UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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

                             Washington, D.C. 20549


                                   FORM 10-KSB

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

For the fiscal year ended December 31, 1997      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-B 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-KSB or any  amendment to
this Form 10-KSB. _____

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 _____

The Registrant's revenue for its most recent fiscal year was $831,000.

As of December 31, 1997,  345,496  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, 1997.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

Transitional Small Business Disclosure Format:

                               Yes _____ No __X__


                                  Page 1 of 30


<PAGE>



                         PHOENIX LEASING INCOME FUND VII

                         1997 FORM 10-KSB ANNUAL REPORT


                                TABLE OF CONTENTS


                                                                           Page

                                     PART I

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


                                     PART II

Item 5.    Market for the Registrant's Securities and Related Security
           Holder Matters................................................    6
Item 6.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations.........................................    7
Item 7.    Financial Statements and Supplementary Data...................   10
Item 8.    Disagreements on Accounting and Financial Disclosure Matters..   27


                                    PART III

Item 9.    Directors and Executive Officers of the Registrant............   27
Item 10.   Executive Compensation........................................   28
Item 11.   Security Ownership of Certain Beneficial Owners and Management   29
Item 12.   Certain Relationships and Related Transactions................   29


                                     PART IV

Item 13.   Exhibits, Financial Statement Schedules and Reports on Form 8-K  29


Signatures...............................................................   30


                                        2


<PAGE>



                                     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, 1997,
the total  investments in equipment leases and financing  transactions  (loans),
including  the  Partnership's  pro-rata  interest in  investments  made by joint
ventures, approximate $183,814,000. 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
70.52 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.


                                        3


<PAGE>



        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.

        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.

        Phoenix Cablevision of Oregon, Inc. has accepted and agreed to the terms
stated  on  a  Letter  of  Intent  dated  February  11,  1998  to  sell  all  or
substantially  all of its assets with a net  carrying  value of $1.5  million at
December  31,  1997  for  $2  million.  Cash,  accounts  receivable,  marketable
securities and similar  investments  will be excluded from the sale. This Letter
of Intent is subject to a definitive asset purchase agreement which is currently
being negotiated with the potential buyer.

        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  1,761 cable  subscribers.  The
Subsidiary's  cable television system serves the communities of Prospect,  Butte
Falls, Shady Cove, Trail and other nearby areas in Jackson and Douglas counties.
The Subsidiary operates under three non-exclusive  franchise agreements with the
cities of Glendale, Butte Falls and Shady Cove. These cable franchise agreements
expire between the years 2000 and 2002.

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

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

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

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

        A  favorable  part  of  the  bill  is  that  small  cable  systems  were
immediately deregulated from most regulations and that the definition of a small
cable  operator is under 600,000  subscribers.  This allowed small  operators to


                                        4
<PAGE>



raise rates if needed,  and eliminate the need to provide franchise  authorities
with costly rate  filings and  justifications.  The bill also  allowed the local
telephone companies to buy out small cable operators in their own region as well
as to joint venture with small cable operators.

        Please  see  Note  13 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, 1997, 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 to businesses located throughout the United States.

        As of  December  31,  1997,  the  Partnership  owns  equipment  and  has
outstanding  loans to borrowers  with an aggregate  original cost of $4,513,000.
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,
1997.
                                                                   Percentage of
              Asset Types                      Purchase Price(1)   Total Assets
---------------------------------------        ----------------    -------------
                                             (Amounts in Thousands)
Financing of Solar Systems                         $  1,978             44%
Small Computer Systems                                1,071             24
Reproduction Equipment                                  761             17
Financing Related to Cable TV Systems                   489             11
Telecommunications                                      107              2
Capital Equipment Leased to Emerging
 Growth Companies                                        91              2
Financing of Security Monitoring Systems
 Companies                                               16             -
                                                   --------            ---
TOTAL                                              $  4,513            100%
                                                   ========            ===

(1) These amounts include the Partnership's pro rata interest in equipment joint
    ventures of $959,000,  financing joint ventures of $1,978,000,  and original
    cost of outstanding loans of $506,000 at December 31, 1997.

Cable Television System Operations.

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


Item 3.    Legal Proceedings.

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


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

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


                                        5


<PAGE>



                                     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, 1997
           -----------------------                   -----------------------
           Limited Partners                                  16,625
           General Partner                                        1



                                        6


<PAGE>



Item 6. 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 $175,000 for the year ended  December 31, 1997,  compared
to net income of $399,000 for the year ended  December 31, 1996.  The  decreased
earnings during 1997, as compared to 1996, is attributable to a decline in total
revenues.

        Total revenues  decreased by $513,000 during the year ended December 31,
1997 when  compared to the same period in the previous  year.  This  decrease is
primarily  the result of a decrease in rental  income,  equity in earnings  from
joint  ventures and other income.  The decrease in earnings from joint  ventures
will be  discussed  under  "Joint  Ventures".  The  decline in rental  income of
$133,000 for the year ended  December  31, 1997,  compared to the same period in
the prior year, as well as the decrease in depreciation  expense,  is the result
of an overall  reduction in the size of the  equipment  portfolio due to ongoing
sales.  The  aggregate   original  cost  of  equipment  owned  directly  by  the
Partnership  is $1 million at December 31, 1997,  as compared to $2.1 million at
December 31, 1996.

