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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-K

__X__  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934 (FEE REQUIRED)


For the fiscal year ended December 31, 1996       Commission File Number 0-12593


                         PHOENIX LEASING INCOME FUND VII
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

           California                                     68-0001202
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


2401 Kerner Boulevard, San Rafael, California                    94901-5527
--------------------------------------------------------------------------------
(Address of principal executive offices)                         (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:  Units of Limited
Partnership Interest

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ________

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 _____

As of December 31, 1996,  345,974  Units of Limited  Partnership  interest  were
outstanding.  No  market  exists  for the  Units  of  Partnership  interest  and
therefore there exists no aggregate market value at December 31, 1996.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>
                                                                    Page 2 of 35


                         PHOENIX LEASING INCOME FUND VII

                          1996 FORM 10-K ANNUAL REPORT


                                TABLE OF CONTENTS


                                                                            Page

                                     PART I

Item 1.    Business.........................................................  3
Item 2.    Properties.......................................................  5
Item 3.    Legal Proceedings................................................  5
Item 4.    Submission of Matters to a Vote of Security Holders..............  5


                                     PART II

Item 5.    Market for the Registrant's Securities and Related Security
           Holder Matters...................................................  6
Item 6.    Selected Financial Data..........................................  6
Item 7.    Management's Discussion and Analysis of Financial Condition 
           and Results of Operations........................................  7
Item 8.    Financial Statements and Supplementary Data...................... 10
Item 9.    Disagreements on Accounting and Financial Disclosure Matters..... 31


                                    PART III

Item 10.   Directors and Executive Officers of the Registrant............... 31
Item 11.   Executive Compensation........................................... 32
Item 12.   Security Ownership of Certain Beneficial Owners and Management... 32
Item 13.   Certain Relationships and Related Transactions................... 32


                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 33


Signatures.................................................................. 34



<PAGE>


                                                                    Page 3 of 35


                                     PART I

Item 1.    Business.

General Development of Business.

        Phoenix Leasing Income Fund VII, a California  limited  partnership (the
"Partnership"),   was  organized  on  October  29,  1981.  The  Partnership  was
registered with the Securities and Exchange Commission with an effective date of
February 2, 1984 and shall continue to operate until its termination date unless
dissolved  sooner  due to the sale of  substantially  all of the  assets  of the
Partnership or a vote of the Limited Partners. The Partnership will terminate on
December  31,  1998.  The General  Partner is Phoenix  Leasing  Incorporated,  a
California  corporation.  The General  Partner or its affiliates  also is or has
been a general partner in several other limited partnerships formed to invest in
capital equipment and other assets.

        The  Partnership's  initial  public  offering  was for 480,000  units of
limited  partnership  interest  at a price of $250 per unit  with an  option  of
increasing  the public  offering  up to a maximum of  552,000.  The  Partnership
completed  the offering on November 21,  1986,  having sold 366,432  units for a
total  capitalization  of  $91,608,000.  Of the  proceeds  received  through the
offering,  the  Partnership  has  incurred  $11,288,000  in  organizational  and
offering expenses.

        Phoenix Cablevision of Oregon, Inc. (the "Subsidiary") is a wholly-owned
subsidiary  of the  Partnership  (hereinafter,  both  entities are  collectively
referred to as the "Consolidated Partnership").  The Subsidiary was formed under
the laws of Nevada on July 22, 1993 to own and operate a cable television system
in the state of Oregon.

Narrative Description of Business.

        The  Consolidated  Partnership  conducts  its  business in two  business
segments:  Equipment  Leasing and  Financing  Operations,  and Cable  Television
System Operations. A discussion of these two segments follows.

Equipment Leasing and Financing Operations.

        From the initial formation of the Partnership through December 31, 1996,
the total  investments in equipment leases and financing  transactions  (loans),
including  the  Partnership's  pro-rata  interest in  investments  made by joint
ventures, approximate $183,707,000. The average initial firm term of contractual
payments  from  equipment  subject to lease was 36.27  months,  and the  average
initial net monthly payment rate as a percentage of the original  purchase price
was 2.99%. The average initial firm term of contractual  payments from loans was
70.99 months.

        The Partnership's  principal  objective is to produce current income and
to build and maintain a balanced portfolio of assets through the acquisition and
financing of various types of capital equipment including computer  peripherals,
terminal systems, small computer systems, communications equipment, IBM-software
compatible mainframes,  office systems and telecommunications  equipment, and to
lease such equipment and products to third parties  pursuant to either Operating
Leases or Full Payout Leases.

        The  principal   markets  for  the  types  of  equipment  in  which  the
Partnership  has  invested  in  are  (1)  major  corporations  and  other  large
organizations seeking to reduce the cost of their peripheral equipment and large
computer  systems,  (2) major  corporations  with numerous  operating  locations
seeking to improve the timeliness and  responsiveness  of their data  processing
systems,  and (3) small organizations  interested in improving the efficiency of
their   overall   operations   by  moving  from   manually   operated  to  small
computer-based management systems.

        In addition  to  acquiring  equipment  for lease to third  parties,  the
Partnership  either  directly or through the investment in joint  ventures,  has
provided  limited  financing  to  certain  emerging  growth   companies,   cable
television  system  operators,  manufacturers  and their lessees with respect to
equipment  leased  directly  by  such   manufacturers  to  third  parties.   The
Partnership  maintains a security interest in the equipment  financed and in the
receivables  due under any lease or rental  agreement  relating to such  assets.
Such security interests will give the Partnership the right, upon a default,  to
obtain possession of the assets.

        The  Partnership  will  not  incur  debt  to  finance  the  purchase  of
equipment. However, the Partnership can enter into joint venture agreements with
certain other  partnerships  managed by the General  Partner which would finance
the  acquisition  of equipment  through the use of  indebtedness  which would be




<PAGE>
                                                                    Page 4 of 35

nonrecourse to the Partnership.

        Competition.  The  equipment  leasing  industry  is highly  competitive.
Leases are offered on a wide  variety of  equipment  ranging  from  construction
equipment to entire  manufacturing  facilities.  The equipment  leasing industry
offers  to  users  an  alternative  to the  purchase  of  nearly  every  type of
equipment.   The  General  Partner  intends  to  concentrate  the  Partnership's
activities,  however, in markets in which the General Partner has expertise. The
computer  equipment  industry  is  extremely  competitive.  Competitive  factors
include pricing,  technological  innovation and methods of financing  (including
use of various short-term and long-term financing plans, as well as the outright
purchase  of  equipment).   Generally,  the  impact  of  these  factors  to  the
Partnership  would be the  realization of increased  equipment  remarketing  and
storage costs, as well as lower residuals  received from the sale or remarketing
of such  equipment.  Generally,  the impact of these factors to the  Partnership
would be the realization of increased  equipment  remarketing and storage costs,
as well as  lower  residuals  received  from  the  sale or  remarketing  of such
equipment.

        There is strong competition in non-computer related equipment markets in
which the Partnership will engage as well. There is, however, no single dominant
company or factor in those other markets.

Cable Television System Operations.

        Phoenix  Cablevision of Oregon,  Inc. (the  Subsidiary),  a wholly-owned
subsidiary of the Partnership,  owns a cable  television  system in the state of
Oregon that was acquired  through  foreclosure on a defaulted note receivable to
the  Partnership  on October 28, 1993.  The net carrying value of this defaulted
note  receivable  was  approximately  $544,000.  Phoenix Cable  Management  Inc.
(PCMI),  an affiliate  of the General  Partner,  provides day to day  management
services in connection with the operation of the system.

        The cable television system owned by Phoenix Cablevision of Oregon, Inc.
is located in the  counties  of Douglas  and  Jackson in the State of Oregon and
consists of headend  equipment in four  locations  and 66 miles of plant passing
approximately  2,007 homes and has approximately  1,751 cable  subscribers.  The
Subsidiary's  cable television system serves the communities of Prospect,  Butte
Falls, Shady Cove, Trail and other nearby areas in Jackson and Douglas counties.
The Subsidiary operates under three non-exclusive  franchise agreements with the
cities of Glendale, Butte Falls and Shady Cove. These cable franchise agreements
expire between the years 2000 and 2002.

        Cable television systems receive signals transmitted by nearby radio and
television  broadcast  stations,  microwave  relay  systems  and  communications
satellites  and distribute  the signals to  subscribers  via coaxial cable.  The
subscribers pay a monthly fee to the cable television  system for such services.
Cable television  companies  operate under a non-exclusive  franchise  agreement
granted by each local government authority.  As part of the franchise agreement,
the  franchisee  typically pays a portion of the gross revenues of the system to
the local government.

        The  Partnership  intends to own and operate the cable system until such
time it can be sold.  Any excess cash  generated  from  operations  of the cable
system  will be used for  upgrades  and  improvements  to the system in order to
maximize the value of the system.

        Competition.  The Partnership's  cable operations competes with numerous
other  companies  with far  greater  financial  resources.  In  addition,  cable
television  franchises are typically  non-exclusive and the Partnership could be
directly  competing with other cable television  systems.  Cable television also
competes  with  conventional   over-the-air   broadcast  television  and  direct
broadcast satellite  transmission.  Future  technological  developments may also
provide additional competitive factors.

        The  Telecommunications  Bill allowed telephone  companies to enter into
the cable television  business and vice-versa.  Large cable  television  systems
that have upgraded  their systems with fiber and two way  capabilities  may find
themselves getting a piece of the much larger telephone revenue. For the smaller
rural  cable  systems,  such  as  those  owned  by the  Partnership  or  through
investments in joint ventures,  it is unlikely that the  Partnership  will enter
into  telephone  services  nor  will  the  telephone  companies  try to seek our
customers in the near future. The systems owned by the Partnership are too small
and not dense enough to pay for the large amount of capital  expenditures needed
for these services.

        A  favorable  part  of  the  bill  is  that  small  cable  systems  were
immediately deregulated from most regulations and that the definition of a small
cable  operator is under 600,000  subscribers.  This allowed small  operators to
raise rates if needed,  and eliminate the need to provide franchise  authorities
with costly rate  filings and  justifications.  The bill also  allowed the local
telephone companies to buy out small cable operators in their own region as well
as to joint venture with small cable operators. During 1995, the General Partner
observed a renewed market  interest in small cable systems.  The final impact of
the Telecommunications Bill will not be known fully until a technical rewrite is
completed and all the legal challenges have been made.
<PAGE>


                                                                    Page 5 of 35


        Please  see  Note  14 in  the  Partnership's  financial  statements  for
financial information about the Partnership's business segments.

