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 year ended December 31, 2007



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
|- | -----------------------------------------------------------------------------------------

For the transition period from  to

Commission
File number 000-24175

ATEL Capital Equipment Fund VII, L.P.

(Exact name of small business registrant as specified in its charter)



|                                                               |  |                                       
|-------------------------------------------------------------- |  | --------------------------------------
|California                                                     |  | 94-3248318                            
|(State or other jurisdiction of incorporation or organization) |  | (I. R. S. Employer Identification No.)

600 California Street, 6th Floor, San Francisco, California 94108-2733

(Address of principal executive offices)

Registrants telephone number, including area code: (415) 989-8800

Securities registered pursuant to section 12(b) of
the Act: None

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

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act of 1934.   ̈

Check whether the issuer (1) 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  þ    No   ̈

Check if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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.  þ

Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ̈                Accelerated filer   ̈                Non-accelerated filer  þ

Indicate by check mark whether the registrant is a shell partnership (as defined in Rule 12b-2 of the Exchange Act).  Yes   ̈    No  þ

State the aggregate market value of voting stock
held by non-affiliates of the registrant: Not applicable

State the issuers revenues for the most recent fiscal year: $14.3 million

The number of Limited Partnership Units outstanding as of February 29, 2008 was 14,985,550

DOCUMENTS INCORPORATED BY REFERENCE

None

Transitional Small Business disclosure Format (check one):  Yes   ̈    No  þ









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PART I



|Item 1. | BUSINESS
|------- | --------

General Development of Business

ATEL Capital Equipment Fund VII, L.P. (the Partnership) was formed under the laws of the State of California in May 1996. The Partnership was formed for
the purpose of acquiring equipment to engage in equipment leasing and sales activities. The General Partner of the Partnership is ATEL Financial Services, LLC (AFS). Prior to converting to a limited liability company structure, AFS was
formerly known as ATEL Financial Corporation. The Partnership may continue until December 31, 2017.

The Partnership conducted a public offering of
15,000,000 Units of Limited Partnership Interest (Units) at a price of $10 per Unit. On January 7, 1997, the Partnership commenced operations in its primary business (acquiring equipment to engage in equipment leasing and sales
activities). As of November 27, 1998, the Partnership had received subscriptions for 15,000,000 ($150 million) Limited Partnership Units and the offering was terminated. As of December 31, 2007, 14,985,550 Units were issued and
outstanding.

The Partnerships principal objectives have been invest in a diversified portfolio of equipment that (i) preserves, protects and
returns the Partnerships invested capital; (ii) generates regular distributions to the partners of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to
purchase additional equipment during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), which ended December 31, 2004; and (iii) provides additional
distributions following the Reinvestment Period and until all equipment has been sold. The Partnership is governed by its Limited Partnership Agreement (Partnership Agreement).

The Partnership has incurred debt to finance the purchase of a portion of its equipment portfolio. The amount of borrowings in connection with any equipment acquisition
transaction will be determined by, among other things, the credit of the leases, the terms of the lease, the nature of the equipment and the condition of the money market. There is no limit on the amount of debt that may be incurred in connection
with any single acquisition of equipment. However the Partnership may not incur aggregate outstanding indebtedness in excess of 50% of the total cost of all equipment as of the date of the final commitment of the offering proceeds and, thereafter,
as of the date of any subsequent indebtedness is incurred. The Partnership has borrowed amounts within such maximum debt level in order to fund a portion of its equipment acquisitions. As of December 31, 2007, all such equipment acquisition
debt had been repaid.

Narrative Description of Business

The Partnership has acquired various types of equipment to lease pursuant to Operating leases and High Payout leases, whereby Operating leases are defined as being leases in which the minimum lease
payments during the initial lease term do not recover the full cost of the equipment and High Payout leases recover at least 90% of such cost. It has been the intention of AFS that a majority of the aggregate purchase price of equipment
represents equipment leased under High Payout leases upon final investment of the Net Proceeds of the Offering and that no more than 20% of the aggregate purchase price of equipment is invested in equipment acquired from a single
manufacturer.

The Partnership has purchased equipment for which a lease exists or for which a lease will be entered into concurrently at the time of the
purchase.

From inception through December 31, 2007, the Partnership had purchased equipment with a total acquisition price of $304.9 million.

