Page 1 of 35


                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, 1995       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, 1995,  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, 1995.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


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                                                                    Page 2 of 35




                         PHOENIX LEASING INCOME FUND VII

                          1995 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...........    6


                                     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...................    9
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................   33


                                     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,
1995,  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
nonrecourse to the Partnership.


<PAGE>


                                                                    Page 4 of 35


         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 1,766 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 newly passed  Telecommunications Bill allows 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  will be
immediately deregulated from most regulations and that the definition of a small
cable operator is under 600,000 subscribers.  This will allow small operators to
raise rates if needed,  and eliminate the need to provide franchise  authorities
with costly rate filings and justifications.  The new bill also allows the local
telephone companies to buy out small cable operators in their own region as well


<PAGE>


                                                                    Page 5 of 35


as to joint venture with small cable operators. During 1995, the General Partner
has observed a renewed market interest in small cable systems.  The final impact
of the newly  passed  Telecommunications  Bill will not be known  fully  until a
technical rewrite is completed and all the legal challenges have been made.

         Please  see  Note  15 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, 1995, 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,  1995,  the  Partnership  owns  equipment  and has
outstanding  loans to borrowers  with an aggregate  original cost of $8,867,000.
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, 1995.
                                                                   Percentage of
      Asset Types                               Purchase Price(1)   Total Assets
      -----------                               -----------------  -------------
                                             (Amounts in Thousands)
Small Computer Systems                               $2,889              33%
Financing of Solar Systems                            2,088              24
Telecommunications                                    1,542              17
Reproduction Equipment                                1,173              13
Computer Mainframes                                     382               4
Financing Related to Cable TV Systems                   382               4
Financing of Security Monitoring
  Systems Companies                                     311               4
Capital Equipment Leased to Emerging
  Growth Companies                                      100               1
                                                     ------             ----
TOTAL                                                $8,867             100%
                                                     ======             ====

(1)  These  amounts  include the  Partnership's  pro rata  interest in equipment
     joint ventures of $1,429,000,  financing joint ventures of $2,088,000, cost
     of  equipment  on  financing  leases  of  $277,000  and  original  cost  of
     outstanding loans of $693,000 at December 31, 1995.

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.


<PAGE>


                                                                    Page 6 of 35


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.


                                     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, 1995
              -------------------------               -----------------------

                  Limited Partners                             16,782


Item 6.  Selected Financial Data.

                             Amounts in Thousands Except for Per Unit Amounts
                             ------------------------------------------------
                               1995(2)   1994(2)   1993(2)    1992      1991
                               -------   -------   -------    ----      ----

Total Income                 $  2,708  $  3,329  $  3,097  $  4,580  $  6,607

Net Income (Loss)               1,364     1,520    (1,167)   (1,994)   (1,031)

Total Assets                    7,427     8,146    12,842    14,860    21,995

Distributions to Partners       1,286     2,594     2,593     4,127    11,340

Net Income (Loss) per Limited
  Partnership Unit(1)            3.35      4.20     (3.38)    (5.76)    (2.98)

Distributions per Limited
  Partnership Unit               3.72      7.50      7.49     11.93     32.55


(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 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  $1,364,000  and  $1,520,000  during  1995  and  1994,
respectively, as compared to a net loss of $1,167,000 during 1993. 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. The increased earnings during 1994, as
compared  to the net  loss  during  1993,  is  primarily  due to a  decrease  in
liquidation  fee  expense  of  $1,374,000  and the  receipt of a  settlement  of
$763,000 during 1994.

         Total  revenues  decreased by $621,000  during 1995,  but  increased by
$232,000  during 1994,  when compared to the same periods in the previous  year.
The decrease in total revenues during 1995 is 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, as compared to 1994. The settlement of
the  second  note  receivable   represented  only  a  partial  recovery  of  the
outstanding note receivable balance.

         The   improvement  in  total  revenues  of  $232,000   during  1994  is
attributable  to a settlement  of $763,000  received by the  Partnership  and an
increase in cable  subscriber  revenues  of  $467,000  from a full year of cable
subscriber  revenues  during 1994 on a cable  television  system the Partnership
foreclosed upon in October of 1993.  Partially offsetting the increases in cable
subscriber  revenues and the settlement was a combined decrease in rental income
and earned income from financing  leases of $919,000 during 1994, as compared to
1993.

         The Partnership  holds notes  receivable from cable  television  system
operators  and  security   monitoring   companies   with  a  carrying  value  of
approximately  $676,000  of which  $143,000  is  considered  to be  impaired  at
December 31, 1995.  The  Partnership  has  suspended  the accrual of interest on
these  notes and has  provided  an  allowance  for losses on notes.  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 $451,000 and  $2,421,000  during 1995 and
1994,  respectively,  as compared to the same periods in the previous  year. The
decline is  attributable  to the decrease in  depreciation  and  amortization of
$255,000 and  $443,000  during 1995 and 1994,  respectively,  as compared to the
previous year. In addition,  during 1994 the  Partnership  reported a $1,374,000
decrease in liquidation fee expenses.  At the end of 1993, the liquidation  fees
had been fully accrued,  causing the decrease in liquidation  fee expense during
1994.