Other.

        A brief  description of the type of assets in which the  Partnership has
invested as of December 31, 1996, together with information  concerning the uses
of assets is set forth in Item 2.


Item 2.    Properties.

Equipment Leasing and Financing Operations.

        The  Partnership  is  engaged in the  equipment  leasing  and  financing
industry and as such,  does not own or operate any  principal  plants,  mines or
real property.  The primary assets held by the  Partnership,  either directly or
through its  investment in joint  ventures,  are its  investments  in leases and
loans.

        As of  December  31,  1996,  the  Partnership  owns  equipment  and  has
outstanding  loans to borrowers  with an aggregate  original cost of $6,077,000.
The  equipment  and loans have been made to  customers  located  throughout  the
United States.  The following  table  summarizes the type of equipment  owned or
financed by the Partnership,  including its pro rata interest in joint ventures,
at December 31, 1996.
                                                               Percentage of
        Asset Types                      Purchase Price(1)     Total Assets
        -----------                      -----------------     -------------
                                       (Amounts in Thousands)
Small Computer Systems                        $ 1,278                21%
Financing of Solar Systems                      2,086                34
Telecommunications                                970                16
Reproduction Equipment                          1,108                18
Financing Related to Cable TV Systems             382                 6
Financing of Security Monitoring 
  Systems Companies                               163                 3
Capital Equipment Leased to Emerging 
  Growth Companies                                 90                 2
                                              -------               ---

TOTAL                                         $ 6,077               100%
                                              =======               ===

(1) These amounts include the Partnership's pro rata interest in equipment joint
    ventures of $1,305,000, financing joint ventures of $2,086,000, and original
    cost of outstanding loans of $545,000 at December 31, 1996.

Cable Television System Operations.

    The  Subsidiary's  principal  plants and real property consist of electronic
headend  equipment,  its plant (cable) and two parcels of land. The Subsidiary's
cable  office is located on one parcel and one of the headends is located on the
other.  The  other  three  headends  are  located  on land that is leased by the
Subsidiary.


Item 3.    Legal Proceedings.

        The  Partnership is not a party to any pending legal  proceedings  which
would have a material adverse impact on its financial position.


Item 4.    Submission of Matters to a Vote of Security Holders.

        No matters  were  submitted to a vote of Limited  Partners,  through the
solicitation of proxies or otherwise, during the year covered by this report.




<PAGE>


                                                                    Page 6 of 35


                                     PART II

Item 5.    Market for the Registrant's Securities and Related Security Holder
           Matters.

        (a)The  Registrant's  limited  partnership  interests  are not  publicly
           traded.  There is no market for the Registrant's  limited partnership
           interests and it is unlikely that any will develop.

        (b)Approximate Number of Equity Security Investments:

                                                      Number of Unit Holders
                     Title of Class                   as of December 31, 1996
           ----------------------------------         -----------------------

           Limited Partners                                    16,709


Item 6.    Selected Financial Data.

                             1996(2)   1995(2)   1994(2)   1993(2)    1992
                             ------    ------    ------    ------    ------
                           (Amounts in Thousands Except for Per Unit Amounts)

Total Income                 $1,344    $2,708    $3,329    $3,097    $4,580

Net Income (Loss)               399     1,364     1,520    (1,167)   (1,994)

Total Assets                  4,991     7,427     8,146    12,842    14,860

Distributions to Partners     2,600     1,286     2,594     2,593     4,127

Net Income (Loss) per Limited
 Partnership Unit(1)            .98      3.35      4.20     (3.38)    (5.76)

Distributions per Limited
 Partnership Unit              7.52      3.72      7.50      7.49     11.93


(1) Income  (loss) per Limited  Partnership  Unit is not  indicative of per unit
    income (loss) due to reinvestments through the Capital Accumulation Plan.

(2) The 1996, 1995, 1994 and 1993 amounts reflect the  consolidated  activity of
    the Partnership and its subsidiary.

        The above selected financial data should be read in conjunction with the
consolidated  financial statements and related notes appearing elsewhere in this
report.


<PAGE>


                                                                    Page 7 of 35


Item 7. Management's Discussion and Analysis of Financial Condition and  Results
        of Operations.

Results of Operations

        Phoenix  Leasing  Income  Fund  VII  and  Subsidiary  (the  Partnership)
reported net income of $399,000, $1,364,000 and $1,520,000 during 1996, 1995 and
1994, respectively.  The decreased earnings during 1996, as compared to 1995, is
attributable to a reduction in both rental income and interest income from notes
receivable.  The decreased  earnings during 1995, as compared to 1994, is due to
the absence of a settlement during 1995,  compared to the settlement of $763,000
during 1994. Partially offsetting the absence of a settlement during 1995 was an
increase of $378,000 in interest income from notes receivable.

        Total revenues decreased by $1,364,000 and $621,000 during 1996 and 1995
respectively,  when  compared  to the same  periods in the  previous  year.  The
decrease in total revenues, during 1996, is primarily due to a decline in rental
income and interest income from notes  receivable.  The decline in rental income
is a result of the overall  reduction in the equipment  portfolio due to ongoing
sales.  The  aggregate   original  cost  of  equipment  owned  directly  by  the
Partnership as of December 31, 1996 is $2.1 million, as compared to $4.6 million
as of December 31, 1995.  Additionally,  interest  income from notes  receivable
decreased  $442,000  during 1996, as compared to 1995, due to an increase in the
amount of impaired notes receivable.

          The decrease in total  revenues,  during 1995, is primarily due to the
absence of a settlement  during 1995, as compared to the  settlement of $763,000
during 1994,  and a combined  decrease in rental  income and earned  income from
financing leases of $358,000.  The Partnership  reported an increase in interest
income of $378,000  during 1995, as compared to 1994,  partially  offsetting the
above mentioned decreases.  During 1995, the Partnership received settlements on
two defaulted notes receivable.  The Partnership recognized interest income from
the  receipt of a  settlement  on one of these  notes  receivable,  causing  the
increase in interest income from notes receivable during 1995. The settlement of
the  second  note  receivable   represented  only  a  partial  recovery  of  the
outstanding note receivable balance.

        The  Partnership  holds notes  receivable from cable  television  system
operators  and  security   monitoring   companies   with  a  carrying  value  of
approximately  $661,000.  These notes are  considered to be impaired at December
31, 1996. The  Partnership  has suspended the accrual of interest on these notes
and has  provided  an  allowance  for losses on notes  receivable.  The  General
Partner  is  currently  working  with the  borrowers,  other  creditors  and the
bankruptcy  court in order to seek  remedies  that will maximize the recovery of
the Partnership's investment in these notes.

        Total expenses  decreased by $404,000 and $451,000 during 1996 and 1995,
respectively,  as compared to the same periods in the previous year. The decline
is  attributable  to decreases in  depreciation  and  amortization as well as in
management fees.  Depreciation and amortization  decreased $218,000 during 1996,
and $255,000  during 1995. In addition,  management  fees to the General Partner
decreased  $198,000 for the year ended  December  31,  1996,  as compared to the
previous  year, as a result of  settlements  received  from two defaulted  notes
receivable during 1995.

        For the last three years depreciation and amortization has declined as a
result of a reduction in depreciation  from leasing  activities.  In addition to
the declining  equipment  portfolio,  as previously  discussed,  the decrease in
depreciation  expense  is also due to an  increasing  portion  of the  equipment
portfolio being fully depreciated.

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

        Inflation  affects the  Partnership  in relation to the current  cost of
equipment  placed on lease and the residual  values  realized when the equipment
comes  off-lease and is sold.  During the last several years  inflation has been
low, thereby having very little impact upon the investments of the Partnership.


Cable System

        The Partnership  acquired a cable system in satisfaction of a defaulted
note receivable held by the Partnership.  The Partnership  assumed  ownership of
this  cable   television  system  on  October 28,  1993. Both  cable  subscriber


<PAGE>


                                                                    Page 8 of 35


revenue and program services  expense remained  relatively the same for the year
ended December 31, 1996 as compared to the same period in 1995 and 1994.

Joint Ventures

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

        Earnings  from  equipment  and  financing  joint  ventures  decreased by
$18,000  and $8,000 for the year  ended  December  31,  1996,  respectively,  as
compared to the previous  year.  The decrease in earnings from  equipment  joint
ventures is a result of a majority of the equipment  joint  ventures  being in a
liquidation stage. The decrease in earnings from financing joint ventures is due
to the decline in interest income from notes receivable.

        The small  increase in earnings  from joint  ventures of $35,000  during
1995,  as compared  to the same period in 1994,  is the result of a full year of
earnings from a new  investment in an equipment  joint venture during the fourth
quarter of 1994.

Liquidity and Capital Resources

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

        Net cash provided by leasing,  financing and cable television activities
was $299,000,  $3,148,000  and  $1,595,000  during the years ended  December 31,
1996,  1995 and 1994,  respectively.  The decrease in net cash  provided  during
1996,  compared to 1995,  is  attributable  to the  decrease  in rental  income,
payments  from notes  receivable  and finance  leases.  The increase in net cash
provided  during  1995,  compared to 1994,  is  attributable  to the increase in
principle  payments  from notes  receivable  and the  decrease  in  payments  on
accounts payable.  The increase in payments from notes receivable , during 1995,
is due to the  Partnership  receiving  settlements on notes  receivable from two
cable television system operators that had been in default.

        Distributions  from joint ventures has become one of the primary sources
of  cash  generated  by the  Partnership.  The  Partnership  received  $526,000,
$662,000 and $230,000 as  distributions  from joint ventures for the years ended
December 31, 1996, 1995 and 1994, respectively. The decrease in distributions is
reflective of the overall decrease in revenues  generated by the joint ventures,
as discussed  previously.  Distributions  from joint ventures were higher during
1995,  compared to 1994, due to a new  investment in an equipment  joint venture
that was formed upon the receipt of a legal settlement during October of 1994.

        As of December 31, 1996, the Partnership  owned equipment held for lease
with a  purchase  price of  $993,000  and a net book value of $0 ,  compared  to
equipment  being  held  for  lease  with  an  original  cost of  $1,334,000  and
$4,853,000  and a net book value of $7,000 and $21,000 at December  31, 1995 and
1994,  respectively.  The General Partner is actively engaged,  on behalf of the
Partnership,  in remarketing and selling the Partnership's  off-lease  equipment
portfolio.