The Partnerships objective is to lease a minimum of 75% of the equipment acquired with the net proceeds of the offering to lessees that
(i) have an average credit rating by Moodys Investor Service, Inc. of Baa or better, or the credit equivalent as determined by AFS, with the average rating weighted to account for the original equipment cost for each item leased or
(ii) are established hospitals with histories of profitability or municipalities. The balance of the original equipment portfolio may include equipment leased to lessees which, although deemed creditworthy by AFS, would not satisfy the general
credit rating criteria for the portfolio. In excess of 75% of the equipment acquired with the net proceeds of the offering (based on original purchase cost) has been leased to lessees with an average credit rating of Baa or better or to such
hospitals or municipalities, as described in (ii) above.



2



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During 2007 and 2006 certain lessees generated significant portions of the Partnerships total lease revenues as
follows:



|                                                      |  |                   |  |                                   |   |  |      |  
|----------------------------------------------------- |  | ----------------- |  | --------------------------------- | - |  | ---- | -
|                                                      |  |                   |  | Percentage of TotalLease Revenues |  
|Lessee                                                |  | Type of Equipment |  | 2007                              |   |  | 2006 |  
|Hornbeck Offshore Operations LLC., (Formerly Sea Mar) |  | Marine Vessel     |  | 51                                | % |  | 39   | %
|Tal International Container                           |  | Containers        |  | *                                 |   |  | 10   | %



|* | Less than 10%
|- | -------------

These percentages are not expected to be comparable in
future periods.

The equipment leasing industry is highly competitive. Equipment manufacturers, corporations, partnerships and others offer users an
alternative to the purchase of most types of equipment with payment terms that vary widely depending on the lease term and type of equipment. The ability of the Partnership to keep the equipment leased and/or operating and the terms of the
acquisitions, leases and dispositions of equipment depends on various factors (many of which are not in the control of AFS or the Partnership), such as raw material costs to manufacture equipment as well as general economic conditions, including the
effects of inflation or recession, and fluctuations in supply and demand for various types of equipment resulting from, among other things, technological and economic obsolescence.

AFS sought to limit the amount invested in equipment to any single lessee to not more than 20% of the aggregate purchase price of equipment owned at any time during the Reinvestment Period.

The business of the Partnership is not seasonal.

The Partnership has no
full time employees. AFS employees and affiliates provide the services the Partnership requires to effectively operate. The cost of these services is reimbursed by the Partnership to AFS and affiliates per the Partnership Agreement.

Equipment Leasing Activities

The Partnership has acquired a
diversified portfolio of equipment. The equipment has been leased to lessees in various industries. The Partnership has purchased certain assets subject to existing non-recourse debt. For financial statement purposes, non-recourse debt has been
offset against the investment in certain direct finance leases where the right of offset exists. The following tables set forth the types of equipment acquired by the Partnership through December 31, 2007 and the industries to which the assets
have been leased (in thousands):



|                  |  |                                         |         |                                |        |  
|----------------- |  | --------------------------------------- | ------- | ------------------------------ | ------ | -
|Asset Types       |  | Purchase PriceExcludingAcquisition Fees |         | Percentage ofTotalAcquisitions |       
|Transportation    |  | $                                       | 135,843 |                                | 44.55  | %
|Manufacturing     |  |                                         | 45,710  |                                | 14.99  | %
|Mining            |  |                                         | 30,756  |                                | 10.09  | %
|Marine vessels    |  |                                         | 24,497  |                                | 8.03   | %
|Material handling |  |                                         | 16,319  |                                | 5.35   | %
|Office automation |  |                                         | 11,450  |                                | 3.76   | %
|Medical           |  |                                         | 9,134   |                                | 3.00   | %
|Aircraft          |  |                                         | 6,311   |                                | 2.07   | %
|Other             |  |                                         | 24,893  |                                | 8.16   | %
|                  |  |                                         |         |                                |        |  
|                  |  | $                                       | 304,913 |                                | 100.00 | %
|                  |  |                                         |         |                                |        |  



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|                      |  |                                         |         |                                |        |  
|--------------------- |  | --------------------------------------- | ------- | ------------------------------ | ------ | -
|Industry of Lessee    |  | Purchase PriceExcludingAcquisition Fees |         | Percentage ofTotalAcquisitions |       
|Transportation, rail  |  | $                                       | 73,779  |                                | 24.20  | %
|Transportation, other |  |                                         | 45,241  |                                | 14.84  | %
|Municipalities        |  |                                         | 45,050  |                                | 14.77  | %
|Manufacturing, other  |  |                                         | 41,296  |                                | 13.54  | %
|Electronics           |  |                                         | 26,062  |                                | 8.55   | %
|Mining                |  |                                         | 17,671  |                                | 5.80   | %
|Business services     |  |                                         | 15,093  |                                | 4.95   | %
|Primary metals        |  |                                         | 13,251  |                                | 4.35   | %
|Other                 |  |                                         | 27,470  |                                | 9.00   | %
|                      |  |                                         |         |                                |        |  
|                      |  | $                                       | 304,913 |                                | 100.00 | %
|                      |  |                                         |         |                                |        |  