         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

         Cable  subscriber  revenues  and  program  services  expense  increased
slightly  during 1995,  as compared to 1994.  This  increase is reflective of an
increase in subscribers from approximately  1,683 at December 31, 1994, to 1,766
at December 31, 1995.  Cable  subscriber  revenues were lower during 1993 due to
the Partnership  foreclosing upon the cable television  system during 1993. As a
result,  cable  subscriber  revenues for the year ended December 31, 1993 do not
reflect a full year of  operations.  The  Partnership  assumed  ownership of the
cable  television  system on  October  28,  1993 at which  time all of the cable
system's  assets and  liabilities,  including the  outstanding  senior debt, was
transferred to the  Partnership.  The debt was paid off in full during the third
quarter of 1994 and as such no interest expense was incurred during 1995.


<PAGE>


                                                                    Page 8 of 35


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.

         The small  increase in earnings from joint  ventures of $35,000  during
1995,  as compared to the same periods 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.  The  Partnership  reported an  increase of $20,000  from joint
ventures during 1994, as compared to 1993.

Liquidity and Capital Resources

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

         During  1995,  the net cash  provided by leasing,  financing  and cable
television  activities was $3,148,000,  as compared to $1,595,000 and $2,425,000
during 1994 and 1993,  respectively.  The increase in net cash  provided  during
1995,  compared to 1994, is attributable  to the increase in principal  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.  The  decrease  in cash  during  1994,  as
compared to 1993, was due to an increase in payments of liabilities during 1994.
During 1994, the Partnership  paid liquidation fees to the General Partner which
contributed significantly to decreasing the net cash provided for the period.

         Distributions  from  joint  ventures  were  higher  during  1995,  when
compared to 1994,  due to a new  investment in an equipment  joint venture which
was made during the fourth  quarter of 1994.  Distributions  from joint ventures
decreased during 1994, when compared to 1993, due to cash distributions received
from foreclosed  cable joint ventures during 1993 related to the sale of a cable
television system owned by one of the joint ventures.

         As of December 31, 1995, the Partnership owned equipment held for lease
with a purchase price of $1,334,000 and a net book value of $7,000,  compared to
$4,853,000 and $21,000,  respectively, at December 31, 1994. 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 $1,286,000,  $2,594,000
and  $2,593,000  during  1995,  1994 and 1993,  respectively.  As a result,  the
cumulative  cash   distributions   to  the  Limited  Partners  are  $79,981,000,
$78,695,000 and  $76,101,000 at December 31, 1995, 1994 and 1993,  respectively.
The  General  Partner  did not  receive  distributions  during  the years  ended
December 31, 1995, 1994 and 1993, respectively.

         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  leasing  and  financing  activities,  the  Partnership  is no longer  making
quarterly distributions to partners.  Distributions are being made semi-annually
with the next  distribution  to partners is expected  anticipated  to be made in
January and July of 1996.

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


<PAGE>


                                                                    Page 9 of 35
















               Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                        PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY

                               YEAR ENDED DECEMBER 31, 1995




<PAGE>


                                                                   Page 10 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,  1995 and 1994,  and the  related  consolidated  statements  of  operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1995. 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 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,  1995 and 1994,  and the  results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1995, 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 19, 1996


<PAGE>


                                                                   Page 11 of 35

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

                                                              December 31,
                                                             1995      1994
                                                             ----      ----
ASSETS

Cash and cash equivalents                                  $ 3,940   $ 1,248

Accounts  receivable (net of allowance
   for losses on accounts receivable of $58
   and $132 at December 31, 1995 and 1994,
   respectively)                                                65       155

Notes receivable (net of allowance for losses
   on notes receivable of $359 and $401 at
   December 31, 1995 and 1994, respectively)                   317     1,867

Equipment on operating leases and held for
   lease (net of accumulated depreciation
   and obsolescence reserves of $2,694 and
   $6,009 at December 31, 1995 and 1994,
   respectively)                                               169       533

Net investment in financing leases (net of
   allowance for early terminations of $34
   and $71 at December 31, 1995 and 1994,
   respectively)                                              --         550

Property, cable systems and equipment (net
   of accumulated depreciation of $238 and
   $124 at December 31, 1995 and 1994,
   respectively)                                               912       993

Cable subscriber lists and franchise rights
   (net of accumulated amortization of $350
   and $189 at December 31, 1995 and 1994,
   respectively)                                               942     1,103

Investment in joint ventures                                   975     1,339

Other assets                                                   107       358
                                                           -------   -------
     Total Assets                                          $ 7,427   $ 8,146
                                                           =======   =======

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

   Accounts payable and accrued expenses                   $ 1,593   $ 2,390
                                                           -------   -------
     Total Liabilities                                       1,593     2,390
                                                           -------   -------

Partners' Capital:

   General Partner                                             262        57

   Limited Partners, 480,000 units authorized,
     366,432 units issued and 345,974 units
     outstanding at December 31, 1995 and 1994               5,573     5,700

   Unrealized losses on available for sale securities           (1)       (1)
                                                           -------   -------
     Total Partners' Capital                                 5,834     5,756
                                                           -------   -------
     Total Liabilities and Partners' Capital               $ 7,427   $ 8,146
                                                           =======   =======

                     The accompanying notes are an integral
                            part of these statements.