        The Limited Partners  received  distributions of $2,600,000,  $1,286,000
and  $2,594,000  during  1996,  1995 and 1994,  respectively.  As a result,  the
cumulative  cash   distributions   to  the  Limited  Partners  are  $82,581,000,
$79,981,000 and  $78,695,000 at December 31, 1996, 1995 and 1994,  respectively.
The  General  Partner  did not  receive  distributions  during  the years  ended
December 31, 1996, 1995 and 1994.

        As the Partnership's asset portfolio continues to decline as a result of
the ongoing  liquidation of assets,  it is expected that the cash generated from
leasing operations will also decline. Due to  the  decrease in cash generated by


<PAGE>


                                                                    Page 9 of 35


leasing and financing activities,  the Partnership is no longer making quarterly
distributions to partners. Distributions are being made semi-annually in January
and July.

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

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

        Forward-looking  statements in this report are made pursuant to the safe
harbor  provisions  of the  Private  Securities  Litigation  Reform Act of 1995.
Actual  results could differ from those  anticipated  by some of the  statements
made above. Limited Partners are cautioned that such forward-looking  statements
involve risks and uncertainties including without limitation the following:  (i)
the  Partnership's  plans are subject to change at any time at the discretion of
the General Partner of the Partnership,  (ii) future technological  developments
in the industry in which the Partnership operates, (iii) competitive pressure on
pricing or services,  (iv) substantial  customer defaults or cancellations,  (v)
changes  in  business  conditions  and the  general  economy,  (vi)  changes  in
government regulations affecting the Partnership's core businesses and (vii) the
ability of the Partnership to sell its remaining assets.


<PAGE>


                                                                   Page 10 of 35



















               Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                        PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY

                               YEAR ENDED DECEMBER 31, 1996









<PAGE>


                                                                   Page 11 of 35






                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------


To the Partners of Phoenix Leasing Income Fund VII:

We have audited the accompanying  consolidated balance sheets of Phoenix Leasing
Income Fund VII (a California limited partnership) and Subsidiary as of December
31,  1996 and 1995,  and the  related  consolidated  statements  of  operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements and the schedule referred to below
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion  on these  financial  statements  and  schedule  based on our
audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Phoenix  Leasing
Income Fund VII and Subsidiary as of December 31, 1996 and 1995, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial statements taken as a whole. The schedule listed in Item
14,  subsection (a) 2 is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not a  required  part  of the  basic
consolidated  financial  statements.  This  schedule  has been  subjected to the
auditing  procedures applied in our audits of the basic  consolidated  financial
statements  and, in our opinion,  is fairly  stated in all material  respects in
relation to the basic consolidated financial statements taken as a whole.



San Francisco, California,                                 ARTHUR ANDERSEN LLP
  January 17, 1997



<PAGE>


                                                                   Page 12 of 35


                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                 (Amounts in Thousands Except for Unit Amounts)

                                                             December 31,
                                                         1996           1995
                                                        ------         ------
ASSETS

Cash and cash equivalents                               $2,155         $3,940

Accounts receivable (net of allowance for
  losses on accounts receivable of $41 and
  $58 at December 31, 1996 and 1995, respectively)          30             65

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

Equipment on operating leases and held for lease
  (net of accumulated depreciation of $1,316 and
  $2,694 at December 31, 1996 and 1995, respectively)        2            169

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

Property, cable systems and equipment (net of
  accumulated  depreciation of $358 and $238 at
  December 31, 1996 and 1995, respectively)                841            912

Cable subscriber lists and franchise rights (net
  of accumulated amortization of $512 and $350 at
  December 31, 1996 and 1995, respectively)                780            942

Investment in joint ventures                               730            975

Other assets                                               151            107
                                                        ------         ------

    Total Assets                                        $4,991         $7,427
                                                        ======         ======

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

  Accounts payable and accrued expenses                 $1,350         $1,593
                                                        ------         ------

    Total Liabilities                                    1,350          1,593
                                                        ------         ------

Partners' Capital:

  General Partner                                          322            262

  Limited Partners, 480,000 units authorized,
    366,432 units issued and 345,974 units
    outstanding at December 31, 1996 and 1995            3,312          5,573

  Unrealized gains (losses) on available-for-
    sale securities                                          7             (1)
                                                        ------         ------

    Total Partners' Capital                              3,641          5,834
                                                        ------         ------

    Total Liabilities and Partners' Capital             $4,991         $7,427
                                                        ======         ======

                 The accompanying notes are an integral part of
                                these statements.

<PAGE>


                                                                   Page 13 of 35


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

                                               For the Years Ended December 31,
                                                  1996      1995      1994
                                                 ------    ------    ------
INCOME

  Rental income                                  $  295    $1,116    $1,357

  Earned income, finance leases                    --          37       154

  Equity in earnings from joint ventures, net       281       307       272

  Interest income, notes receivable                  16       458        80

  Settlements                                      --        --         763

  Cable subscriber revenue                          582       583       557

  Other income                                      170       207       146
                                                 ------    ------    ------

    Total Income                                  1,344     2,708     3,329
                                                 ------    ------    ------

EXPENSES

  Depreciation and amortization                     397       615       870

  Lease related operating expenses                   16        35       117

  Program service, cable system                     136       142       122

  Management fees to General Partner                 57       255       243

  Interest expense                                 --        --          99

  Provision for (recovery of) losses
   on receivables                                    (2)      (15)      (59)

  General and administrative expenses               384       360       451
                                                 ------    ------    ------

    Total Expenses                                  988     1,392     1,843
                                                 ------    ------    ------

NET INCOME BEFORE INCOME TAXES                      356     1,316     1,486

  Income tax benefit                                 43        48        34
                                                 ------    ------    ------

NET INCOME                                       $  399    $1,364    $1,520
                                                 ======    ======    ======



NET INCOME PER LIMITED PARTNERSHIP UNIT          $  .98    $ 3.35    $ 4.20
                                                 ======    ======    ======

ALLOCATION OF NET INCOME:

  General Partner                                $   60    $  205    $   68

  Limited Partners                                  339     1,159     1,452
                                                 ------    ------    ------

                                                 $  399    $1,364    $1,520
                                                 ======    ======    ======

                 The accompanying notes are an integral part of
                                these statements.

<PAGE>


                                                                   Page 14 of 35


                   PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                   (Amounts in Thousands Except for Unit Amounts)


                                 General                     Unrealized
                                Partner's  Limited Partners'    Gains   Total
                                  Amount  Units        Amount (Losses)  Amount
                                --------- ------------------- --------- ------

Balance, December 31, 1993       $  (11)    345,974   $6,842     $--    $6,831

Distributions to partners ($7.50
  per limited partnership unit)    --          --     (2,594)     --    (2,594)

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

Net income                           68        --      1,452      --     1,520
                                  -----     -------   ------     -----   -----

Balance, December 31, 1994           57     345,974    5,700        (1)  5,756

Distributions to partners ($3.72
  per limited partnership unit)    --          --     (1,286)     --    (1,286)

Net income                          205        --      1,159      --     1,364
                                  -----     -------   ------     -----   -----

Balance, December 31, 1995          262     345,974    5,573        (1)  5,834

Distributions to partners ($7.52
  per limited partnership unit)    --          --     (2,600)     --    (2,600)

Change in unrealized gains on
  available-for-sale securities    --          --       --           8       8

Net income                           60        --        339      --       399
                                  -----     -------   ------     -----   ------

Balance, December 31, 1996        $ 322     345,974   $3,312     $   7   $3,641
                                  =====     =======   ======     =====   ======


                 The accompanying notes are an integral part of
                                these statements.

<PAGE>


                                                                   Page 15 of 35


                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in Thousands)

                                              For the Years Ended December 31,
                                                  1996      1995      1994
                                                 ------    ------    ------
Operating Activities:

  Net income                                     $  399    $1,364    $1,520

  Adjustments to reconcile net income to
    net cash provided (used) by operating
    activities:
      Depreciation and amortization                 397       615       870
      Loss (gain) on sale of equipment               25       (77)      (85)
      Equity in earnings from joint 
        ventures, net                              (281)     (307)     (272)
      Gain on sale of marketable securities          (5)      (28)       (5)
      Provision for (recovery of) early
        termination, financing leases               (34)      (37)       28
      Provision for (recovery of) losses on
        notes receivable                           --         (27)     --
      Provision for (recovery of) losses on
        accounts receivable                          32        48       (87)
      Settlements                                  --        --        (459)
      Decrease in accounts receivable                 3        42       267
      Decrease in accounts payable and
        accrued expenses                           (243)     (797)   (1,893)
      Decrease (increase) in other assets           (43)      243       (34)
                                                 ------    ------    ------

Net cash provided (used) by operating activities    250     1,039      (150)
                                                 ------    ------    ------

Investing Activities:

  Principal payments, financing leases               34       533     1,132
  Principal payments, notes receivable               15     1,576       613
  Proceeds from sale of equipment                    27       155       213
  Proceeds from sale of marketable securities        11        46         5
  Distributions from joint ventures                 526       662       230
  Purchase of equipment                            --        --        (459)
  Investment in joint ventures                     --        --         (44)
  Property, cable systems and equipment             (48)      (33)     (107)
                                                 ------    ------    ------

Net cash provided by investing activities           565     2,939     1,583
                                                 ------    ------    ------

Financing Activities:

  Payments of principal, notes payable             --        --      (1,720)
  Distributions to partners                      (2,600)   (1,286)   (2,594)
                                                 ------    ------    ------

Net cash used by financing activities            (2,600)   (1,286)   (4,314)
                                                 ------    ------    ------

Increase (decrease) in cash and cash equivalents (1,785)    2,692    (2,881)

Cash and cash equivalents, beginning of period    3,940     1,248     4,129
                                                 ------    ------    ------

Cash and cash equivalents, end of period         $2,155    $3,940    $1,248
                                                 ======    ======    ======

Supplemental Cash Flow Information:

  Cash paid for interest expense                 $ --      $ --      $  123
                                                 ------    ------    ------

                 The accompanying notes are an integral part of
                                these statements.

<PAGE>


                                                                   Page 16 of 35


                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


Note 1.    Organization and Partnership Matters.

        Phoenix Leasing Income Fund VII, a California  limited  partnership (the
"Partnership"),  was formed on October 29, 1981, to invest in capital  equipment
of  various  types and to lease  such  equipment  to third  parties  on either a
long-term or short-term basis. Minimum investment requirements were met February
28, 1984, at which time the Partnership commenced operations.  The Partnership's
termination date is December 31, 1998.