Through December 31, 2007, the Partnership has disposed of certain leased assets as set forth below (in
thousands):



|                  |  |                                                 |         |                        |   |                              |  |   |        
|----------------- |  | ----------------------------------------------- | ------- | ---------------------- | - | ---------------------------- |  | - | -------
|Asset Types       |  | OriginalEquipment CostExcludingAcquisition Fees |         | Adjusted salesproceeds |   | Excess ofRents OverExpense *
|Transportation    |  | $                                               | 57,269  |                        | $ | 16,803                       |  | $ | 33,194 
|Mining            |  |                                                 | 47,499  |                        |   | 12,064                       |  |   | 43,611 
|Material handling |  |                                                 | 28,393  |                        |   | 7,616                        |  |   | 30,052 
|Marine vessels    |  |                                                 | 22,855  |                        |   | 3,969                        |  |   | 23,484 
|Office automation |  |                                                 | 16,927  |                        |   | 1,847                        |  |   | 16,238 
|Medical           |  |                                                 | 12,869  |                        |   | 8,417                        |  |   | 13,086 
|Aircraft          |  |                                                 | 10,982  |                        |   | 3,757                        |  |   | 9,618  
|Manufacturing     |  |                                                 | 9,568   |                        |   | 3,505                        |  |   | 7,633  
|Other             |  |                                                 | 9,789   |                        |   | 957                          |  |   | 26,846 
|                  |  |                                                 |         |                        |   |                              |  |   |        
|                  |  | $                                               | 216,151 |                        | $ | 58,935                       |  | $ | 203,762
|                  |  |                                                 |         |                        |   |                              |  |   |        



|* | Includes only those expenses directly related to the production of the related rents.
|- | -------------------------------------------------------------------------------------

Proceeds from sales of lease assets are not expected to be consistent from one period to another. The Partnership is a finite life equipment leasing fund, which had acquired leasing transactions during the period
ended six years after completion of its public offering. On the termination of leases, assets may be re-leased or sold. Sales of assets are not scheduled and are created by opportunities within the marketplace. The Partnership sought to acquire and
lease a wide variety of assets and to enter into leases on a variety of terms. Some assets will be expected to have little or no value for re-lease or sale upon termination of the initial leases, and the anticipated residual values are a key factor
in pricing and terms structured for each lease. The Partnerships goal is to seek maximum return on its leased assets and will determine when and under what terms to dispose of such assets during the course of its term.

For further information regarding the Partnerships equipment lease portfolio as of December 31, 2007, see Note 5 to the financial statements, Investments in
equipment and leases, as set forth in Part II, Item 7, Financial Statements and Supplementary Data.

The Partnership adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 131 Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes annual and interim standards for operating segments of a
Partnership. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenue, and its major customers. Certain of the Partnerships lessee
customers have international operations. In these instances, the Partnership is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical
for the Partnership to track, on an asset-by-asset day-by-day basis, where these assets are deployed. For further information regarding the Partnership geographic revenues and assets and major customers, see Notes 2 and 3 to the financial statements
as set forth in Part II, Item 7, Financial Statements and Supplementary Data.



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|Item 2. | PROPERTIES
|------- | ----------

The Partnership does not own or lease any real
property, plant or material physical properties other than the equipment held for lease as set forth in Item 1.



|Item 3. | LEGAL PROCEEDINGS
|------- | -----------------

In the ordinary course of conducting business,
there may be certain claims, suits, and complaints filed against the Partnership. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Partnerships financial position or results of
operations. No material legal proceedings are currently pending against the Partnership or against any of its assets.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



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PART II



|Item 5. | MARKET FOR REGISTRANTS LIMITED PARTNERSHIP UNITS AND RELATED MATTERS
|------- | ---------------------------------------------------------------------

Market Information

There are certain material conditions and restrictions on the transfer of Units imposed by the terms of the
Partnership Agreement. Consequently, there is no public market for Units and it is not anticipated that a public market for Units will develop. In the absence of a public market for the Units, there is no currently ascertainable fair market value
for the Units.

Holders

As of December 31,
2007, a total of 5,208 investors were Unitholders of record in the Partnership.