<PAGE>


                                                                   Page 12 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,
                                                   1995      1994      1993
                                                   ----      ----      ----
INCOME

   Rental income                                 $ 1,116   $ 1,357   $ 1,924

   Earned income, finance leases                      37       154       506

   Equity in earnings from joint
     ventures, net                                   307       272       252

   Interest income, notes receivable                 458        80       187

   Settlements                                      --         763      --

   Cable subscriber revenue                          583       557        90

   Other income                                      207       146       138
                                                 -------   -------   -------
     Total Income                                  2,708     3,329     3,097
                                                 -------   -------   -------

EXPENSES

   Depreciation and amortization                     615       870     1,313

   Lease related operating expenses                   35       117        89

   Program service, cable system                     142       122        20

   Management fees to General Partner                255       243       318

   Liquidation fees to General Partner              --        --       1,374

   Interest expense                                 --          99        24

   Provision for losses on receivables               (15)      (59)      486

   General and administrative expenses               360       451       640
                                                 -------   -------   -------
     Total Expenses                                1,392     1,843     4,264
                                                 -------   -------   -------

NET INCOME (LOSS) BEFORE INCOME TAXES              1,316     1,486    (1,167)

   Income tax benefit                                 48        34      --
                                                 -------   -------   -------
NET INCOME (LOSS)                                $ 1,364   $ 1,520   $(1,167)
                                                 =======   =======   =======
NET INCOME (LOSS) PER LIMITED
  PARTNERSHIP UNIT                               $  3.35   $  4.20   $ (3.38)
                                                 =======   =======   =======

ALLOCATION OF NET INCOME (LOSS):

   General Partner                               $   205   $    68   $     2

   Limited Partners                                1,159     1,452    (1,169)
                                                 -------   -------   -------
                                                 $ 1,364   $ 1,520   $(1,167)
                                                 =======   =======   =======

                     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 PARTNERS' CAPITAL
                 (Amounts in Thousands Except for Unit Amounts)


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

Balance, December 31, 1992     $    (13)  345,974  $ 10,604  $   --    $ 10,591

Distributions to partners ($7.49
   per limited partnership unit)   --        --      (2,593)     --      (2,593)

Net income (loss)                     2      --      (1,169)     --      (1,167)
                               --------  --------  --------  --------  --------
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
                               ========  ========  ========  ========  ========

                     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 CASH FLOWS
                             (Amounts in Thousands)

                                               For the Years Ended December 31,
                                                   1995      1994      1993
                                                   ----      ----      ----
Operating Activities:

   Net income (loss)                             $ 1,364   $ 1,520   $(1,167)

   Adjustments to reconcile net income (loss)
     to net cash provided (used) by operating
     activities:
       Depreciation and amortization                 615       870     1,313
       Gain on sale of equipment                     (77)      (85)     (243)
       Equity in earnings from joint
         ventures, net                              (307)     (272)     (252)
       Gain on sale of marketable securities         (28)       (5)     --
       Provision for early termination,
         financing leases                            (37)       28       104
       Provision for losses on notes
         receivable                                  (27)     --         227
       Provision for losses on accounts
         receivable                                   48       (87)      155
       Settlements                                  --        (459)     --
       Decrease in accounts receivable                42       267        51
       Decrease in accounts payable and
         accrued expenses                           (797)   (1,893)      (10)
       Decrease (increase) in other assets           243       (34)       (4)
                                                 -------   -------   -------
Net cash provided (used) by operating
  activities                                       1,039      (150)      174
                                                 -------   -------   -------

Investing Activities:

   Principal payments, financing leases              533     1,132     1,895
   Principal payments, notes receivable            1,576       613       356
   Proceeds from sale of equipment                   155       213       575
   Proceeds from sale of marketable securities        46         5      --
   Distributions from joint ventures                 662       230       429
   Purchase of equipment                            --        (459)     (103)
   Investment in joint ventures                     --         (44)      (13)
   Investment in marketable securities              --        --        (253)
   Property, cable systems and equipment             (33)     (107)       (7)
                                                 -------   -------   -------
Net cash provided by investing activities          2,939     1,583     2,879
                                                 -------   -------   -------

Financing Activities:

   Payments of principal, notes payable             --      (1,720)      (24)
   Distributions to partners                      (1,286)   (2,594)   (2,593)
                                                 -------   -------   -------
Net cash used by financing activities             (1,286)   (4,314)   (2,617)
                                                 -------   -------   -------

Increase (decrease) in cash and
  cash equivalents                                 2,692    (2,881)      436

Cash and cash equivalents,
  beginning of period                              1,248     4,129     3,693
                                                 -------   -------   -------
Cash and cash equivalents,
  end of period                                  $ 3,940   $ 1,248   $ 4,129
                                                 =======   =======   =======

Supplemental Cash Flow Information:

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

                     The accompanying notes are an integral
                            part of these statements.