        The decrease in other income of $121,000 for the year ended December 31,
1997,  compared to the same period in the prior year,  also  contributed  to the
reduction  in total  revenues.  The  decline  in other  income  is a result of a
decrease in interest income generated from the Partnership's cash account.  This
decrease is due to a reduction  in the amount of cash held at December  31, 1997
compared to the prior year.

        The  Partnership  holds notes  receivable from cable  television  system
operators  and  security   monitoring   companies   with  a  carrying  value  of
approximately  $656,000.  These notes are  considered to be impaired at December
31, 1997. The  Partnership  has suspended the accrual of interest on these notes
and has  provided  an  allowance  for losses on notes  receivable.  The  General
Partner  is  currently  working  with the  borrowers,  other  creditors  and the
bankruptcy  court in order to seek  remedies  that will maximize the recovery of
the Partnership's investment in these notes.

        In January 1998  settlement  proceeds of $752,000 were received from one
of the  impaired  notes  receivable  with a net  carrying  value of  $601,000 at
December 31, 1997. As a result, the Partnership recorded a recovery of losses on
receivables of $212,000 during the year ended December 31, 1997.

        Total expenses  decreased by $323,000 during the year ended December 31,
1997, as compared to the same period in the previous  year. The decline in total
expenses  for 1997 is  primarily  attributable  to a recovery of losses on notes
receivable,  and decreases in depreciation and amortization expense of $133,000,
compared to the same period in the previous  year.  In addition to the declining
equipment  portfolio,  as  previously  discussed,  the decrease in  depreciation
expense is also due to an increasing  portion of the equipment  portfolio  being
fully depreciated.

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

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


Cable System

        The  Partnership  acquired a cable system in satisfaction of a defaulted
note receivable held by the Partnership.  The Partnership  assumed  ownership of
this cable television system on October 28, 1993. Both cable subscriber  revenue
and program  services  expense  remained  relatively the same for the year ended
December 31, 1997 as compared to the same period in 1996.

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


                                        7


<PAGE>



investments  are  anticipated  to  continue  to  decline as the  portfolios  are
re-leased at lower rental rates and eventually liquidated.

        Earnings  from  equipment  and  financing  joint  ventures  decreased by
$287,000 for the year ended December 31, 1997, as compared to the previous year.
The  decrease  in  earnings  from  equipment  joint  ventures is a result of the
closure of several  equipment  joint ventures during the fourth quarter of 1996,
as well as one  equipment  joint venture  recording  provisions  for  additional
depreciation and losses for notes receivable  during the year ended December 31,
1997.  The  decrease in earnings  from  financing  joint  ventures is due to the
decline in interest income from notes receivable.

Liquidity and Capital Resources

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

        Net cash provided by leasing,  financing and cable television activities
was  $165,000 and  $299,000  during the years ended  December 31, 1997 and 1996,
respectively.  The decrease in net cash provided during 1997,  compared to 1996,
is attributable to the decrease in rental income and finance leases.

        Distributions  from joint ventures has become one of the primary sources
of cash generated by the  Partnership.  The  Partnership  received  $314,000 and
$526,000 as  distributions  from joint ventures for the years ended December 31,
1997  and  1996,  respectively.  Distributions  from  equipment  joint  ventures
decreased  $190,000 for the year ended  December 31, 1997,  compared to the same
period in the previous  year, due to the closure of several joint  ventures,  as
well as one equipment joint venture experiencing a decline in cash available for
distributions  as a result of a reduction  in rental  income and sales  proceeds
received.  Distributions  from financing joint ventures remained  relatively the
same for both  years  ended  December  31,  1997 and  1996.  Distributions  from
foreclosed cable television system joint ventures decreased $22,000 for the year
ended  December 31, 1997,  compared to the same period in the previous year, due
to a decrease in cash available for distribution.

        As of December 31, 1997, the Partnership  owned equipment held for lease
with an  original  cost of  $1,033,000  and a net book value of $0 , compared to
equipment  being held for lease with an original cost of $993,000 and a net book
value of $0 at December 31, 1996. The General  Partner is actively  engaged,  on
behalf  of  the  Partnership,  in  remarketing  and  selling  the  Partnership's
off-lease equipment portfolio.

        The Limited Partners received distributions of $2,163,000 and $2,600,000
during the years ended  December 31, 1997 and 1996,  respectively.  As a result,
the cumulative cash  distributions  to the Limited  Partners are $84,744,000 and
$82,581,000 at December 31, 1997 and 1996, respectively. The General Partner did
not receive distributions during the years ended December 31, 1997 and 1996.

        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 were made semi-annually in January and
July of 1997. The Partnership will not make any future  distributions  until the
termination of the  Partnership.  The Partnership will reach the end of its term
on December 31, 1998.