ERISA Valuation

In order to permit ERISA fiduciaries who hold Units to satisfy their annual reporting requirements, AFS estimated the value per Unit of the Partnerships assets as
of December 31, 2007. AFS calculated the estimated liquidation proceeds that would be realized by the Partnership, assuming an orderly disposition of all of the Partnerships assets as of January 1, 2008. The estimates were based on
the amount of remaining lease payments on existing Partnership leases, and the estimated residual values of the equipment held by the Partnership upon the termination of those leases. This valuation was based solely on AFSs perception of
market conditions and the types and amounts of the Partnerships assets. No independent valuation was sought.

After calculating the aggregate
estimated disposition proceeds, AFS then calculated the portion of the aggregate estimated value of the Partnership assets that would be distributed to Unitholders on liquidation of the Partnership, and divided the total so distributable by the
number of outstanding Units. As of December 31, 2007, the value of the Partnerships assets, calculated on this basis, was approximately $2.01 per Unit. The foregoing valuation was performed solely for the ERISA purposes described above.
There is no market for the Units, and, accordingly, this value does not represent an estimate of the amount a Unitholder would receive if he were to seek to sell his Units. Furthermore, there can be no assurance as to the amount the Partnership may
actually receive if and when it seeks to liquidate its assets, or the amount of lease payments and equipment disposition proceeds it will actually receive over the remaining term of the Partnership.

Distributions

The Unitholders of record are entitled to
certain distributions as provided under the Partnership Agreement.

Distributions from 2007 operations totaling $7.5 million, $4.5 million and $1.9 million
were respectively paid in April and August 2007, and January 2008. No distributions were made from 2006 operations.



|Item 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Statements contained in this Item 6, Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and elsewhere in this Form 10-KSB, which are not
historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic
conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital.
The Partnerships performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Funds performance is also subject to risks relating to the value of its equipment at the end of its leases, which
may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which
speak only as of the date of this Form 10-KSB. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-KSB or to reflect the occurrence of
unanticipated events, other than as required by law.



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Overview

ATEL
Capital Equipment Fund VII, L.P. (the Partnership) is a California partnership that was formed in May 1996 for the purpose of engaging in the sale of limited liability investment units and acquiring equipment to generate revenues from
equipment leasing and sales activities, primarily in the United States.

The Partnership conducted a public offering of 15,000,000 Units of Limited
Partnership Interest (Units), at a price of $10 per Unit. The offering was terminated in November 1998. During early 1999, the Partnership completed its initial acquisition stage with the investment of the net proceeds from the public
offering of Units. Subsequently, throughout the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), the Partnership reinvested cash flow in excess of certain amounts
required to be distributed to the Limited Partners and/or utilized its credit facilities to acquire additional equipment.

The Partnership may continue
until December 31, 2017. However, pursuant to the guidelines of the Limited Partnership Agreement, the Partnership began to liquidate its assets and distribute the proceeds thereof after the end of the Reinvestment Period which ended in
December 2004.

As of December 31, 2007, the Partnership remains in its liquidation phase. Accordingly, assets that mature will be returned to
inventory and most likely will be subsequently sold, which will result in decreasing revenue as earning assets decrease. Periodic distributions are paid at the discretion of the General Partner.

Capital Resources and Liquidity

The liquidity of the
Partnership varies, increasing to the extent cash flows from leases and proceeds from lease asset sales exceed expenses and decreasing as distributions are made to the limited partners and to the extent expenses exceed cash flows from leases and
proceeds from asset sales.

The primary source of liquidity for the Partnership is its cash flow from a diversified group of lessees for fixed lease terms
at fixed rental amounts. As the initial lease terms expire, the Partnership will re-lease or sell the equipment. The future liquidity beyond the contractual minimum rentals will depend on the Partnerships success in re-leasing or selling the
equipment as it comes off lease.

Throughout the Reinvestment Period, which ended December 31, 2004, the Partnership reinvested a portion of lease
payments from assets owned in new leasing transactions. Such reinvestment occurred only after the payment of all current obligations, including debt service (both principal and interest), the payment of management fees to AFS and providing for
certain cash distributions to the Limited Partners.

The Partnership currently has available adequate reserves to meet its immediate cash requirements and
those of the next twelve months, but in the event those reserves were found to be inadequate, the Partnership would likely be in a position to borrow against its current portfolio to meet such requirements. AFS envisions no such requirements for
operating purposes.