<PAGE>


                                                                   Page 15 of 35

                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1995


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  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.

         As an alternative to receiving cash distributions, Limited Partners may
have  participated  in  the  Capital  Accumulation  Plan,  whereby  the  Limited
Partners' cash  distributions  were reinvested and accumulated in the respective
Limited  Partner's capital account.  During 1988, the Capital  Accumulation Plan
was  discontinued.  Limited  Partners who elected to  participate in the Capital
Accumulation Plan are now receiving cash distributions.

         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 will pay a management fee equal to


<PAGE>


                                                                   Page 16 of 35

four and  one-half  percent of the  System's  monthly  gross  revenue  for these
services.  Management fees paid or due PCMI totalled  $26,000 for the year ended
December 31, 1995.  Revenues subject to a management fee at the Subsidiary level
are not subject to management fees at the Partnership level.


Note 2.  Summary of Significant Accounting Policies.

         Principles of  Consolidation.  The 1995 and 1994  financial  statements
include the accounts of the Partnership and its wholly-owned subsidiary, Phoenix
Cablevision of Oregon,  Inc.,  since the date of acquisition,  October 28, 1993.
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 $38,000,
$0 and $0 ($.11,  $0 and $0 per  limited  partnership  unit) for the years ended
December 31, 1995, 1994 and 1993, 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,  1995  and 1994 and for the  period  from the date of  acquisition
(October  28,  1993) to December 31, 1993.  The  Subsidiary's  cable  operations
consist  of a cable  system  located  in the State of  Oregon,  which  currently
provides cable  television  services to approximately  1,766  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.

         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


<PAGE>


                                                                   Page 17 of 35

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 Marketable Securities Available for Sale. The Partnership
has  investments  in stock in pubic  companies  that have been  determined to be
available for sale that are included in Other Assets in the accompanying balance
sheets.  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.

         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.  During  the year ended
December 31, 1994, the Partnership  contributed  equipment and other investments
received  through  a  settlement  to  a  joint  venture.   The  amount  of  such
contribution was $910,000.  Non cash transaction included in Other Assets during
the year  ended  December  31,  1994  consist of common  stock  valued at $6,000
received  pursuant  to a  settlement  (see  Note 10) and an  unrealized  loss on
marketable securities of $1,000.

         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. The Partnership  does not expect
the  adoption  of this  statement  to have a  material  impact on its  financial
position and results of operations. The Partnership plans to adopt Statement No.
121 on January 1, 1996.

         On  January 1,  1995,  the  Partnership  adopted  Financial  Accounting
Standards Board Statement No. 114,  "Accounting by Creditors for Impairment of a
Loan," and Statement No. 118,  "Accounting by Creditors for Impairment of a Loan
- Income  Recognition and Disclosures."  Statement No. 114 requires that certain
impaired  loans be measured  based on the present  value of expected  cash flows
discounted at the loan's  effective  interest  rate; or,  alternatively,  at the
loan's  observable  market price or the fair value of the collateral if the loan
is  collateral  dependent.  Prior to 1995,  the  allowance  for  losses on notes
receivable  was based on the  undiscounted  cash  flows or the fair value of the
collateral  dependent  loans. At January 1, 1995, the adoption of Statements 114
and 118 had no effect on 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 amounts  reported in the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

         Reclassification.  Certain 1994 and 1993 amounts have been reclassified
to conform to the 1995 presentation.


<PAGE>


                                                                   Page 18 of 35

Note 3.  Accounts Receivable.

         Accounts receivable consist of the following at December 31:

                                                            1995      1994
                                                            ----      ----
                                                        (Amounts in Thousands)

          Lease payments                                   $ 104     $ 228
          Property taxes                                       3        30
          Cable system service                                13        12
          General Partner and affiliates                       3         8
          Other                                             --           9
                                                           -----     -----
                                                             123       287

          Less:  allowance for losses on
                  accounts receivable                        (58)     (132)
                                                           -----     -----

               Total                                       $  65     $ 155
                                                           =====     =====


Note 4.  Notes Receivable.

