  million.  The
net gain on  disposition  of equipment  for the nine months ended  September 30,
1997 totaled $1.8 million,  and resulted from the sale of modular  buildings and
trailers with a net book value of $2.5 million for proceeds of $4.3 million.

(D)      Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities

Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity  method is shown in the following  table by equipment  type
(in thousands of dollars):

<TABLE>
<CAPTION>

                                                                             For the Nine Months
                                                                             Ended September 30,
                                                                            1998             1997
                                                                        ------------------------------

<S>                                                                       <C>              <C>     
Aircraft, rotable components, and aircraft engines                        $ 7,174          $  1,170
Mobile offshore drilling unit                                                  58               (45)
Marine containers                                                             (59)               --
Marine vessels                                                               (251)             (439)
                                    ------------------------------------------------     -------------
  Equity in net income of USPEs                                           $ 6,922          $    686
                                    ================================================     =============
</TABLE>

Aircraft, rotable components, and aircraft engines: During the nine months ended
September 30, 1998, lease revenues of $4.5 million and the gain from the sale of
the  Partnership's  interest  in two  trusts  of $8.8  million  were  offset  by
depreciation and administrative expenses of $6.1 million. During the same period
of 1997,  lease  revenues  of $6.1  million  were  offset  by  depreciation  and
administrative  expenses of $4.9 million.  Lease revenues decreased $1.6 million
due to the sale of the  Partnership's  investment in two trusts  containing  ten
commercial  aircraft and a lower lease rate earned on certain  equipment  during
1998 when  compared to the same period of 1997.  The decrease in lease  revenues
caused by these sales was partially  offset by the  Partnership's  investment in
two additional trusts during 1998, each owning an MD-82 commercial aircraft. The
increase in expenses of $1.2 million was due  primarily to the  double-declining
balance method of depreciation of the investment in two additional trusts during
1998,  which was partially offset by the sale of the  Partnership's  interest in
two other trusts.

Mobile offshore  drilling unit: During the nine months ended September 30, 1998,
revenues of $0.3 million were offset by depreciation and administrative expenses
of $0.2 million.  During the same period of 1997, lease revenues of $0.3 million
were offset by depreciation  and  administrative  expenses of $0.3 million.  The
increase in the contribution from this equipment was due to a lower depreciation
expense  caused by the  double-declining  balance method of  depreciation  which
results in greater depreciation in the first years an asset is owned.

Marine  containers:  As of September 30, 1998, the Partnership owned an interest
in an entity that owns marine containers.  During 1998, revenues of $0.1 million
were offset by depreciation  and  administrative  expenses of $0.1 million.  The
Partnership purchased this interest during September 1998.

Marine vessels:  During the nine months ended September 30, 1998, lease revenues
of $2.6 million were offset by depreciation and administrative  expenses of $2.9
million.  During the same period of 1997,  lease  revenues of $2.7  million were
offset by  depreciation  and  administrative  expenses of $3.1  million.  Marine
vessel lease revenues  decreased  during the nine months ended September 30 1998
due to a slightly  lower  lease rate  earned on one of the marine  vessels.  The
decrease in depreciation  and  administrative  expenses was due primarily to the
double-declining  balance  method  of  depreciation  which  results  in  greater
depreciation in the first years an asset is owned.

(E)      Net Income

As a result of the foregoing,  the  Partnership's net income for the nine months
ended  September  30,  1998 was $7.1  million,  compared to a net income of $1.5
million  during the same period of 1997. 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,  and the Partnership's  performance in
the nine months ended September 30, 1998 is not necessarily indicative of future
periods.   In  the  nine  months  ended  September  30,  1998,  the  Partnership
distributed $7.2 million to the limited partners,  or $1.35 per weighted-average
limited partnership unit.

(II)     FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS

For the  nine  months  ended  September  30,  1998,  the  Partnership  generated
operating cash of $14.1 million (net cash provided by operating activities, plus
non-liquidating  distributions from USPEs) to meet its operating obligations and
maintain  the  current  level of  distributions  (total  for nine  months  ended
September 30, 1998 of approximately $7.6 million) to the partners.

During the nine months ended  September 30, 1998, PLM Financial  Services,  Inc.
(FSI or the General Partner),  a wholly-owned  subsidiary of PLM  International,
Inc., sold owned  equipment and two investments in USPEs and received  aggregate
proceeds of $15.1  million.  The  Partnership  purchased a portfolio of portable
heaters for $3.6 million  including  acquisition and lease  negotiation  fees of
$0.2 million that was paid to FSI for this equipment.  The Partnership completed
its  commitment  to purchase  an  interest in a trust  owning an MD-82 Stage III
commercial   aircraft  for  $7.2  million,   including   acquisition  and  lease
negotiation fees of $0.4 million, that were paid to FSI for the purchase of this
equipment.  The Partnership  made a deposit of $0.7 million toward this interest
in 1997. The Partnership  also purchased  another  interest in a trust owning an
MD-82  Stage III  commercial  aircraft  for $8.2  million  and an interest in an
entity owning 4,912 marine  containers for $7.5 million,  including  acquisition
and  lease  negotiation  fees of $0.8  million,  that  were  paid to FSI for the
purchase of this equipment,  the remaining interest in this trust and entity was
purchased by affiliated programs.

During the nine months ended  September  30,  1998,  the  Partnership  paid $5.1
million that was due to affiliated  USPEs. As of September 30 1998, $0.9 million
in engine reserves and security deposits was due to an affiliated USPE.