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

        Forward-looking  statements in this report are made pursuant to the safe
harbor  provisions  of the  Private  Securities  Litigation  Reform Act of 1995.
Actual  results could differ from those  anticipated  by some of the  statements
made above. Limited Partners are cautioned that such forward-looking  statements
involve risks and uncertainties including without limitation the following:  (I)
the  Partnership's  plans are subject to change at any time at the discretion of
the General Partner of the Partnership,  (ii) future technological  developments
in the industry in which the Partnership  operates,  (iii) competitive  pressure


                                        8


<PAGE>



on pricing or services, (iv) substantial customer defaults or cancellations, (v)
changes  in  business  conditions  and the  general  economy,  (vi)  changes  in
government regulations affecting the Partnership's core businesses and (vii) the
ability of the Partnership to sell its remaining assets .


                                        9


<PAGE>





















               Item 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY

                                YEAR ENDED DECEMBER 31, 1997

















                                       10


<PAGE>















                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Partners of Phoenix Leasing Income Fund VII:

We have audited the accompanying  consolidated  balance sheet of Phoenix Leasing
Income Fund VII (a California limited partnership) and Subsidiary as of December
31, 1997,  and the related  consolidated  statements  of  operations,  partners'
capital and cash flows for the years  ended  December  31, 1997 and 1996.  These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Phoenix  Leasing
Income Fund VII and Subsidiary as of December 31, 1997, and the results of their
operations  and their cash flows for the year ended  December 31, 1997 and 1996,
in conformity with generally accepted accounting principles.




San Francisco, California,                               ARTHUR ANDERSEN LLP
  January 23, 1998


                                       11


<PAGE>



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

                                                            December 31, 1997
                                                            -----------------
ASSETS

Cash and cash equivalents                                       $    333

Accounts receivable (net of allowance for
  losses on accounts receivable of $37)                               33

Notes receivable (net of allowance for losses
  on notes receivable of $55)                                        601

Equipment on operating leases and held for lease
  (net of accumulated depreciation of $715)                         --

Property, cable systems and equipment (net of
  accumulated depreciation of $472)                                  774

Cable subscriber lists and franchise rights (net
  of accumulated amortization of $660)                               632

Investment in joint ventures                                         410

Other assets                                                         179
                                                                --------
    Total Assets                                                $  2,962
                                                                ========

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

  Accounts payable and accrued expenses                         $    352

  Liquidation fees payable to General Partner                        953
                                                                --------
    Total Liabilities                                              1,305
                                                                --------
Partners' Capital:

  General Partner                                                    348

  Limited Partners, 480,000 units authorized, 366,432
    units issued and 345,496 units outstanding                     1,298

  Unrealized gains on available-for-sale securities                   11
                                                                --------
    Total Partners' Capital                                        1,657
                                                                --------
    Total Liabilities and Partners' Capital                     $  2,962
                                                                ========

                 The accompanying notes are an integral part of
                                these statements.


                                       12


<PAGE>



                 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,
                                                            1997       1996
                                                            ----       ----
INCOME

  Rental income                                          $    162   $    295

  Equity in earnings (losses) from joint
   ventures, net                                               (6)       281

  Interest income, notes receivable                            17         16

  Cable subscriber revenue                                    609        582

  Other income                                                 49        170
                                                         --------   --------
    Total Income                                              831      1,344
                                                         --------   --------
EXPENSES

  Depreciation and amortization                               264        397

  Lease related operating expenses                              1         16

  Program service, cable system                               155        136

  Other operating expenses, cable system                      145        147

  Management fees to General Partner                           47         57

  Recovery of losses on receivables                          (212)        (2)

  Legal expense                                               150         95

  General and administrative expenses                         115        142
                                                         --------   --------

    Total Expenses                                            665        988
                                                         --------   --------

NET INCOME BEFORE INCOME TAXES                                166        356

  Income tax benefit                                            9         43
                                                         --------   --------
NET INCOME                                               $    175   $    399
                                                         ========   ========


NET INCOME PER LIMITED PARTNERSHIP UNIT                  $    .43   $    .98
                                                         ========   ========
ALLOCATION OF NET INCOME:

  General Partner                                        $     26   $     60

  Limited Partners                                            149        339
                                                         --------   --------
                                                         $    175   $    399
                                                         ========   ========

                 The accompanying notes are an integral part of
                                these statements.


                                       13


<PAGE>



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


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

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

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

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

Net income                         60      --         339      --         399
                             --------  --------  --------  --------  --------
Balance, December 31, 1996        322   345,974     3,312         7     3,641

Distributions to partners
 ($6.26 per limited
 partnership unit)               --        --      (2,163)     --      (2,163)

Redemptions of capital           --        (478)     --        --        --

Change in unrealized gains
  on available-for-sale
  securities                     --        --        --           4         4

Net income                         26      --         149      --         175
                             --------  --------  --------  --------  --------
Balance, December 31, 1997   $    348   345,496  $  1,298  $     11  $  1,657
                             ========  ========  ========  ========  ========

                 The accompanying notes are an integral part of
                                these statements.