         Notes receivable consist of the following at December 31:

                                                            1995      1994
                                                            ----      ----
                                                        (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   $ 2,095

          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      128      173
                                                          -------  -------

                                                              676    2,268

          Less: allowance for losses on notes receivable     (359)    (401)
                                                          -------  -------

               Total                                      $   317  $ 1,867
                                                          =======  =======

         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 19 of 35

         At  December  31,  1995,  the  recorded  investment  in notes  that are
considered to be impaired  under  Statement  114 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  under  Statement  No. 114.  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:

                                                           1995       1994
                                                           ----       ----
                                                       (Amounts in Thousands)
         Beginning balance                                $ 401      $ 401
           Provision for (recovery of) losses               (27)       --
           Write downs                                      (15)       --
                                                          -----      -----
         Ending balance                                   $ 359      $ 401
                                                          =====      =====


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

         Equipment on lease  consists  primarily of small  computer  systems and
computer mainframes subject to operating and financing 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:

                                                           1995       1994
                                                           ----       ----
                                                       (Amounts in Thousands)

          Minimum lease payments to be received           $  35      $ 654
          Estimated residual value of leased equipment
            (unguaranteed)                                  --           7
          Less: unearned income                              (1)       (40)
                allowance for early terminations            (34)       (71)
                                                          -----      -----

          Net investment in financing leases              $ --       $ 550
                                                          =====      =====


<PAGE>


                                                                   Page 20 of 35

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

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

         1996 ........................................     $244         $35
         1997 ........................................        1          --
         1998 ........................................      --           --
         1999 ........................................      --           --
         2000 ........................................      --           --
         Thereafter ..................................      --           --
                                                           ----         ---

         Totals ......................................     $245         $35
                                                           ====         ===

         The net book value of equipment held for lease at December 31, 1995 and
1994 amounted to $7,000 and $21,000, 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:

                                                              1995      1994
                                                              ----      ----
                                                          (Amounts in Thousands)

         Distributions systems                             $   868   $   839
         Headend equipment                                     174       170
         Building                                               63        63
         Land                                                   23        23
         Automobiles                                            22        22
                                                           -------   -------
                                                             1,150     1,117
         Less:  accumulated depreciation                      (238)     (124)
                                                           -------   -------

         Net property, cable systems and equipment         $   912   $   993
                                                           =======   =======

         Depreciation  expense totaled  approximately  $114,000 and $109,000 for
the years ended December 31, 1995 and December 31, 1994, respectively.


Note 7.  Cable Subscriber Lists and Franchise Rights.

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

                                                             1995      1994
                                                             ----      ----
                                                         (Amounts in Thousands)

         Subscriber lists                                  $ 1,111   $ 1,111
         Franchise rights                                      181       181
                                                           -------   -------
                                                             1,292     1,292
         Less:  accumulated amortization                      (350)     (189)
                                                           -------   -------

         Net cable subscriber lists and franchise rights   $   942   $ 1,103
                                                           =======   =======

         Amortization  expense totaled  approximately  $161,000 and $162,000 for
the year ended December 31, 1995 and December 31, 1994, respectively.


<PAGE>


                                                                   Page 21 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 XIII(1)                      30.00%
            Arroyo Joint Venture XV(3)                        32.47
            Arroyo Joint Venture XVI                          32.14
            Arroyo Joint Venture XVII(2)                       1.64
            Xerox Graphics Joint Venture(2)                   16.79
            Equity Joint Venture VII(1)                       20.00
            PLI Limited Partnership Fund A(3)                 19.98
            VMX Joint Venture(2)                              47.55
            Acro Joint Venture, Residential                   31.30
            Leveraged Joint Venture 1987-2                    32.23
            Leveraged Joint Venture 1987-3                    39.60
            Phoenix Leasing POST Joint Venture I(3)           45.00
            Phoenix Joint Venture 1994-1                      19.89

(1) Closed during 1993
(2) Closed during 1994
(3) Closed during 1995

<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, 1993            $     18             $    13           $  235            $    264              $      2
                               ========             =======           ======            ========              ========

Year Ended
  December 31, 1994            $      2             $   910           $  261            $    179              $    994
                               ========             =======           ======            ========              ========

Year Ended
  December 31, 1995            $    994             $     0           $  289            $    632              $    651
                               ========             =======           ======            ========              ========
</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 22 of 35

                             COMBINED BALANCE SHEETS

                                     ASSETS
                                                             December 31,
                                                            1995      1994
                                                            ----      ----
                                                        (Amounts in Thousands)

    Cash and cash equivalents                              $  545    $  404
    Accounts receivable                                     1,456     1,877
    Operating lease equipment                               1,021     2,261
    Other assets                                              691       920
                                                           ------    ------

         Total Assets                                      $3,713    $5,462
                                                           ======    ======

                        LIABILITIES AND PARTNERS' CAPITAL

    Accounts payable                                          454       557
    Partners' capital                                       3,259     4,905
                                                           ------    ------

         Total Liabilities and Partners' Capital           $3,713    $5,462
                                                           ======    ======

                        COMBINED STATEMENTS OF OPERATIONS

                                     INCOME

                                                For the Years Ended December 31,
                                                   1995      1994      1993
                                                   ----      ----      ----
                                                    (Amounts in Thousands)