        The  Partnership  has  also  made  investments  in joint  ventures  with
affiliated  partnerships  managed  by the  General  Partner  for the  purpose of
spreading the risks of financing or acquiring  certain capital  equipment leased
to third parties. (See Note 8.)

        On October 28, 1993, the Partnership  foreclosed upon a cable television
system in Oregon  that was in  default  on a  subordinated  loan  payable to the
Partnership  with a carrying amount of  approximately  $544,000.  As part of the
settlement  between the  Partnership,  the senior lender and the  borrower,  the
borrower  transferred  ownership  of all of its  assets and  liabilities  to the
Partnership.  Included in the  outstanding  liabilities  assumed was outstanding
senior debt in an amount of $1.7 million, which has subsequently been paid off.

        Phoenix  Cablevision of Oregon,  Inc. (the  Subsidiary) was formed under
the laws of Nevada on July 22,  1993 to own and  operate  the  foreclosed  cable
television  system.  Phoenix  Cablevision  of  Oregon,  Inc.  is a  wholly-owned
subsidiary  of the  Partnership  (hereinafter,  both  entities are  collectively
referred to as the Consolidated Partnership).

        The  acquisition of the Subsidiary by the  Partnership was accounted for
using the "purchase  method" of accounting.  The purchase price was allocated in
accordance  with  the fair  market  value of the  assets  (including  intangible
assets) and liabilities.

        For financial reporting purposes, as more specifically  described in the
Partnership  Agreement,  consolidated  income in any quarter will be  allocated,
before liquidation and redemption fees, 15% to Phoenix Leasing Incorporated (the
"General  Partner")  and 85% to the Limited  Partners  subject to the  following
limitations.  To the extent that consolidated income for any quarter, when added
to  consolidated  income  for all  prior  accounting  periods,  does not  exceed
consolidated losses for all prior accounting  periods,  such consolidated income
shall be allocated,  before  liquidation and redemption  fees, 1% to the General
Partner and 99% to the Limited Partners. Consolidated income shall be allocated,
before liquidation and redemption fees, 1% to the General Partner and 99% to the
Limited  Partners  in any quarter  subsequent  to a quarter in which the General
Partner  was  allocated,   before   liquidation  and  redemption   fees,  1%  of
consolidated  losses,  to  the  extent  of  previously  allocated   Consolidated
Partnership  losses.  A  consolidated  loss in any quarter  shall be  allocated,
before liquidation and redemption fees, 1% to the General partner and 99% to the
Limited Partners.

        In the event the General  Partner  has a deficit  balance in its capital
account  at the  time  of  partnership  liquidation,  it  will  be  required  to
contribute the amount of such deficit to the Partnership.

        As compensation  for management  services the General Partner receives a
fee,  payable  quarterly,  in an amount equal to 6% of the  Partnership's  gross
revenues for the quarter from which such payment is being made,  which  revenues
shall include rental and note receipts, maintenance fees, proceeds from the sale
of equipment and other income.

        Phoenix  Cable  Management  Inc.  (PCMI),  an  affiliate  of the General
Partner,  provides  day  to day  management  services  in  connection  with  the
operation of the Subsidiary.  The Subsidiary pays a management fee equal to four
and one-half  percent of the System's  monthly gross revenue for these services.
Management fees paid or due PCMI totaled $26,000 for the year ended December 31,
1996.  Revenues  subject to a  management  fee at the  Subsidiary  level are not
subject to management fees at the Partnership level.

        In  consideration  for the  services  and  activities  performed  by the
General  Partner  in  connection  with  the  disposition  of  the  Partnership's
equipment,  the General Partner shall receive  liquidation  fees equal to 15% of


<PAGE>


                                                                   Page 17 of 35


the "Net  Capital  Contribution"  of the Limited  Partners  with  respect to all
Partnership  interests  other than those  interests  which have been  previously
redeemed and accordingly were subject to the 15% redemption fee.

        For financial reporting purposes, the Partnership began to recognize the
liquidation  fee in the second year of operations when the General Partner began
its activities of liquidating portions of the equipment portfolio.  The original
firm terms of the initial  leases  (generally 24 months) began to expire at this
point in time. The present value of the liquidation  fee is recognized  using an
interest  method and accreted to the face amount over a period of  approximately
eight  years in order to properly  match the  liquidation  fee expense  with the
activities  of  the  General  Partner  in  connection  with  ongoing   portfolio
liquidation.  The  liquidation  fees have been fully  accrued as of December 31,
1993. The Partnership  began to pay the liquidation  fees to the General Partner
in 1991.


Note 2.    Summary of Significant Accounting Policies.

        Principles  of   Consolidation.   The  1996,  1995  and  1994  financial
statements  include  the  accounts  of  the  Partnership  and  its  wholly-owned
subsidiary,  Phoenix  Cablevision of Oregon,  Inc. The  Partnership has complete
authority in, and responsibility  for, the overall management and control of the
Subsidiary.  All significant  intercompany  accounts and transactions  have been
eliminated in consolidation.

        Leasing Operations. The Partnership's leasing operations consist of both
financing and operating  leases.  The financing  method of accounting for leases
records  as  unearned  income at the  inception  of the lease the  excess of net
rentals  receivable  and estimated  residual  value at the end of the lease term
over the cost of equipment leased. Unearned income is credited to income monthly
over the term of the lease on a declining basis to provide an approximate  level
rate of return on the unrecovered  cost of the investment.  Initial direct costs
of  consummating  new  leases  are  capitalized  and  included  in the  cost  of
equipment.

           Under the  operating  method of  accounting  for  leases,  the leased
equipment is recorded as an asset at cost and  depreciated  using an accelerated
depreciation  method over the  estimated  useful  life of six years,  except for
equipment   leased  under  vendor   agreements,   which  is   depreciated  on  a
straight-line basis over the estimated useful life, ranging up to six years.

           The  Partnership's  policy is to  review  periodically  the  expected
economic life of its rental  equipment in order to determine the  probability of
recovering its undepreciated  cost. Such reviews  consider,  among other things,
recent and anticipated  technological  developments affecting computer equipment
and competitive factors within the computer  marketplace.  Although  remarketing
rental  rates are  expected to decline in the future with respect to some of the
Partnership's  rental  equipment,  such rentals are expected to exceed projected
expenses,  including  depreciation.  Should subsequent  reviews of the equipment
portfolio  indicate that rentals plus anticipated sales proceeds will not exceed
expenses in any future  period,  the  Partnership  will revise its  depreciation
policy  and may  accelerate  depreciation  as  appropriate.  As a result of such
review, the Partnership  recognized  additional  depreciation expense of $6,000,
$38,000 and $0 ($.02,  $.11 and $0 per limited  partnership  unit) for the years
ended December 31, 1996, 1995 and 1994, respectively.

           Rental  income  for the year is  determined  on the  basis of  rental
payments due for the period under the terms of the lease.  Maintenance,  repairs
and minor renewals of the leased equipment are charged to expense.

        Cable  Television  System  Operations.  The  consolidated  statement  of
operations includes the operating activity of the Subsidiary for the years ended
December 31, 1996, 1995 and 1994. The Subsidiary's cable operations consist of a
cable system  located in the State of Oregon,  which  currently  provides  cable
television  services to  approximately  1,751  subscribers  out of four  headend
locations.

        Property,   cable  systems  and  equipment  are  depreciated  using  the
straight-line  method over the  estimated  service lives ranging from five to 10
years.  Replacements,  renewals and improvements are capitalized and maintenance
and repairs are charged to expense as incurred.

        Costs   assigned  to   intangible   assets  are   amortized   using  the
straight-line method over estimated lives of eight years.

        Cable  television  services  are billed  monthly in advance.  Revenue is
deferred and recognized as the services are provided.



<PAGE>


                                                                   Page 18 of 35


        Portfolio  Valuation  Methodology.  The  Partnership  uses the portfolio
method of accounting for the net realizable value of the Partnership's equipment
portfolio.

        Investment  in  Joint  Ventures.   Investments  in  net  assets  of  the
equipment,  financing and foreclosed  cable systems joint  ventures  reflect the
Consolidated Partnership's equity basis in the ventures. Under the equity method
of  accounting,  the  original  investment  is  recorded at cost and is adjusted
periodically  to recognize  the  Consolidated  Partnership's  share of earnings,
losses, cash contributions and cash distributions after the date of acquisition.

        Investment  in  Available-for-Sale   Securities.   The  Partnership  has
investments  in stock  and  stock  warrants  in pubic  companies  that have been
determined to be available for sale. Available-for-sale securities are stated at
their fair market  value,  with the  unrealized  gains and losses  reported in a
separate component of partners' capital.

        Cash and Cash Equivalents.  Cash and cash equivalents  includes deposits
at banks,  investments in money market funds and other highly liquid  short-term
investments with original maturities of less than 90 days.

        Credit  and   Collateral.   The   Partnership's   activities  have  been
concentrated  in  the  equipment  leasing  and  financing  industry.   A  credit
evaluation  is performed  by the General  Partner for all leases and loans made,
with  the  collateral  requirements  determined  on a  case-by-case  basis.  The
Partnership's  loans are generally  secured by the equipment or assets  financed
and, in some cases,  other collateral of the borrower.  In the event of default,
the  Partnership  has the right to foreclose upon the collateral  used to secure
such loans.

        Non Cash Investing Activities.  During the year ended December 31, 1995,
the Partnership received a final distribution of marketable  securities from one
of its  investments  in  equipment  joint  ventures.  The  market  value  of the
marketable  securities  at the  distribution  date was $9,000 and is included in
Other Assets for the year ended December 31, 1995.

        Financial  Accounting  Pronouncements.  In  March  1995,  the  Financial
Accounting Standards Board issued Statement of Financial Accounting Standard No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed  of," which  requires that  long-lived  assets and certain
identifiable  intangibles  to be held  and used by an  entity  be  reviewed  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability,  the entity  would  estimate  the future cash flows  expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows  (undiscounted  and without interest charges) is less
than the  carrying  amount  of the  asset,  an  impairment  loss is  recognized.
Measurement  of an  impairment  loss  for  long-lived  assets  and  identifiable
intangibles  that an entity  expects to hold and use should be based on the fair
value of the asset.  Statement No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. At January 1, 1996, the adoption
of  Statement  No. 121 did not  materially  impact the  Partnership's  financial
position or results of operations.

        Use of Estimates.  The preparation of financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and 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. Actual results could differ from those estimates.

        Reclassification.  Certain 1995 and 1994 amounts have been  reclassified
to conform to the 1996 presentation. 




<PAGE>


                                                                   Page 19 of 35


Note 3.    Accounts Receivable.