                                       14


<PAGE>



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

                                                          For the Years Ended
                                                              December 31,
                                                            1997       1996
                                                            ----       ----
Operating Activities:

  Net income                                             $    175   $    399

  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation and amortization                           264        397
      Loss (gain) on sale of equipment                        (15)        25
      Equity in losses (earnings) from joint
       ventures, net                                            6       (281)
      Gain on sale of marketable securities                    (1)        (5)
      Recovery of early termination, financing leases        --          (34)
      Recovery of losses on notes receivable                 (221)      --
      Provision for losses on accounts receivable               9         32
      Increase (decrease) in accounts receivable              (12)         3
      Decrease in accounts payable and accrued expenses       (45)      (243)
      Increase in other assets                                (25)       (43)
                                                         --------   --------
Net cash provided by operating activities                     135        250
                                                         --------   --------
Investing Activities:

  Principal payments, financing leases                       --           34
  Principal payments, notes receivable                         30         15
  Proceeds from sale of equipment                              15         27
  Proceeds from sale of marketable securities                   1         11
  Distributions from joint ventures                           314        526
  Investments in notes receivable                            (107)      --
  Property, cable systems and equipment                       (47)       (48)
                                                         --------   --------
Net cash provided by investing activities                     206        565
                                                         --------   --------
Financing Activities:

  Distributions to partners                                (2,163)    (2,600)
                                                         --------   --------
Net cash used by financing activities                      (2,163)    (2,600)
                                                         --------   --------
Decrease in cash and cash equivalents                      (1,822)    (1,785)

Cash and cash equivalents, beginning of period              2,155      3,940
                                                         --------   --------
Cash and cash equivalents, end of period                 $    333   $  2,155
                                                         ========   ========

                 The accompanying notes are an integral part of
                                these statements.


                                       15


<PAGE>



                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


Note 1.    Organization and Partnership Matters.

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

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

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

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

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

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

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

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

        Phoenix  Cable  Management  Inc.  (PCMI),  an  affiliate  of the General
Partner,  provides  day  to day  management  services  in  connection  with  the
operation of the Subsidiary.  The Subsidiary pays a management fee equal to four
and one-half  percent of the System's  monthly gross revenue for these services.
Management fees paid or due PCMI totaled $28,000 for the year ended December 31,
1997.  Revenues  subject to a  management  fee at the  Subsidiary  level are not
subject to management fees at the Partnership level.

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


                                       16


<PAGE>



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.

        Redemptions  of  Limited  Partner  units will only be made to the extent
permitted by applicable laws and regulations,  the Partnership Agreement and if,
in the  opinion  of the  General  Partner,  it is in the  best  interest  of the
Partnership. In addition, redemptions will not be made if such redemptions would
cause the  Partnership to be categorized as a publicly  traded  partnership  for
federal income tax purposes.

        The Partnership  will acquire such limited  partnership  interest for an
amount  equal to the book  value of such  Partnership  interest,  determined  in
accordance with generally accepted  accounting  principles.  Out of such amount,
the  General  Partner  will be paid a  Redemption  Fee  equal  to 15% of the net
capital contribution with respect to the redeemed interest, and the balance will
be distributed to the Limited Partners.


Note 2.    Summary of Significant Accounting Policies.

        Principles  of  Consolidation.  The 1997 and 1996  financial  statements
include the accounts of the Partnership and its wholly-owned subsidiary, Phoenix
Cablevision  of Oregon,  Inc. The  Partnership  has complete  authority  in, and
responsibility  for, the overall  management and control of the Subsidiary.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

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

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

           The  Partnership's  policy is to  review  periodically  the  expected
economic life of its rental  equipment in order to determine the  probability of
recovering its undepreciated  cost. Such reviews  consider,  among other things,
recent and anticipated  technological  developments affecting computer equipment
and  competitive  factors  within the computer  marketplace.  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 $0 and $6,000 ($0 and $.02 per limited partnership unit) for the year
ended December 31, 1997 and 1996, 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  statements of
operations  include the operating activity of the Subsidiary for the years ended
December 31, 1997 and 1996. The Subsidiary's cable operations consist of a cable
system located in the State of Oregon, which currently provides cable television
services to approximately 1,761 subscribers out of four headend locations.


                                       17

<PAGE>



        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.

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

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

        Notes  Receivable.  Notes  receivable  generally  are  stated  at  their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.

        Impaired Notes Receivable. 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,  even  though  the loan may  currently  be  performing.  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.  Generally,
notes  receivable  are restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms for a reasonable
period  of  time  and  the  ultimate  collectibility  of the  total  contractual
principal and interest is no longer in doubt.

        Allowance  for Losses.  An allowance for losses is  established  through
provisions for losses charged  against  income.  Notes  receivable  deemed to be
uncollectible  are charged  against the  allowance  for losses,  and  subsequent
recoveries, if any, are credited to the allowance.

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

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

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

        Reclassification. Certain 1996 amounts have been reclassified to conform
to the 1997 presentation.