    Rental income                                $2,571    $  996    $1,105
    Gain on sale of equipment                       553       207       411
    Other income                                    735       296        43
                                                 ------    ------    ------

         Total Income                             3,859     1,499     1,559
                                                 ------    ------    ------

                                    EXPENSES

    Depreciation                                    955        82         7
    Lease related operating expenses              1,306       564       805
    Management fee to the General Partner           197        59        54
    Other expenses                                  195        27        58
                                                 ------    ------    ------

         Total Expenses                           2,653       732       924
                                                 ------    ------    ------

         Net Income                              $1,206    $  767    $  635
                                                 ======    ======    ======

         As of December 31, 1995 and 1994, the  Partnership's  pro rata interest
in the  equipment  joint  ventures'  net book value of off-lease  equipment  was
$21,000 and $0, 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


<PAGE>


                                                                   Page 23 of 35

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.

         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                        Equity in                               Net Investment
                               at Beginning                          Earnings                                   at End
Date                            of Period       Contributions        (Losses)          Distributions          of Period
----                          --------------    -------------       ---------          -------------        --------------
                                                             (Amounts in Thousands)

<S>                             <C>                  <C>             <C>                  <C>                  <C>
Year Ended
  December 31, 1993             $  128               $ 0             $  (12)              $   69               $   47
                                ======               ===             ======               ======               ======

Year Ended
  December 31, 1994             $   47               $ 0             $    7               $   46               $    8
                                ======               ===             ======               ======               ======

Year Ended
  December 31, 1995             $    8               $ 0             $   16               $   21               $    3
                                ======               ===             ======               ======               ======
</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,
                                                          1995      1994
                                                          ----      ----
                                                      (Amounts in Thousands)

    Cash and cash equivalents                              $28       $34
    Notes receivable, net                                   --        25
                                                           ---       ---

         Total Assets                                      $28       $59
                                                           ===       ===

                        LIABILITIES AND PARTNERS' CAPITAL

    Accounts payable                                       $ 5       $ 1
    Partners' capital                                       23        58
                                                           ---       ---

         Total Liabilities and Partners' Capital           $28       $59
                                                           ===       ===


<PAGE>


                                                                   Page 24 of 35

                        COMBINED STATEMENTS OF OPERATIONS

                                     INCOME

                                             For the Years Ended December 31,
                                                 1995      1994       1993
                                                 ----      ----       ----
                                                  (Amounts in Thousands)

    Interest income                              $ 73      $ 86      $   1
    Other income                                   77        18         19
                                                 ----      ----      -----

         Total Income                             150       104         20
                                                 ----      ----      -----

                                    EXPENSES

    Management fee to the General Partner           8        19         31
    Other expenses                                 19        44         72
                                                 ----      ----      -----

         Total Expenses                            27        63        103
                                                 ----      ----      -----

         Net Income (Loss)                       $123      $ 41      $ (83)
                                                 ====      ====      =====

         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 Glacier J.V.(1)                         6.98
            Phoenix Concept Cablevision, Inc.              22.32

(1)  cable system sold and joint venture closed during 1993.


<PAGE>


                                                                   Page 25 of 35
<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, 1993             $  107              $     0           $  29               $  96                $   40
                                ======              =======           =====               =====                ======

Year Ended
  December 31, 1994             $   40              $   298           $   4               $   5                $  337
                                ======              =======           =====               =====                ======

Year Ended
  December 31, 1995             $  337              $     0           $   2               $  18                $  321
                                ======              =======           =====               =====                ======
</TABLE>

         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,
                                                             1995      1994
                                                             ----      ----
                                                         (Amounts in Thousands)

    Cash and cash equivalents                              $  256    $  165
    Accounts receivable                                        78        83
    Property, plant and equipment                           1,625     1,752
    Cable subscriber lists and franchise rights               116       145
    Deferred income tax                                       118       142
    Other assets                                               22        18
                                                           ------    ------

         Total Assets                                      $2,215    $2,305
                                                           ======    ======

                        LIABILITIES AND PARTNERS' CAPITAL

    Accounts payable                                       $  265    $  239
    Notes payable                                            --          11
    Partners' capital                                       1,950     2,055
                                                           ------    ------

         Total Liabilities and Partners' Capital           $2,215    $2,305
                                                           ======    ======

                        COMBINED STATEMENTS OF OPERATIONS

                                     INCOME
                                              For the Years Ended December 31,
                                                  1995      1994     1993
                                                  ----      ----     ----
                                                  (Amounts in Thousands)

    Subscriber revenue                           $ 871     $ 454     $270
    Gain on sale of cable system                  --        --        441
    Other income                                    10         4        4
                                                 -----     -----     ----

         Total Income                              881       458      715
                                                 -----     -----     ----


<PAGE>


                                                                   Page 26 of 35

                                    EXPENSES

    Depreciation and amortization                  265       112       67
    Program services                               277       147       93
    General and administrative expenses            245       110       66
    Management fees to an affiliate
     of the General Partner                         39        20       62
    Provision for losses on accounts receivable      8         8        2
                                                 -----     -----     ----

         Total Expenses                            834       397      290
                                                 -----     -----     ----

    Net Income Before Income Taxes                  47        61      425

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

         Net Income                              $   8     $  43     $425
                                                 =====     =====     ====

         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.