        Accounts receivable consist of the following at December 31:

                                                  1996      1995
                                                 ------    ------
                                              (Amounts in Thousands)

        Lease payments                           $   47    $  104
        Cable system service                         19        13
        Property taxes                                5         3
        General Partner and affiliates             --           3
                                                 ------    ------
                                                     71       123

        Less:  allowance for losses on
                accounts receivable                 (41)      (58)
                                                 ------    ------

           Total                                 $   30    $   65
                                                 ======    ======


Note 4.    Notes Receivable.

        Notes receivable consist of the following at December 31:

                                                          1996      1995
                                                         ------    ------
                                                      (Amounts in Thousands)

        Notes receivable from cable television
         system operators with interest ranging
         from 15% to 21%, per annum, receivable in
         installments ranging from 39 to 96 months
         through January 1996, collateralized by a
         security interest in the cable system
         assets.                                         $  548    $  548

        Notes receivable from security monitoring
         companies with interest at 16% per annum,
         with payments to be taken out of the monthly
         payments received from assigned contracts,
         collateralized by all assets of the borrower.
         At the end of 48 months, the remaining
         balance, if any, is due and payable.               113       128
                                                         ------    ------
 
                                                            661       676

        Less:  allowance for losses on notes receivable    (359)     (359)
                                                         ------    ------

          Total                                          $  302    $  317
                                                         ======    ======

        The   Partnership's   notes  receivable  from  cable  television  system
operators  provide for a monthly payment rate in an amount that is less than the
contractual  interest  rate.  The  difference  between the payment  rate and the
contractual  interest rate are added to the  principal  and  therefore  deferred
until the maturity  date of the note.  Upon  maturity of the note,  the original
principal  and  deferred  interest  is due and  payable  in full.  Although  the
contractual  interest  rates may be higher,  due to a high degree of uncertainty
relating to the  collection of the entire amount of  contractual  owed interest,
the  Partnership  limited  the  amount  of  interest  being  recognized  on  its
performing  notes  receivable  to the amount of the payments  received,  thereby
deferring the recognition of a portion of the deferred  interest until such time
as management believes it will be realized.

        Generally,  notes  receivable are classified as impaired and the accrual
of  interest  on such notes are  discontinued  when the  contractual  payment of
principal  or  interest  has become 90 days past due or  management  has serious
doubts about further  collectibility of the contractual  payments.  Any payments
received  subsequent  to the  placement  of the note  receivable  on to impaired
status will generally be applied towards the reduction of the  outstanding  note
receivable  balance,  which may include  previously  accrued interest as well as
principal.  Once the principal and accrued  interest balance has been reduced to
zero, the remaining payments will be applied to interest income.



<PAGE>


                                                                   Page 20 of 35


        At  December  31,  1996,  the  recorded  investment  in  notes  that are
considered  to be impaired was  $661,000,  for which the related  allowance  for
losses is $235,000. The average recorded investment in impaired loans during the
year ended December 31, 1996 was approximately $623,000.

        At  December  31,  1995,  the  recorded  investment  in  notes  that are
considered to be impaired was  $143,000.  Included in this amount is $113,000 of
impaired notes for which the related allowance for losses is $11,000 and $30,000
of  impaired  notes  for  which  there is no  allowance.  The  average  recorded
investment  in  impaired  loans  during the year  ended  December  31,  1995 was
approximately $537,000.

        During the year ended  December 31,  1995,  the  Partnership  received a
settlement  on one of its  notes  receivable  from  a  cable  television  system
operator which was considered to be impaired. The Partnership received a partial
recovery  of $27,000 as a  settlement  which was  applied  towards  the  $41,000
outstanding  note  receivable  balance.  The  remaining  balance of $14,000  was
written-off through its related allowance for loan losses. The related allowance
for loan losses for this note  receivable was provided for in a previous year in
an  amount  equal  to the  carrying  value  of the  note.  Upon  receipt  of the
settlement of this note  receivable,  the Partnership  reduced the allowance for
loan losses by $27,000 during the year ended  December 31, 1995.  This reduction
in the allowance for loan losses was recognized as income during the period.

        The activity in the allowance for losses on notes receivable  during the
years ended December 31, is as follows:

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


Note 5.    Equipment on Operating Leases and Investment in Financing Leases.

        Equipment  on  lease  consists  primarily  of  small  computer  systems,
reproduction and telecommunication systems subject to operating leases.

        The  Partnership's  operating  leases  are for  initial  lease  terms of
approximately 12 to 36 months.  During the remaining terms of existing operating
leases  the  Partnership  will not  recover  all of the  undepreciated  cost and
related expenses of its rental equipment,  and therefore must remarket a portion
of its equipment in future years.

        The Partnership has agreements with some of the manufacturers of certain
of its  equipment  whereby such  manufacturers  undertake to remarket  off-lease
equipment on a best-efforts  basis.  These agreements  permit the Partnership to
assume the remarketing  function directly if certain conditions contained in the
agreements are not met. For their  remarketing  services,  the manufacturers are
paid a percentage of net monthly rentals.  Certain manufacturers are entitled to
additional fees after the Partnership has recovered certain amounts.  Generally,
these manufacturers  provide maintenance of the leased equipment for a fee based
on net monthly rentals.

        The Partnership has entered into direct lease  arrangements with certain
lessees.   Generally,  it  is  the  responsibility  of  the  lessee  to  provide
maintenance on leased equipment.  The General Partner  administers the equipment
portfolio of leases acquired through the direct leasing program.  Administration
includes  the  collection  of rents  from the  lessees  and  remarketing  of the
equipment.

        The net  investment  in financing  leases  consists of the  following at
December 31:

                                                   1996       1995
                                                  -------    -------
                                                (Amounts in Thousands)

        Minimum lease payments to be received     $    -     $    35
        Less: unearned income                          -          (1)
              allowance for early terminations         -         (34)
                                                  -------    -------

        Net investment in financing leases        $    -     $    -
                                                  =======    =======



<PAGE>


                                                                   Page 21 of 35


        Minimum rentals (net of executory costs) to be received on noncancelable
operating leases for the years ended December 31 are as follows:

                                                             Operating
                                                             ---------
                                                       (Amounts in Thousands)

        1997.........................................         $   25
        1998 and thereafter..........................             -
                                                              ------

        Total                                                 $   25
                                                              ======

        The net book value of equipment  held for lease at December 31, 1996 and
1995 amounted to $0 and $7,000, respectively.


Note 6.    Property, Cable Systems and Equipment.

        The cost of  property,  cable  systems  and  equipment  and the  related
accumulated depreciation consist of the following at December 31:

                                                          1996       1995
                                                         -------    -------
                                                       (Amounts in Thousands)

           Distributions systems                         $   896    $  868
           Headend equipment                                 179       174
           Building                                           63        63
           Land                                               23        23
           Automobiles                                        38        22
                                                         -------    ------
                                                           1,199     1,150
           Less:  accumulated depreciation                  (358)     (238)
                                                         -------    ------

           Net property, cable systems and equipment     $   841    $  912
                                                         =======    ======

        Depreciation expense totaled approximately $119,000 and $114,000 for the
years ended December 31, 1996 and December 31, 1995, respectively.


Note 7.    Cable Subscriber Lists and Franchise Rights.

        Cable  subscriber  lists and franchise  rights  include the following at
December 31:

                                                           1996      1995
                                                         -------    ------
                                                       (Amounts in Thousands)

           Subscriber lists                              $ 1,111    $1,111
           Franchise rights                                  181       181
                                                         -------    ------
                                                           1,292     1,292
           Less:  accumulated amortization                  (512)     (350)
                                                         -------    ------

           Net cable subscriber lists and 
            franchise rights                             $   780    $  942
                                                         =======    ======

        Amortization expense totaled approximately  $161,000 for the years ended
December 31, 1996 and December 31, 1995.




<PAGE>


                                                                   Page 22 of 35


Note 8.    Investment in Joint Ventures.

Equipment Joint Ventures

        The  Partnership  owns a limited  or  general  partnership  interest  in
equipment joint ventures.  These  investments are accounted for using the equity
method of accounting.  The other partners of the ventures are entities organized
and managed by the General Partner.

        The  purpose of the joint  ventures  is the  acquisition  and leasing of
various types of equipment. During the term of the Partnership,  Phoenix Leasing
Income Fund VII is participating in the following equipment joint ventures:

                                                              Weighted
        Joint Venture                                   Percentage Interest
        -------------                                   -------------------

        Arroyo Joint Venture XV(2)                             32.47%
        Arroyo Joint Venture XVI(3)                            32.14
        Arroyo Joint Venture XVII(1)                            1.64
        Xerox Graphics Joint Venture(1)                        16.79
        PLI Limited Partnership Fund A(2)                      19.98
        VMX Joint Venture(1)                                   47.55
        Acro Joint Venture, Residential(3)                     31.30
        Leveraged Joint Venture 1987-2                         32.23
        Leveraged Joint Venture 1987-3                         39.60
        Phoenix Leasing POST Joint Venture I(2)                45.00
        Phoenix Joint Venture 1994-1                           19.89

(1) Closed during 1994
(2) Closed during 1995
(3) Closed during 1996

<TABLE>
        An analysis of the Partnership's  investment in equipment joint ventures is as follows:
<CAPTION>
                        Net Investment                                                Net Investment
                         at Beginning                   Equity in                        at End
Date                      of Period      Contributions  Earnings      Distributions     of Period
----                    --------------   -------------  ---------     -------------   --------------
                                                  (Amounts in Thousands)
<S>                       <C>              <C>           <C>            <C>               <C>    
Year Ended
  December 31, 1994       $    2           $ 910         $  261         $   179           $   994
                          ======           =====         ======         =======           =======

Year Ended
  December 31, 1995       $  994           $   0         $  289         $   632           $   651
                          ======           =====         ======         =======           =======

Year Ended
  December 31, 1996       $  651           $   0         $  272         $   464           $   459
                          ======           =====         ======         =======           =======
</TABLE>
        The aggregate  combined  financial  information  of the equipment  joint
ventures as of December 31 and for the years then ended is presented as follows:



<PAGE>


                                                                   Page 23 of 35


                             COMBINED BALANCE SHEETS

                                     ASSETS
                                                             December 31,
                                                            1996      1995
                                                           ------    ------
                                                        (Amounts in Thousands)

        Cash and cash equivalents                          $  351    $  545
        Accounts receivable                                 1,311     1,456
        Operating lease equipment                             526     1,021
        Other assets                                          512       691
                                                           ------    ------

           Total Assets                                    $2,700    $3,713
                                                           ======    ======

                        LIABILITIES AND PARTNERS' CAPITAL

        Accounts payable                                      372       454
        Partners' capital                                   2,328     3,259
                                                           ------    ------

           Total Liabilities and Partners' Capital         $2,700    $3,713
                                                           ======    ======

                        COMBINED STATEMENTS OF OPERATIONS

                                     INCOME

                                              For the Years Ended December 31,
                                                  1996      1995      1994
                                                 ------    ------    ------
                                                    (Amounts in Thousands)

        Rental income                            $1,839    $2,571    $  996
        Gain on sale of equipment                   328       553       207
        Other income                                268       735       296
                                                 ------    ------    ------

           Total Income                           2,435     3,859     1,499
                                                 ------    ------    ------

                                    EXPENSES

        Depreciation                                332       955        82
        Lease related operating expenses            716     1,306       564
        Management fee to the General Partner       104       197        59
        Other expenses                                2       195        27
                                                 ------    ------    ------

           Total Expenses                         1,154     2,653       732
                                                 ------    ------    ------

           Net Income                            $1,281    $1,206    $  767
                                                 ======    ======    ======

        As of December 31, 1996 and 1995, the Partnership's pro rata interest in
the equipment joint  ventures' net book value of off-lease  equipment was $7,000
and $21,000, respectively.