        Use of Estimates.  The preparation of financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.


                                       18


<PAGE>



Note 3.    Accounts Receivable.

        Accounts receivable consist of the following at December 31:

                                                                1997
                                                                ----
                                                       (Amounts in Thousands)

        Lease payments                                         $   33
        Cable system service                                       31
        Property taxes                                              4
        General Partner and affiliates                              2
                                                               ------
                                                                   70

        Less:  allowance for losses on accounts receivable        (37)
                                                               ------
           Total                                               $   33
                                                               ======

Note 4.    Notes Receivable.

        Notes receivable consist of the following at December 31:

                                                                1997
                                                                ----
                                                       (Amounts in Thousands)

         Notes receivable from cable television
         system operators with interest ranging from
         15% to 21%, per annum, receivable in install-
         ments ranging from 39 to 96 months through
         January 1996, collateralized by a security
         interest in the cable system assets.                  $  656

         Less:  allowance for losses on notes receivable          (55)
                                                               ------
           Total                                               $  601
                                                               ======

        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.

        At  December  31,  1997,  the  recorded  investment  in  notes  that are
considered  to be impaired was  $656,000,  for which the related  allowance  for
losses is $55,000.  The average recorded investment in impaired loans during the
years ended December 31, 1997 and 1996 was approximately  $632,000 and $623,000,
respectively.  The  Partnership  recognized $0 and $16,000 of interest income on
impaired  notes  receivable  during the years ended  December 31, 1997 and 1996,
respectively.

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

                                                                1997
                                                                ----
                                                       (Amounts in Thousands)

        Beginning balance                                      $  359
         Recovery of losses                                      (221)
         Write downs                                              (83)
                                                               ------
        Ending balance                                         $   55
                                                               ======

                                       19


<PAGE>



Note 5.    Equipment on Operating Leases.

        Equipment  on  lease  consists  primarily  of  small  computer  systems,
reproduction  and  telecommunication  systems subject to operating  leases.  The
Partnership's   equipment  on  operating  leases  is  fully   depreciated.   The
Partnership's  operating  leases are for initial lease terms of approximately 12
to 36 months.

        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.


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:

                                                                1997
                                                                ----
                                                       (Amounts in Thousands)

         Distributions systems                                 $  910
         Headend equipment                                        212
         Building                                                  63
         Land                                                      23
         Automobiles                                               38
                                                                -----
                                                                1,246
         Less:  accumulated depreciation                         (472)
                                                                -----
         Net property, cable systems and equipment             $  774
                                                                =====

        Depreciation expense totaled approximately $114,000 and $119,000 for the
years ended December 31, 1997 and December 31, 1996, respectively.


Note 7.    Cable Subscriber Lists and Franchise Rights.

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

                                                                 1997
                                                                 ----
                                                       (Amounts in Thousands)

         Subscriber lists                                      $ 1,111
         Franchise rights                                          181
                                                               -------
                                                                 1,292
         Less:  accumulated amortization                          (660)
                                                               -------

         Net cable subscriber lists and franchise rights       $   632
                                                               =======

        Amortization expense totaled approximately $148,000 and $161,000 for the
years ended December 31, 1997 and December 31, 1996.


                                       20


<PAGE>



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 XVI(1)                            32.14%
        Acro Joint Venture, Residential(1)                     31.30
        Leveraged Joint Venture 1987-2(2)                      32.23
        Leveraged Joint Venture 1987-3                         39.60
        Phoenix Joint Venture 1994-1                           19.89

(1) Closed during 1996
(2) Closed during 1997

        An analysis of the Partnership's  investment in equipment joint ventures
is as follows:
                                                                          Net
                   Net Investment              Equity in              Investment
                   at Beginning                 Earnings                at End
Date                of Period    Contributions  (Losses) Distributions of Period
----              -------------- ------------- --------- ------------- ---------
                                      (Amounts in Thousands)
Year Ended
  December 31, 1996    $ 651        $   0        $ 272       $ 464       $ 459
                       =====        =====        =====       =====       =====
Year Ended
  December 31, 1997    $ 459        $   0        $  (6)      $ 274       $ 179
                       =====        =====        =====       =====       =====

        The aggregate  combined  financial  information  of the equipment  joint
ventures is presented as follows:

                                                     December 31, 1997
                                                     -----------------
                                                  (Amounts in Thousands)

        Assets                                           $   988
        Liabilities                                           58
        Partners' Capital                                    930

                                               For the Years Ended December 31,
                                                    1997              1996
                                                    ----              ----
                                                    (Amounts in Thousands)

        Revenue                                  $ 1,091           $ 2,435
        Expenses                                   1,169             1,154
        Net Income (Loss)                            (78)            1,281

        As of  December  31,  1997 the  Partnership's  pro rata  interest in the
equipment joint ventures' net book value of off-lease equipment was $0.

        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.