Note 9.  Accounts Payable and Accrued Expenses.

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

                                                             1995      1994
                                                             ----      ----
                                                         (Amounts in Thousands)

          Liquidation fees payable to General Partner      $1,173    $1,593
          Equipment lease operations                           97       423
          Security deposits                                    43        60
          General Partner and affiliates                       43        46
          Other                                               237       268
                                                           ------    ------

               Total                                       $1,593    $2,390
                                                           ======    ======

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.


<PAGE>


                                                                   Page 27 of 35

         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. Liquidation Fees.

         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
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 12. 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 is as follows at December 31:

                                  Reported Amounts   Tax Basis   Net Difference
                                  ----------------   ---------   --------------
                                             (Amounts in Thousands)
1995
----

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

1994
----

        Assets                         $8,097         $8,657         $(560)
        Liabilities                     2,341          1,568           773


         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:

                                                          1995      1994
                                                          ----      ----
                                                      (Amounts in Thousands)

    Current tax benefit                                    $ 4       $15
    Deferred tax asset related to future
      taxable income, net                                   44        19
                                                           ---       ---
        Income tax benefit, net                            $48       $34
                                                           ===       ===


<PAGE>


                                                                   Page 28 of 35

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

                                                          1995      1994
                                                          ----      ----
                                                      (Amounts in Thousands)

    Federal income tax benefit, based on statutory
      federal income tax rate of 34%                       $43       $30
    State income tax benefit, net of federal provision       5         4
                                                           ---       ---
        Total Income tax benefit                           $48       $34
                                                           ===       ===

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

                                                           1995      1994
                                                           ----      ----
                                                       (Amounts in Thousands)

    Depreciation and amortization                          $ 64      $ 37
    Bad debt expense                                          5         2
    Interest expense                                        --        (14)
    Net operating loss carryforward                          24        20
                                                           ----      ----
        Subtotal                                             93        45
    Valuation allowance                                     (10)      (11)
                                                           ----      ----
    Deferred tax asset                                     $ 83      $ 34
                                                           ====      ====

         The Partnership has provided a valuation allowance for the deferred tax
asset of $10,000  and  $11,000  as of  December  31,  1995 and 1994 based on the
General Partner's evaluation of the likelihood that such benefit will ultimately
be realized.

         As of December 31, 1995 and 1994, the  Subsidiary's  net operating loss
carryforward  of $61,850 and  $52,100,  respectively,  for federal and state tax
reporting purposes expires December 31, 2010.

Note 13. 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 $5,000,
$24,000  and  $24,000  for the years ended  December  31,  1995,  1994 and 1993,
respectively.

Note 14. Net Income (Loss) and Distributions per Limited Partnership Unit.

         Net income (loss) and distributions  per limited  partnership unit were
based on the  limited  partner's  share of  consolidated  net income  (loss) and
distributions,  and the weighted average number of units  outstanding of 345,974
for the years ended December 31, 1995, 1994 and 1993. 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 15.  Business Segments.

         The  Consolidated   Partnership  currently  operates  in  two  business
segments:  the  equipment  leasing  and  financing  industry  and the  cable  TV
industry.  The  operations  in the  cable TV  industry  are for the  year  ended
December  31, 1995  and 1994  and for  the period from  the  date of acquisition


<PAGE>


                                                                   Page 29 of 35

(October  28, 1993) to December 31,  1993.  Information  about the  Consolidated
Partnership'soperations in these two segments are as follows:

                                                   1995      1994      1993
                                                   ----      ----      ----
                                                    (Amounts in Thousands)
    Total Revenues
         Equipment leasing and financing         $ 2,238   $ 2,757   $  3,004
         Cable TV operations                         470       572         93
                                                 -------   -------   --------
             Total                               $ 2,708   $ 3,329   $  3,097
                                                 =======   =======   ========

    Net Income (Loss)
         Equipment leasing and financing         $ 1,443   $ 1,576   $ (1,140)
         Cable TV operations                         (79)      (56)       (27)
                                                 -------   -------   --------
             Total                               $ 1,364   $ 1,520   $ (1,167)
                                                 =======   =======   ========

    Identifiable Assets
         Equipment leasing and financing         $ 5,270   $ 5,608   $ 10,189
         Cable TV operations                       2,157     2,538      2,653
                                                 -------   -------   --------
             Total                               $ 7,427   $ 8,146   $ 12,842
                                                 =======   =======   ========

    Depreciation and Amortization Expense
         Equipment leasing and financing         $   340   $   597   $  1,270
         Cable TV operations                         275       273         43
                                                 -------   -------   --------
             Total                               $   615   $   870   $  1,313
                                                 =======   =======   ========

    Capital Expenditures
         Equipment leasing and financing         $  --     $   459   $    103
         Cable TV operations                          33       107          7
                                                 -------   -------   --------
             Total                               $    33   $   566   $    110
                                                 =======   =======   ========


Note 16. Subsequent Events.