        The General  Partner earns a management  fee of 6% of the  Partnership's
respective interest in gross revenues of each equipment joint venture.  Revenues
subject  to  management  fees at the  joint  venture  level are not  subject  to
management fees at the Partnership level.

Financing Joint Ventures

        The  Partnership  has invested in  financing  joint  ventures  which are
combined for reporting  purposes into Phoenix  Funding  Partnership  (PFP).  The
Partnership's  current  investment  in  PFP  consists  of  two  financing  joint
ventures.  The purpose of the  financing  joint  ventures  is to  provide,  on a
limited basis, financing to manufacturers and their lessees for equipment leased
directly by  manufacturers  to third  parties.  All loans to  manufacturers  are
secured by equipment.  The  Partnership  uses the equity method of accounting to
account for its investment in the PFP.


<PAGE>


                                                                   Page 24 of 35


        PFP  periodically  reviews the probability of recovering the outstanding
note balances.  Such reviews address, among other things, current cash receipts,
costs of  collection  efforts,  the current  economic  situation  and  potential
uncollectible  receivables.  If the review  indicates that future cash receipts,
net of  anticipated  future  expenses,  does not  exceed  the  outstanding  note
balances, PFP provides a reserve for any anticipated loan loss as appropriate.

        Due to a high degree of  uncertainty  relating to the  collection of the
entire amount of contractually owed principal and interest over the lives of the
notes receivable, the PFP loan portfolios apply all cash receipts (principal and
interest) to the outstanding note balances.  Under this method,  interest income
will not be recognized until the outstanding note balances are recovered.

        The  following  information  summarizes  the  Partnership's   respective
interest in the original loan proceeds of the funding partnership.

                                                          Weighted
        Joint Venture                               Percentage Interest
        -------------                               -------------------

    Phoenix Funding Partnership                            17.38%
<TABLE>
        An analysis of the Partnership's  investment  account in financing joint ventures is as follows:
<CAPTION>
                       Net Investment                                                  Net Investment
                        at Beginning                    Equity in                          at End
Date                     of Period      Contributions   Earnings      Distributions      of Period
----                   --------------   -------------   --------      -------------    --------------
                                           (Amounts in Thousands)
<S>                       <C>               <C>         <C>               <C>              <C>
Year Ended
  December 31, 1994       $  47             $0          $    7            $  46            $   8
                          =====             ==          ======            =====            =====

Year Ended
  December 31, 1995       $   8             $0          $   16            $  21            $   3
                          =====             ==          ======            =====            =====

Year Ended
  December 31, 1996       $   3             $0          $    8            $   7            $   4
                          =====             ==          ======            =====            =====
</TABLE>
        The aggregate  combined  financial  information  of the financing  joint
ventures as of December 31 and for the years then ended is presented as follows:

                             COMBINED BALANCE SHEETS

                                     ASSETS

                                                             December 31,
                                                            1996      1995
                                                           ------    ------
                                                        (Amounts in Thousands)

        Cash and cash equivalents                          $   38    $   28
                                                           ------    ------

           Total Assets                                    $   38    $   28
                                                           ======    ======

                        LIABILITIES AND PARTNERS' CAPITAL

        Accounts payable                                   $    4    $    5
        Partners' capital                                      34        23
                                                           ------    ------

           Total Liabilities and Partners' Capital         $   38    $   28
                                                           ======    ======



<PAGE>


                                                                   Page 25 of 35


                        COMBINED STATEMENTS OF OPERATIONS

                                     INCOME

                                               For the Years Ended December 31,
                                                  1996      1995      1994
                                                 ------    ------    ------
                                                   (Amounts in Thousands)

        Interest income                          $   46    $   73    $   86
        Other income                                 30        77        18
                                                 ------    ------    ------

           Total Income                              76       150       104
                                                 ------    ------    ------

                                    EXPENSES

        Management fee to the General Partner         2         8        19
        Other expenses                               11        19        44
                                                 ------    ------    ------

           Total Expenses                            13        27        63
                                                 ------    ------    ------

           Net Income                            $   63    $  123    $   41
                                                 ======    ======    ======

        The General  Partner earns a management  fee of 6% of the  Partnership's
respective interest in gross payments received for each financing joint venture.
Revenues  subject to a management fee at the joint venture level are not subject
to management fees at the Partnership level.

Foreclosed Cable Systems Joint Ventures

        The  Partnership  owns an interest in  foreclosed  cable  systems  joint
ventures,  along with other partnerships  managed by the General Partner and its
affiliates.  The Partnership  foreclosed upon  nonperforming  outstanding  notes
receivable to cable  television  operators to whom the  Partnership,  along with
other  affiliated  partnerships  managed by the General  Partner,  had  extended
credit. The Partnerships'  notes receivables were exchanged for interests (their
capital contribution), on a pro rata basis, in newly formed joint ventures owned
by the  partnerships  and  managed by the  General  Partner.  Title to the cable
television  systems  is  held  by the  joint  ventures.  These  investments  are
accounted for using the equity method of accounting.

        The joint ventures owned by the Partnership, along with their percentage
ownership is as follows:

                                                            Percentage
           Joint Venture                                    Ownership
           -------------                                    ---------

           Phoenix Pacific Northwest J.V.                      5.24%
           Phoenix Concept Cablevision, Inc.                  22.32
<TABLE>
        An analysis of the  Partnership's  net  investment in  foreclosed  cable systems joint ventures is as follows:
<CAPTION>
                       Net Investment                                                 Net Investment
                        at Beginning                   Equity in                          at End
Date                     of Period      Contributions   Earnings     Distributions       of Period
----                   --------------   -------------  ---------     -------------    --------------
                                                (Amounts in Thousands)
<S>                        <C>              <C>           <C>             <C>             <C>
Year Ended
  December 31, 1994        $  40            $ 298         $   4           $  5            $ 337
                           =====            =====         =====           ====            =====

Year Ended
  December 31, 1995        $ 337            $   0         $   2           $ 18            $ 321
                           =====            =====         =====           ====            =====

Year Ended
  December 31, 1996        $ 321            $   0         $   1           $ 55            $ 267
                           =====            =====         =====           ====            =====
</TABLE>


<PAGE>


                                                                   Page 26 of 35


        The aggregate  combined  financial  information of the foreclosed  cable
systems  joint  ventures  as of  December  31 and for the  years  then  ended is
presented as follows:

                             COMBINED BALANCE SHEETS

                                     ASSETS

                                                              December 31,
                                                            1996      1995
                                                           ------    ------
                                                        (Amounts in Thousands)

        Cash and cash equivalents                          $  140    $  256
        Accounts receivable                                    68        78
        Property, plant and equipment                       1,470     1,625
        Cable subscriber lists and franchise rights            88       116
        Deferred income tax                                   119       118
        Other assets                                           22        22
                                                           ------    ------

           Total Assets                                    $1,907    $2,215
                                                           ======    ======

                        LIABILITIES AND PARTNERS' CAPITAL

        Accounts payable                                   $  265    $  265
        Partners' capital                                   1,642     1,950
                                                           ------    ------

           Total Liabilities and Partners' Capital         $1,907    $2,215
                                                           ======    ======

                        COMBINED STATEMENTS OF OPERATIONS

                                     INCOME

                                              For the Years Ended December 31,
                                                  1996      1995      1994
                                                 ------    ------    ------
                                                    (Amounts in Thousands)

        Subscriber revenue                       $  856    $  883    $  467
        Other income                                 17         7         2
                                                 ------    ------    ------

           Total Income                             873       890       469
                                                 ------    ------    ------

                                    EXPENSES

        Depreciation and amortization               266       265       112
        Program services                            276       277       147
        General and administrative expenses         259       245       110
        Management fees to an affiliate of the
         General Partner                             38        39        20
        Provision for losses on accounts 
         receivable                                   8         8         8
                                                 ------    ------    ------

           Total Expenses                           847       834       397
                                                 ------    ------    ------

        Net Income Before Income Taxes               26        56        72

        Income tax expense                           (4)      (39)      (18)
                                                 ------    ------    ------

           Net Income                            $   22    $   17    $   54
                                                 ======    ======    ======

        Phoenix  Cable  Management  Inc.  (PCMI),  an  affiliate  of the General
Partner,  provides  day  to day  management  services  in  connection  with  the
operation of the foreclosed  cable systems joint ventures.  The foreclosed cable
systems  joint  ventures  will pay a  management  fee equal to four and one-half
percent of the  System's  monthly  gross  revenue for these  services.  Revenues
subject to a management  fee at the joint  venture  level will not be subject to
management fees at the Partnership level.


<PAGE>


                                                                   Page 27 of 35




Note 9.    Accounts Payable and Accrued Expenses.

        Accounts  payable  and  accrued  expenses  consist of the  following  at
December 31:

                                                           1996       1995
                                                         -------    --------
                                                        (Amounts in Thousands)

        Liquidation fees payable to General Partner      $   953    $ 1,173
        Equipment lease operations                           108         97
        Security deposits                                     43         43
        General Partner and affiliates                        52         43
        Other                                                194        237
                                                         -------    -------

           Total                                         $ 1,350    $ 1,593
                                                         =======    =======

Note 10.   Settlements.