                                       21


<PAGE>



Financing Joint Ventures

        The  Partnership  has invested in  financing  joint  ventures  which are
combined for reporting  purposes into Phoenix  Funding  Partnership  (PFP).  The
Partnership has a 17.38% interest in PFP. The Partnership's  current  investment
in PFP consists of two financing  joint  ventures.  The purpose of the financing
joint ventures is to provide, on a limited basis, financing to manufacturers and
their lessees for equipment  leased directly by  manufacturers to third parties.
All loans to  manufacturers  are secured by equipment.  The Partnership uses the
equity method of accounting to account for its investment in the PFP.

        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.

        An analysis of the Partnership's  investment  account in financing joint
ventures is as follows:

                                                                          Net
                   Net Investment                                     Investment
                   at Beginning                Equity in                at End
Date                of Period    Contributions Earnings  Distributions of Period
----              -------------- ------------- --------- ------------- ---------
                                      (Amounts in Thousands)
Year Ended
  December 31, 1996    $   3        $   0        $   8       $   7       $   4
                       =====        =====        =====       =====       =====
Year Ended
  December 31, 1997    $   4        $   0        $   6      $    6      $    4
                       =====        =====        =====       =====       =====

        The aggregate  combined  financial  information  of the financing  joint
ventures is presented as follows:

                                                       December 31, 1997
                                                       -----------------
                                                     (Amounts in Thousands)

        Assets                                             $   39
        Liabilities                                            11
        Partners' Capital                                      28

                                               For the Years Ended December 31,
                                                    1997              1996
                                                    ----              ----
                                                     (Amounts in Thousands)

        Revenue                                  $    48           $    76
        Expenses                                       6                13
        Net Income                                    42                63

        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


                                       22


<PAGE>



television  systems  is  held  by the  joint  ventures.  These  investments  are
accounted for using the equity method of accounting.

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

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

           Phoenix Pacific Northwest J.V.                        5.24%
           Phoenix Concept Cablevision, Inc.                    22.32

        An analysis of the  Partnership's  net  investment in  foreclosed  cable
systems joint ventures is as follows:
                                                                          Net
                   Net Investment                                     Investment
                   at Beginning                Equity in                at End
Date                of Period    Contributions Earnings  Distributions of Period
----              -------------- ------------- --------- ------------- ---------
                                      (Amounts in Thousands)
Year Ended
  December 31, 1996    $ 321        $   0        $   3       $  55       $ 267
                       =====        =====        =====       =====       =====
Year Ended
  December 31, 1997    $ 267        $   0        $  (6)      $  34      $  227
                       =====        =====        =====       =====       =====

        The aggregate  combined  financial  information of the foreclosed  cable
systems joint ventures is presented as follows:

                                                       December 31, 1997
                                                       -----------------
                                                     (Amounts in Thousands)

        Assets                                             $ 1,809
        Liabilities                                            358
        Partners' Capital                                    1,451

                                               For the Years Ended December 31,
                                                    1997              1996
                                                    ----              ----
                                                     (Amounts in Thousands)

        Revenue                                  $   876           $   873
        Expenses                                     917               851
        Net Income (Loss)                            (41)               22

        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.

        Phoenix  Concept  Cablevision of South Carolina,  Inc.,  which is wholly
owned by Phoenix Concept Cablevision, Inc., has accepted and agreed to the terms
stated  on  a  Letter  of  Intent  dated  December  23,  1997  to  sell  all  or
substantially  all of its  assets,  with a  carrying  value of $1.0  million  at
December 31, 1997, for approximately $1.8 million.  Cash,  accounts  receivable,
marketable  securities and similar investments are excluded from this sale. This
Letter of Intent is subject to a definitive  asset purchase  agreement  which is
currently being negotiated with the potential buyer.


Note 9.    Accounts Payable and Accrued Expenses.

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


                                       23


<PAGE>



                                                               1997
                                                               ----
                                                       (Amounts in Thousands)

        General Partner and affiliates                       $    73
        Security deposits                                         43
        Equipment lease operations                                18
        Other                                                    218
                                                             -------

           Total                                             $   352
                                                             =======


Note 10.   Income Taxes.

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

        The net difference between the tax basis and the reported amounts of the
Partnership's assets and liabilities are as follows at December 31, 1997:

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

        Assets                $  2,787           $  3,289          $  (498)
        Liabilities              1,130                974              156

        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:

                                                        1997          1996
                                                        ----          ----
                                                      (Amounts in Thousands)

           Current tax benefit                         $  -          $   13
           Deferred tax asset related to
            future taxable income,  net                     9            30
                                                       ------        ------
             Income tax benefit, net                   $    9        $   43
                                                       ======        ======

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

                                                        1997          1996
                                                        ----          ----
                                                      (Amounts in Thousands)

           Federal income tax benefit, based
            on statutory federal income tax
            rate of 34%                                $    8        $   39
           State income tax benefit, net of
            federal provision                               1             4
                                                       ------        ------
             Total Income tax benefit                  $    9        $   43
                                                       ======        ======

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


                                       24


<PAGE>



                                                               1997
                                                               ----
                                                      (Amounts in Thousands)

           Depreciation and amortization                     $   110
           Bad debt expense                                        7
           Interest expense                                      (32)
           Net operating loss carryforward                        58
                                                             --------
               Subtotal                                          143
           Valuation allowance                                   (10)
                                                             -------
           Deferred tax asset                                $   133
                                                             =======

        The Partnership has provided a valuation  allowance for the deferred tax
asset  of  $10,000  as of  December  31,  1997  based on the  General  Partner's
evaluation of the likelihood that such benefit will ultimately be realized.