The General  Partner has entered into a short-term  joint $50.0  million  credit
facility.  As of November 3, 1998, TEC Acquisub,  Inc., an indirect wholly-owned
subsidiary  of PLM  International,  Inc.,  had  borrowings  of $0.3  million and
American  Finance  Group,  Inc., a subsidiary of PLM  International,  Inc.,  had
borrowings  of $39.1  million under the  short-term  joint $50.0 million  credit
facility. No other eligible borrower had any outstanding borrowings.

(III)             EFFECTS OF YEAR 2000

It is possible that the General Partner's  currently installed computer systems,
software  products and other business  systems,  or the  Partnership's  vendors,
service  providers and customers,  working  either alone or in conjunction  with
other software or systems, may not accept input of, store, manipulate and output
dates on or after  January  1, 2000  without  error or  interruption  (a problem
commonly  known  as  the  "Year  2000"  problem).   As  the  Partnership  relies
substantially  on the  General  Partner's  software  systems,  applications  and
control devices in operating and monitoring significant aspects of its business,
any Year 2000  problem  suffered  by the General  Partner  could have a material
adverse effect on the Partnership's business, financial condition and results of
operations.

The General Partner has  established a special Year 2000 oversight  committee to
review  the  impact  of Year  2000  issues on its  software  products  and other
business  systems  in  order to  determine  whether  such  systems  will  retain
functionality  after  December  31, 1999.  The General  Partner (a) is currently
integrating Year 2000 compliant  programming  code into its existing  internally
customized and internally developed transaction  processing software systems and
(b) the General Partner's  accounting and asset management software systems have
either already been made Year 2000 compliant or Year 2000 compliant  upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal year 1999.  Although the General  Partner  believes that its Year 2000
compliance  program can be completed by the  beginning of 1999,  there can be no
assurance that the  compliance  program will be completed by that date. To date,
the  costs  incurred  and  allocated  to the  Partnership  to  become  Year 2000
compliant have not been material.  Also, the General Partner believes the future
cost  allocable to the  Partnership  to become Year 2000  compliant  will not be
material.

Some risks  associated  with the Year 2000 problem are beyond the ability of the
Partnership to control,  including the extent to which third parties can address
the Year  2000  problem.  The  General  Partner  has begun to  communicate  with
vendors,  services  providers  and  customers  in order to assess  the Year 2000
compliance  readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party  Year 2000 issues.  There can be no assurance that
the  software  systems  of such  parties  will be  converted  or made  Year 2000
compliant in a timely manner.  Any failure by the General  Partner or such other
parties  to make  their  respective  systems  Year 2000  compliant  could have a
material  adverse  effect on the  business,  financial  position  and results of
operations of the  Partnership.  The General Partner will make an ongoing effort
to recognize and evaluate  potential  exposure relating to third-party Year 2000
non-compliance  and will  develop  a  contingency  plan if the  General  Partner
determines, or is unable to determine, that third-party non-compliance will have
a material adverse effect on the Partnership's  business,  financial position or
results of operation.

(IV)  ACCOUNTING PRONOUNCEMENTS

In  June  1997,  the  Financial   Accounting  Standards  Board  issued  two  new
statements:  SFAS No. 130,  "Reporting  Comprehensive  Income,"  which  requires
enterprises to report,  by major  component and in total,  all changes in equity
from  nonowner  sources;  and SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise  and  Related  Information,"  which  establishes  annual and  interim
reporting  standards  for a public  company's  operating  segments  and  related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the  Partnership's  fiscal year ended December
31, 1998,  with  earlier  application  permitted.  The effect of the adoption of
these  statements  will be limited to the form and content of the  Partnership's
disclosures and will not impact the  Partnership's  results of operations,  cash
flow, or financial position.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting   for  Derivative   Instruments  and  Hedging   Activities",   which
standardizes  the  accounting  for  derivative  instruments,  including  certain
derivative instruments embedded in other contracts,  by requiring that an entity
recognize  those items as assets or  liabilities  in the  statement of financial
position and measure  them at fair value.  This  statement is effective  for all
quarters of fiscal  years  beginning  after June 15, 1999.  As of September  30,
1998, the General Partner is reviewing the effect this standard will have on the
Partnership's consolidated financial statements.






(V)       OUTLOOK FOR THE FUTURE

Several factors may affect the Partnership's  operating  performance in 1998 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.

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  intends to use  excess  cash flow,  if any,  after  payment of
expenses,  loan  principal,  and  cash  distributions,   to  acquire  additional
equipment  during  the  first  seven  years  of  Partnership  operations,  which
concludes   December  31,  2001.  The  General   Partner   believes  that  these
acquisitions may cause the Partnership to generate  additional earnings and cash
flow for the Partnership.

(VI)      FORWARD-LOOKING INFORMATION

Except for the historical  information contained herein, this Form 10-Q 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-Q  should  be read as  being
applicable  to all related  forward-looking  statements  wherever they appear in
this Form 10-Q. The  Partnership's  actual results could differ  materially from
those discussed here.


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                          PART II -- OTHER INFORMATION


Item 6.           Exhibits and Reports on Form 8-K

         (a)      Exhibits

          10.1    Commitment Letter from First Union National Bank dated October
                  29,  1998  extending  the  $50.0  million  Warehousing  Credit
                  Agreement until November 2, 1998.

         (b)      Reports on Form 8-K

                  None.





<PAGE>



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: November 4, 1998           By: /s/ Richard K Brock
                                     -------------------
                                     Richard K Brock
                                     Vice President and
                                     Corporate Controller























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