        On July 1, 1991, Phoenix Leasing Incorporated, as General Partner to the
Partnership  and  sixteen  other  affiliated  partnerships,  filed  suit  in the
Superior  Court  for the  County  of  Marin,  Case  No.  150016,  against  Xerox
Corporation,  a  corporation  with which the General  Partner  had entered  into
contractual   agreements  for  the  acquisition  and  administration  of  leased
equipment.  The lawsuit was  settled out of court,  effective  as of October 28,
1994  pursuant to the terms of a  Confidential  Settlement  Agreement and Mutual
Release. The settlement agreement generally provides for compensation payable to
the Partnership and its affiliates in cash and kind, including the assignment by
Xerox of certain goods and services. The agreement further provides for the sale
by Xerox to the  Partnership  and its affiliates of equipment  subject to lease.
The suit has been dismissed with prejudice on the merits.

        The  Partnership's  pro rata share of the Xerox settlement was $751,000,
which consists of cash of $298,000, and assigned monthly rentals and credits for
goods and services valued at $453,000.  In addition,  the Partnership  purchased
additional  leased equipment at an aggregate cost of $457,000.  The Partnership,
along with sixteen other affiliated partnerships managed by the General Partner,
contributed  its share of the assigned  monthly  rentals,  credits for goods and
services and purchased  equipment leases to a joint venture,  in exchange for an
interest in the joint venture.

        Storage Technology  Corporation (STC), a major manufacturer of equipment
purchased by the Partnership,  filed for protection from creditors under Chapter
11 of the Federal  Bankruptcy  Code on October 14, 1984.  On June 18, 1987 STC's
plan of reorganization was approved and the Partnership received a settlement.

        On August 31, 1994, the United States  Bankruptcy Court for the District
of Colorado ordered a final  distribution from the Disputed Claims Reserve which
was provided for in the Debtors' Joint Plan of  Reorganization.  On December 23,
1994, the Partnership received its pro rata share of the final distribution from
the Disputed Claims Reserve valued at $12,000. The final distribution  consisted
of cash of $6,000 and common stock valued at $6,000.


Note 11.   Income Taxes.

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

        The net difference between the tax basis and the reported amounts of the
Partnership's assets and liabilities are as follows at December 31:

                                Reported Amounts     Tax Basis    Net Difference
                                ----------------     ---------    --------------
                                              (Amounts in Thousands)

1996
----

        Assets                    $  4,869           $  5,662       $   (793)
        Liabilities                  1,228                984            244


<PAGE>

                                                                   Page 28 of 35


1995
----

        Assets                    $  7,353           $  8,113       $   (760)
        Liabilities                  1,519              1,074            445

        The  Subsidiary  is a  corporation  subject  to state  and  federal  tax
regulations.  The  Subsidiary  reports to the taxing  authority  on the  accrual
basis.  When  income and  expenses  are  recognized  in  different  periods  for
financial  reporting  purposes than for income tax purposes,  deferred taxes are
provided for such  differences  using the liability  method.  The subsidiary was
formed in July 1993.

        The Subsidiary's  income tax benefit  includes the following  components
for the years ended December 31:

                                                        1996      1995
                                                       ------    ------
                                                    (Amounts in Thousands)

           Current tax benefit                         $   13    $    4
           Deferred tax asset related to
             future taxable income, net                    30        44
                                                       ------    ------
               Income tax benefit, net                 $   43    $   48
                                                       ======    ======

        The income tax benefit differed from the statutory  federal rate because
of the following:

                                                        1996      1995
                                                       ------    ------
                                                    (Amounts in Thousands)

           Federal income tax benefit, based on 
             statutory federal income tax rate of 34%  $   39    $   43
           State income tax benefit, net of 
             federal provision                              4         5
                                                       ------    ------
               Total Income tax benefit                $   43    $   48
                                                       ======    ======

        The Subsidiary's net deferred tax asset as of December 31, resulted from
the following temporary differences:

                                                        1996      1995
                                                       ------    ------
                                                    (Amounts in Thousands)

           Depreciation and amortization               $   93    $   64
           Bad debt expense                                 7         5
           Net operating loss carryforward                 36        24
                                                       ------    ------
               Subtotal                                   136        93
           Valuation allowance                            (10)      (10)
                                                       ------    ------
           Deferred tax asset                          $  126    $   83
                                                       ======    ======

        The Partnership has provided a valuation  allowance for the deferred tax
asset of $10,000 as of December 31, 1996 and 1995 based on the General Partner's
evaluation of the likelihood that such benefit will ultimately be realized.

        As of December 31, 1996 and 1995,  the  Subsidiary's  net operating loss
carryforward  of $36,372 and  $61,850,  respectively,  for federal and state tax
reporting   purposes   expires   December   31,  2011  and  December  31,  2010,
respectively.


Note 12.   Related Entities.

        The General  Partner serves in the capacity of general  partner in other
partnerships,  all of which are engaged in the  equipment  leasing and financing
business.

        The General Partner incurs certain  expenses,  such as data  processing,
equipment storage and equipment remarketing costs, for which it is reimbursed by
the Partnership. Equipment remarketing costs are incurred as the General Partner
remarkets  certain  equipment  on  behalf  of the  Partnership.  These  expenses
incurred by the General  Partner are reimbursed at the lower of the actual costs
or an  amount  equal to 90% of the fair  market  value  for such  services.  The
equipment  remarketing  costs  reimbursed  to the General  Partner  were $3,000,
$5,000  and  $24,000  for the years  ended  December  31,  1996,  1995 and 1994,
respectively.
<PAGE>


                                                                   Page 29 of 35



Note 13.   Net Income (Loss) and Distributions per Limited Partnership Unit.

        Net income and distributions per limited  partnership unit were based on
the limited  partner's share of consolidated net income and  distributions,  and
the weighted average number of units  outstanding of 345,974 for the years ended
December 31, 1996, 1995 and 1994. For purposes of allocating consolidated income
(loss) and  distributions to each individual  limited  partner,  the Partnership
allocates  consolidated  net  income  (loss) and  distributions  based upon each
respective  limited  partner's ending capital account  balance.  The use of this
method  accurately   reflects  each  limited  partner's   participation  in  the
Partnership  including  reinvestment through the Capital Accumulation Plan. As a
result,  the calculation of consolidated net income (loss) and distributions per
limited  partnership  unit is not  indicative  of per unit  consolidated  income
(loss) and distributions due to reinvestments  through the Capital  Accumulation
Plan.


Note 14.   Business Segments.

        The  Consolidated   Partnership   currently  operates  in  two  business
segments:  the  equipment  leasing  and  financing  industry  and the  cable  TV
industry.  Information about the Consolidated  Partnership's operations in these
two segments are as follows:

                                                   1996      1995      1994
                                                 -------   -------   -------
                                                    (Amounts in Thousands)
Total Revenues
    Equipment leasing and financing              $   861   $ 2,238   $ 2,757
    Cable TV operations                              483       470       572
                                                 -------   -------   -------
        Total                                    $ 1,344   $ 2,708   $ 3,329
                                                 =======   =======   =======

Net Income (Loss)
    Equipment leasing and financing              $   469   $ 1,443   $ 1,576
    Cable TV operations                              (70)      (79)      (56)
                                                 -------   -------   -------
        Total                                    $   399   $ 1,364   $ 1,520
                                                 =======   =======   =======

Identifiable Assets
    Equipment leasing and financing              $ 3,121   $ 5,270   $ 5,608
    Cable TV operations                            1,870     2,157     2,538
                                                 -------   -------   -------
        Total                                    $ 4,991   $ 7,427   $ 8,146
                                                 =======   =======   =======

Depreciation and Amortization Expense
    Equipment leasing and financing              $   116   $   340   $   597
    Cable TV operations                              281       275       273
                                                 -------   -------   -------
        Total                                    $   397   $   615   $   870
                                                 =======   =======   =======

Capital Expenditures
    Equipment leasing and financing              $  --     $  --     $   459
    Cable TV operations                               48        33       107
                                                 -------   -------   -------
        Total                                    $    48   $    33   $   566
                                                 =======   =======   =======


Note 15.   Subsequent Events.

    In January 1997, cash  distributions  of $1,307,000 were made to the Limited
Partners.


Note 16.   Fair Value of Financial Instruments.

    The following  methods and assumptions  were used to estimate the fair value
of each class of financial  instrument  for which it is  practicable to estimate
that value.



<PAGE>


                                                                   Page 30 of 35


Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.

Notes Receivable
The fair  value of notes  receivable  is  estimated  based on the  lesser of the
discounted  expected  future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit  ratings,  or the estimated
fair  value of the  underlying  collateral.  Please  refer to  footnote  4 for a
description of the Partnership's  accounting  policies on notes receivable which
contribute to the difference between the carrying amount and the fair value.

Securities, Available-for-Sale
The fair values of  investments in securities  available-for-sale  are estimated
based on quoted market prices.

    The estimated fair values of the Partnership's  financial instruments are as
follows at December 31:

                                               Carrying
                                                Amount       Fair Value
                                               --------      ----------
                                                (Amounts in Thousands)
1996
----

        Assets
           Cash and cash equivalents            $ 2,155        $ 2,155
           Securities, available-for-sale            16             16
           Notes receivable                         302            427

1995
----

        Assets
           Cash and cash equivalents            $ 3,940        $ 3,940
           Securities, available-for-sale            14             14
           Notes receivable                         317            959




<PAGE>


                                                                   Page 31 of 35


Item 9.    Disagreements on Accounting and Financial Disclosure Matters.

    None.


                                    PART III

Item 10.   Directors and Executive Officers of the Registrant.

    The registrant is a limited  partnership  and,  therefore,  has no executive
officers or directors.  The general partner of the registrant is Phoenix Leasing
Incorporated,  a California corporation. The directors and executive officers of
Phoenix Leasing Incorporated (PLI) are as follows:

    GUS CONSTANTIN, age 59, is President, Chief Executive Officer and a Director
of PLI. Mr. Constantin received a B.S. degree in Engineering from the University
of  Michigan  and  a  Master's  Degree  in  Management   Science  from  Columbia
University.  From 1969 to 1972,  he served as Director,  Computer and  Technical
Equipment of DCL Incorporated  (formerly Diebold Computer Leasing Incorporated),
a  corporation  formerly  listed on the  American  Stock  Exchange,  and as Vice
President  and  General  Manager  of DCL  Capital  Corporation,  a  wholly-owned
subsidiary of DCL Incorporated. Mr. Constantin was actively engaged in marketing
manufacturer  leasing programs to computer and medical  equipment  manufacturers
and in directing DCL Incorporated's IBM System/370 marketing  activities.  Prior
to  1969,  Mr.  Constantin  was  employed  by IBM as a data  processing  systems
engineer for four years. Mr. Constantin is an individual general partner in four
active partnerships and is an NASD registered  principal.  Mr. Constantin is the
founder of PLI and the  beneficial  owner of all of the common  stock of Phoenix
American Incorporated.