        As of December 31, 1997 the Subsidiary's net operating loss carryforward
of $58,000 for federal and state tax  reporting  purposes  expires  December 31,
2011.


Note 11.   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 $0 and $3,000
for the year ended December 31, 1997 and 1996, respectively.


Note 12.   Net Income (Loss) and Distributions per Limited Partnership Unit.

        Net income and distributions per limited  partnership unit were based on
the limited  partner's share of consolidated net income and  distributions,  and
the weighted average number of units  outstanding of 345,496 and 345,974 for the
years ended December 31, 1997 and 1996, respectively. 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 13.   Business Segments.

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

                                              For the Years Ended December 31,
                                                    1997              1996
                                                    ----              ----
                                                    (Amounts in Thousands)

Total Revenues
    Equipment leasing and financing               $   212           $   861
    Cable TV operations                               619               483
                                                  -------           -------
        Total                                     $   831           $ 1,344
                                                  =======           =======

                                       25


<PAGE>



Net Income (Loss)
    Equipment leasing and financing               $   188           $   469
    Cable TV operations                               (13)              (70)
                                                  -------           -------
        Total                                     $   175           $   399
                                                  =======           =======

Identifiable Assets
    Equipment leasing and financing               $ 1,252           $ 3,121
    Cable TV operations                             1,710             1,870
                                                  -------           -------
        Total                                     $ 2,962           $ 4,991
                                                  =======           =======

Depreciation and Amortization Expense
    Equipment leasing and financing               $     2           $   116
    Cable TV operations                               262               281
                                                  -------           -------
        Total                                     $   264           $   397
                                                  =======           =======

Capital Expenditures
    Equipment leasing and financing               $   107           $   -
    Cable TV operations                                47                48
                                                  -------           -------
        Total                                     $   154           $    48
                                                  =======           =======

Note 14.   Fair Value of Financial Instruments.

        The  carrying  amounts  reported on the balance  sheet for cash and cash
equivalents,  available-for-sale securities and notes receivable approximate the
fair values.


Note 15.   Subsequent Events.

        In January  1998,  settlement  proceeds of $752,000  were received for a
note receivable with a net carrying value of $601,000, that was considered to be
impaired at December 31, 1997.

        Phoenix Cablevision of Oregon, Inc. has accepted and agreed to the terms
stated  on  a  Letter  of  Intent  dated  February  11,  1998  to  sell  all  or
substantially  all of its assets,  with a net carrying  value of $1.5 million at
December  31,  1997  for  $2  million.  Cash,  accounts  receivable,  marketable
securities and similar  investments  will be excluded from the sale. This Letter
of Intent is subject to a definitive asset purchase agreement which is currently
being negotiated with the potential buyer.


                                       26


<PAGE>



Item 8.    Disagreements on Accounting and Financial Disclosure Matters.

    None.


                                    PART III

Item 9. 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 60, 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.

    GARY W.  MARTINEZ,  age 47, is Executive  Vice  President,  Chief  Operating
Officer and a Director of PLI. He has been  associated  with PLI since 1976.  He
manages the Asset Management Department, which is responsible for lease and loan
portfolio   management.   This  includes   credit   analysis,   contract  terms,
documentation  and  funding;  remittance  application,   change  processing  and
maintenance  of customer  accounts;  customer  service,  invoicing,  collection,
settlements and litigation;  negotiating lease renewals,  extensions,  sales and
buyouts; and management information  reporting.  From 1973 to 1976, Mr. Martinez
was a Loan Officer with Crocker National Bank, San Francisco.  Prior to 1973, he
was an Area Manager with Pennsylvania Life Insurance Company.  Mr. Martinez is a
graduate of California State University, Chico.

    HOWARD  SOLOVEI,  age 36, is the Chief  Financial  Officer,  Treasurer and a
Director  of PLI.  He has been  associated  with PLI  since  1984.  Mr.  Solovei
oversees  the  Finance  Department.  He  is  responsible  for  the  structuring,
planning,  and monitoring of the  partnerships  sponsored by the General Partner
and its  affiliates,  as well as  maintaining  the  banking  relationships.  Mr.
Solovei graduated with a B.S. in Business  Administration from the University of
California, Berkeley.

    BRYANT J. TONG, age 43, 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 42, is Senior  Vice  President,  General  Counsel and
Assistant  Secretary  of PLI.  Prior to joining  PLI in 1984,  she was with GATX
Leasing  Corporation,  and had  previously  been  Corporate  Counsel  for  Stone
Financial  Companies,  and an Assistant  Vice  President of the Bank of America,
Bank Amerilease  Group. She has a Bachelor's degree from Santa Clara University,
and earned her J.D. from the University of San Francisco School of Law.