     In January 1996, cash  distributions of $1,307,000 were made to the Limited
Partners.


Note 17. Fair Value of Financial Instruments.

     During the year ended December 31, 1995, the Partnership  adopted Statement
of  Financial  Accounting  Standard  No. 107,  "Disclosures  about Fair Value of
Financial Instruments," which requires disclosure of the fair value of financial
instruments  for which it is practicable  to estimate fair value.  The following
methods and  assumptions  were used to estimate  the fair value of each class of
financial instrument which it is practicable to estimate that value.

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.

Marketable Securities
The fair values of investments in marketable  securities are estimated  based on
quoted market prices.

     The estimated  fair values of the  Partnership's  financial  instruments at
December 31, 1995 are as follows:


<PAGE>


                                                                   Page 30 of 35

                                                Carrying
                                                 Amount     Fair Value
                                                --------    ----------
                                                (Amounts in Thousands)
    Assets
         Cash and cash equivalents               $3,940       $3,940
         Marketable securities                       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 58,  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 42, is Senior  Vice  President,  Chief  Financial
Officer and Treasurer 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 45, is Senior  Vice  President  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 41, is Senior Vice President,  Financial Operations and
a Director 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 40, is Vice President,  General  Counsel,  Assistant
Secretary and a Director 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.

         HOWARD SOLOVEI, age 34, is Vice President, Finance, Assistant Treasurer
and a Director of PLI. He has been associated with PLI since 1984. Mr. Solovei's
principal  activities  are in the areas of arranging  and managing the company's
banking relationships for its various corporations, partnerships and securitized
asset pools.  Mr. Solovei is also involved in corporate  financial  planning and
various data  processing-related  projects. Mr. Solovei graduated with a B.S. in
Business from the University of California at Berkeley in 1984.


<PAGE>


                                                                   Page 32 of 35

     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.
         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 Capital Assurance Fund
         Phoenix Leasing Income Fund VI
         Phoenix Leasing Growth Fund 1982
         Phoenix Leasing Income Fund 1981 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            $    229(1)                    $   0                    $   0

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

                                                        $    255                       $   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.


<PAGE>


                                                                   Page 33 of 35

         (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 in the            100%
                            Registrant's profits and distributions

  Limited Partner Interest  4 units                                       -


Item 13. Certain Relationships and Related Transactions.

         None.


                                     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                          10
         Consolidated Balance Sheets as of 
           December 31, 1995 and 1994                                      11
         Consolidated Statements of Operations
           for the years ended December 31, 1995, 1994 and 1993            12
         Consolidated Statements of Partners' Capital
           for the years ended December 31, 1995, 1994 and 1993            13
         Consolidated Statements of Cash Flows
           for the years ended December 31, 1995, 1994 and 1993            14
         Notes to the Consolidated Financial Statements                 15-30

    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 year ended December 31, 1995.

(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

    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 28, 1996           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 28, 1996
----------------------  Director of Phoenix Leasing Incorporated  --------------
(Gus Constantin)        General Partner


/S/ PARITOSH K. CHOKSI  Chief Financial Officer,                  March 28, 1996
----------------------  Senior Vice President                     --------------
(Paritosh K. Choksi)    and Treasurer of
                        Phoenix Leasing Incorporated
                        General Partner


/S/ BRYANT J. TONG      Senior Vice President, Financial          March 28, 1996
----------------------  Operations                                --------------
(Bryant J. Tong)        (Principal Accounting Officer)
                        and a Director of
                        Phoenix Leasing Incorporated
                        General Partner


/S/  GARY W. MARTINEZ   Senior Vice President of                  March 28, 1996
----------------------  Phoenix Leasing Incorporated              --------------
(Gary W. Martinez)      General Partner


/S/ HOWARD SOLOVEI      Vice President, Finance                   March 28, 1996
----------------------  Assistant Treasurer and a                 --------------
(Howard Solovei)        Director of Phoenix Leasing Incorporated
                        General Partner


/S/ MICHAEL K. ULYATT   Partnership Controller                    March 28, 1996
----------------------  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, 1993
   Allowance for losses on accounts
     receivable                            $   260          $   155              $  0              $    42            $    373
   Allowance for early termination
     of financing leases                        31              104                 0                    6                 129
   Allowance for losses on notes
     receivable                                203              227                 0                   29                 401
                                           -------          -------              ----              -------            --------

     Totals                                $   494          $   486              $  0              $    77            $    903
                                           =======          =======              ====              =======            ========


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
                                           =======          =======              ====              =======            ========

</TABLE>