    PARITOSH  K.  CHOKSI,  age 43, is Senior  Vice  President,  Chief  Financial
Officer,  Treasurer and a Director of PLI. He has been associated with PLI since
1977.  Mr. Choksi  oversees the finance,  accounting,  information  services and
systems  development  departments of the General  Partner and its Affiliates and
oversees the structuring,  planning and monitoring of the partnerships sponsored
by the General Partner and its Affiliates.  Mr. Choksi graduated from the Indian
Institute of Technology, Bombay, India with a degree in Engineering. He holds an
M.B.A. degree from the University of California, Berkeley.

    GARY W. MARTINEZ, age 46, is Senior Vice President and a Director of PLI. He
has been  associated  with PLI since  1976.  He  manages  the  Asset  Management
Department,  which is responsible for lease and loan portfolio management.  This
includes credit analysis,  contract terms, documentation and funding; remittance
application,  change processing and maintenance of customer  accounts;  customer
service, invoicing,  collection,  settlements and litigation;  negotiating lease
renewals,  extensions,  sales and buyouts; and management information reporting.
From 1973 to 1976, Mr.  Martinez was a Loan Officer with Crocker  National Bank,
San  Francisco.  Prior to 1973,  he was an Area Manager with  Pennsylvania  Life
Insurance  Company.  Mr. Martinez is a graduate of California State  University,
Chico.

    BRYANT J. TONG, age 42, is Senior Vice  President,  Financial  Operations of
PLI.  He has been with PLI since  1982.  Mr. Tong is  responsible  for  investor
services and overall company  financial  operations.  He is also responsible for
the technical and  administrative  operations of the cash management,  corporate
accounting,  partnership accounting,  accounting systems,  internal controls and
tax  departments,  in addition to Securities  and Exchange  Commission and other
regulatory  agency  reporting.  Prior to his association  with PLI, Mr. Tong was
Controller-Partnership  Accounting with the Robert A. McNeil Corporation for two
years and was an auditor with Ernst & Whinney  (succeeded by Ernst & Young) from
1977 through 1980.  Mr. Tong holds a B.S. in Accounting  from the  University of
California, Berkeley, and is a Certified Public Accountant.

    CYNTHIA E. PARKS,  age 41, is Vice President,  General Counsel and Assistant
Secretary  of PLI.  Prior to  joining  PLI in 1984,  she was with  GATX  Leasing
Corporation,  and had  previously  been  Corporate  Counsel for Stone  Financial
Companies,  and an  Assistant  Vice  President  of the  Bank  of  America,  Bank
Amerilease Group. She has a Bachelor's  degree from Santa Clara University,  and
earned her J.D. from the University of San Francisco School of Law.

    Neither the General Partner nor any Executive Officer of the General Partner
has any family relationship with the others.

    Phoenix Leasing Incorporated or its affiliates and the executive officers of
the General  Partner  serve in a similar  capacity to the  following  affiliated
limited partnerships:

        Phoenix Leasing American Business Fund, L.P.


<PAGE>


                                                                   Page 32 of 35


        Phoenix Leasing Cash Distribution Fund V, L.P.
        Phoenix Income Fund, L.P.
        Phoenix Leasing Cash Distribution Fund IV
        Phoenix High Tech/High Yield Fund
        Phoenix Leasing Cash Distribution Fund III
        Phoenix Leasing Cash Distribution Fund II
        Phoenix Leasing Income Fund VI
        Phoenix Leasing Growth Fund 1982 and
        Phoenix Leasing Income Fund 1977


Item 11.   Executive Compensation.
<TABLE>
        Set forth is the information relating to all direct remuneration paid or accrued by the Registrant
during the last year to the General Partner.

        (A)                 (B)                              (C)                            (D)
<CAPTION>
                                                      Cash and cash-                 Aggregate of
Name of Individual      Capacities in                 equivalent forms               contingent forms
or persons in group     which served                  of remuneration                of remuneration
-------------------     -------------     --------------------------------------     ----------------
                                                (C1)                   (C2)
                                                                Securities or property
                                    Salaries, fees, directors'  insurance benefits or
                                    fees, commissions, and      reimbursement, personal
                                    bonuses                     benefits
                                    -------------------------   -----------------------
                                                    (Amounts in Thousands)
<S>                                           <C>                       <C>                  <C>       
Phoenix Leasing
  Incorporated          General Partner       $    31(1)                $ 0                  $ 0

Phoenix Cable           Manager
 Management, Inc.                                  26(1)                  0                    0
                                              --------                  ----                 ----

                                              $    57                   $ 0                  $ 0
                                              ========                  ====                 ====
</TABLE>
(1)  consists of management fees.


Item 12.   Security Ownership of Certain Beneficial Owners and Management.

        (a)No  person  owns of  record,  or is  known by the  Registrant  to own
           beneficially,   more  than  five  percent  of  any  class  of  voting
           securities of the Registrant.

        (b)The General Partner of the Registrant  owns the equity  securities of
           the Registrant set forth in the following table:

     (1)                                  (2)                         (3)
Title of Class                 Amount Beneficially Owned       Percent of Class
--------------                 -------------------------       ----------------

General Partner Interest       Represents a 15% interest              100%
                               in the Registrant's profits
                               and distributions

Limited Partner Interest       4 units                                  -


Item 13.   Certain Relationships and Related Transactions.

        None.



<PAGE>


                                                                   Page 33 of 35



                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

                                                                       Page No.
                                                                       --------
(a)     1. Financial Statements:

           Report of Independent Public Accountants                       11
           Consolidated Balance Sheets as of December 31,
             1996 and 1995                                                12
           Consolidated Statements of Operations for the years
             ended December 31, 1996, 1995 and 1994                       13
           Consolidated Statements of Partners' Capital for the
             years ended December 31, 1996, 1995 and 1994                 14
           Consolidated Statements of Cash Flows for the years
             ended December 31, 1996, 1995 and 1994                       15
           Notes to the Consolidated Financial Statements              16-30

        2. Financial Statement Schedules:

           Schedule II - Valuation and Qualifying Accounts and Reserves   35

        All other schedules are omitted because they are not applicable,  or not
required,  or because the  required  information  is  included in the  financial
statements or notes thereto.

(b)     Reports on Form 8-K:

        No reports on Form 8-K were filed for the  quarter  ended  December  31,
1996.

(c)     Exhibits:

        21. Additional Exhibits.

            a) Listing of all Subsidiaries of the Registrant:

               Phoenix Cablevision of Oregon, Inc., a Nevada corporation and
               wholly owned subsidiary

            b) Financial Statements for Significant Subsidiaries:

               Phoenix Joint Venture 1994-1                         E21 1-10

        27. Financial Data Schedule.



<PAGE>


                                                                   Page 34 of 35


                                   SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         PHOENIX LEASING INCOME FUND VII
                                                   (Registrant)

                                         BY:   PHOENIX LEASING INCORPORATED,
                                               A CALIFORNIA CORPORATION
                                               GENERAL PARTNER


        Date:  March 25, 1997            By:   /S/  GUS CONSTANTIN
               --------------                  -------------------------
                                               Gus Constantin, President

        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

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


/S/ GUS CONSTANTIN     President, Chief Executive Officer and a   March 25, 1997
---------------------- Director of Phoenix Leasing Incorporated   --------------
(Gus Constantin)       General Partner


/S/ PARITOSH K. CHOKSI Chief Financial Officer,                   March 25, 1997
---------------------- Senior Vice President,                     --------------
(Paritosh K. Choksi)   Treasurer and a Director of
                       Phoenix Leasing Incorporated
                       General Partner


/S/ BRYANT J. TONG     Senior Vice President,                     March 25, 1997
---------------------- Financial Operations of                    --------------
(Bryant J. Tong)       (Principal Accounting Officer)
                       Phoenix Leasing Incorporated
                       General Partner


/S/ GARY W. MARTINEZ   Senior Vice President and a Director of    March 25, 1997
---------------------- Phoenix Leasing Incorporated               --------------
(Gary W. Martinez)     General Partner


/S/ MICHAEL K. ULYATT  Partnership Controller of                  March 25, 1997
---------------------- Phoenix Leasing Incorporated               --------------
(Michael K. Ulyatt)    General Partner


<PAGE>

<TABLE>
                                                                                               Page 35 of 35


                                   PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY

                                                     SCHEDULE II
                                               (Amounts in Thousands)



SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES


<CAPTION>
           COLUMN A                COLUMN B         COLUMN C        COLUMN D          COLUMN E          COLUMN F
        Classification            Balance at       Charged to      Charged to        Deductions        Balance at
                                 Beginning of       Expense          Revenue                             End of
                                    Period                                                               Period
------------------------------  --------------- ----------------  -------------  ------------------- --------------

<S>                                  <C>             <C>              <C>             <C>               <C>        
Year ended December 31, 1994
  Allowance for losses on accounts
    receivable                       $  373          $    6           $ 92            $  155            $  132
  Allowance for early termination
    of financing leases                 129              28              0                86                71
  Allowance for losses on notes
    receivable                          401               0              0                 0               401
                                     ------          ------           ----            ------            ------

    Totals                           $  903          $   34           $ 92            $  241            $  604
                                     ======          ======           ====            ======            ======


Year ended December 31, 1995
  Allowance for losses on accounts
    receivable                       $  132          $   48           $  0            $  122            $   58
  Allowance for early termination
    of financing leases                  71               0             37                 0                34
  Allowance for losses on notes
    receivable                          401               0             27                15               359
                                     ------          ------           ----            ------            ------

    Totals                           $  604          $   48           $ 64            $  137            $  451
                                     ======          ======           ====            ======            ======


Year ended December 31, 1996
  Allowance for losses on accounts
    receivable                       $   58          $   32           $  0           $   49             $   41
  Allowance for early termination
    of financing leases                  34               0             34                0                  0
  Allowance for losses on notes
    receivable                          359               0              0                0                359
                                     ------          ------           ----           ------             ------

    Totals                           $  451          $   32           $ 34           $   49             $  400
                                     ======          ======           ====           ======             ======
</TABLE>