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

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


                                       27


<PAGE>



        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 and
        Phoenix Leasing Cash Distribution Fund III

Disclosure Pursuant to Section 16, Item 405 of Regulation S-K:

    The  General  Partner  (and any  corporate  general  partner of the  General
Partner) of the  Registrant,  and the executive  officers of the General Partner
(or any corporate  general  partner of the General  Partner) of the  Registrant,
file reports  pursuant to Section 16(a) of the Securities  Exchange Act of 1934,
as amended.  Based solely on the Registrant's review of the copies of such forms
received by the Registrant,  the Registrant believes that, during 1997, all such
required  reports  were filed on a timely  basis,  except for  reports on Form 3
(Initial  Statement of Beneficial  Ownership of Securities) filed late by Howard
Solovei and Cynthia E. Parks,  each an executive  officer of the General Partner
(or any corporate general partner of the General Partner) of the Registrant.  No
units of limited partnership interest are held by such executive officers.

Certain Legal Proceedings.

    On October 28,  1997 a Class  Action  Complaint  was filed  against  Phoenix
Leasing  Incorporated,  Phoenix  Leasing  Associates,  II and III L.P.,  Phoenix
Securities  Inc.  and  Phoenix  American   Incorporated   (the  "Companies")  in
California  Superior Court for the County of Sacramento by eleven individuals on
behalf of investors in Phoenix Leasing Cash Distribution  Funds I through V (the
"Partnerships").  The  Companies  were served with the  Complaint on December 9,
1997. The Complaint  seeks  declaratory and other relief  including  accounting,
receivership,  imposition of  constructive  trust and judicial  dissolution  and
winding up of the Partnerships,  and damages based on fraud, breach of fiduciary
duty and  breach  of  contract  by the  Companies  as  general  partners  of the
Partnerships.  The  Companies  received  an  extension  of  time to  answer  the
Complaint  and formal  discovery  has not  commenced.  The  Companies  intend to
vigorously defend the Complaint.


Item 10.   Executive Compensation.

        Set forth is the information relating to all direct remuneration paid or
accrued by the Registrant during the last year to the General Partner.
<TABLE>
<CAPTION>
        (A)                  (B)                            (C)                                 (D)

                                                       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>                  <C>
Phoenix Leasing
  Incorporated          General Partner        $   19(1)                  $  0                 $  0

Phoenix Cable
 Management, Inc.       Manager                    28(1)                     0                    0
                                               ------                     ----                 ----

                                               $   47                     $  0                 $  0
                                               ======                     ====                 ====

(1)  consists of management fees.
</TABLE>


                                       28


<PAGE>



Item 11.   Security Ownership of Certain Beneficial Owners and Management.

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

        (b)The General Partner of the Registrant  owns the equity  securities of
           the Registrant set forth in the following table:
<TABLE>
<CAPTION>
           (1)                                 (2)                                (3)
        Title of Class              Amount Beneficially Owned              Percent of Class
        --------------              -------------------------              ----------------
<S>                                 <C>                                          <C>
        General Partner Interest    Represents a 15% interest in the             100%
                                    Registrant's profits and distributions

        Limited Partner Interest    4 units                                       -
</TABLE>

Item 12.   Certain Relationships and Related Transactions.

        None.


                                     PART IV

Item 13.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

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

           Consolidated Balance Sheets as of December 31, 1997            12
           Consolidated Statements of Operations for the years
             ended December 31, 1997 and 1996                             13
           Consolidated Statements of Partners' Capital for the
             years ended December 31, 1997 and 1996                       14
           Consolidated Statements of Cash Flows for the years
             ended December 31, 1997 and 1996                             15
           Notes to the Consolidated Financial Statements              16-26

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

(b)     Reports on Form 8-K:

        No reports on Form 8-K were filed for the  quarter  ended  December  31,
        1997.

(c)     Exhibits:

        21.Additional Exhibits.

           a)  Balance Sheet of Phoenix Leasing Incorporated       E21  1-14

           b)  Listing of all Subsidiaries of the Registrant:

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

        27.Financial Data Schedule.


                                       29


<PAGE>



                                   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 24, 1998            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      March 24, 1998
--------------------     and a Director of                       --------------
(Gus Constantin)         Phoenix Leasing Incorporated
                         General Partner


/S/ GARY W. MARTINEZ     Executive Vice President,               March 24, 1998
--------------------     Chief Operating Officer                 --------------
(Gary W. Martinez)       and a Director of
                         Phoenix Leasing Incorporated
                         General Partner


/S/ HOWARD SOLOVEI       Chief Financial Officer,                March 24, 1998
--------------------     Treasurer and a Director of             --------------
(Howard Solovei)         Phoenix Leasing Incorporated
                         General Partner


/S/ BRYANT J. TONG       Senior Vice President,                  March 24, 1998
--------------------     Financial Operations                    --------------
(Bryant J. Tong)         (Principal Accounting Officer)
                         and a Director of
                         Phoenix Leasing Incorporated
                         General Partner


                                       30