If inflation in the general economy becomes significant, it may affect the Partnership in as much as the residual (resale) values and
rates on re-leases of the Partnerships leased assets may increase as the costs of similar assets increase. However, the Partnerships revenues from existing leases would not increase; as such rates are generally fixed for the terms of the
leases without adjustment for inflation.

If interest rates increase significantly, the lease rates that the Partnership can obtain on future leases will
be expected to increase as the cost of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates. For detailed information on the
Partnerships debt obligations, see Notes 7 through 9 to the financial statements, as set forth in Part II, Item 7, Financial Statements and Supplementary Data.

The Partnership participated with AFS and certain of its affiliates, as defined in the Partnership Agreement, in a financing arrangement (the Master Terms Agreement) comprised of: (1) a working
capital term loan facility to AFS, (2) an acquisition facility and (3) a warehouse facility to AFS, the Partnership and affiliates, and (4) a venture facility available to an affiliate. The Master Terms Agreement is with a group of
financial institutions and includes certain financial and non-financial covenants. The Master Terms Agreement, which originally totaled $75 million and expired on June 28, 2007, was renewed for an additional two years with an availability of
$65 million pending redefinition of the lender base. On July 28, 2007, with a redefinition of the lender base, the facility was amended to reset availability to $75 million. The availability of borrowings to the Partnership under the Master
Terms Agreement was reduced by the amount outstanding on any of the above mentioned facilities. The Partnership was removed as a party to the Master Terms Agreement on January 31, 2007.



7



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Additionally, in 1998, the Partnership established a $65 million receivables funding program with a receivables financing
company that issues commercial paper rated A1 from Standard and Poors and P1 from Moodys Investor Services. In this receivables funding program, the lenders received a general lien against all of the otherwise unencumbered assets of the
Partnership. The program provided for borrowing at a variable interest rate and required AFS, on behalf of the Partnership, to enter into interest rate swap agreements with certain counterparties (also rated A1/P1) to mitigate the interest rate risk
associated with a variable rate note. AFS believes that this program allowed the Partnership to avail itself of lower cost debt than that available for individual non-recourse debt transactions. The program expired as to new borrowings in April
2002. The receivables funding program terminated in January 2007.

As of December 31, 2007, the Partnership receives or pays interest on interest rate
swap agreements with a notional principal totaling approximately $613 thousand on the difference between nominal rates ranging from 5.79% to 7.58% and variable rates ranging from 4.64% to 4.74% at December 31, 2007. At December 31, 2007,
the fair value of the interest rate swaps totaled $7 thousand and was recorded as a liability on the balance sheet with a corresponding unrealized gain/loss included in the statement of operations in other income or loss.

Finally, the Partnership has access to certain sources of non-recourse debt financing, which the Partnership uses on a transaction basis as a means of mitigating credit
risk. The non-recourse debt financing is non-committed and consists of a note payable to a financial institution. The note is due in monthly payments. Interest on the note is at a fixed rate of 7.0%. The note is secured by assignments of lease
payments and pledges of assets. The amount of pledged assets is $155 thousand.

The Partnership Agreement limits such borrowings to 50% of the total cost
of equipment, in the aggregate.

The Partnership commenced periodic distributions, based on cash flows from operations, beginning with the month of January
1997. Distributions from 2007 operations totaling $7.5 million, $4.5 million and $1.9 million were respectively paid in April and August 2007, and January 2008. No distributions were made from 2006 operations.

At December 31, 2007, the Partnership had no commitments to purchase leased assets and pursuant to the Partnership Agreement, the Partnership will no longer
purchase any new leased assets.

Cash Flows

2007 versus 2006

Operating Activities

The Partnerships primary source of cash from operations has been rents from operating leases. Additionally, its cash flows are impacted by changes in certain operating assets and liabilities.

Cash provided by operating activities decreased by $3.4 million, or 35%, for the year ended December 31, 2007 as compared to 2006. The net decrease in cash flow was
primarily attributable to a (1) year over year decline operating results as adjusted for non-cash revenue and expense such as gains on sales of assets and depreciation expense, (2) increased level of accounts receivable and
(3) increased payments made against accounts payable and accrued liabilities; offset, in part, by an increase in unearned rents and a decline in other assets.

The year over year net decline in operating results as adjusted for non-cash items, reduced cash flow by $1.5 million, and was mainly attributable to the decline in operating lease revenue. The increased level of accounts receivable during
2007 versus 2006 further reduced cash flow by $958 thousand and was primarily due to a $1.1 million revenue accrual related to short-term rentals of certain vessels, for which payment was received in early 2008. Similarly, the year over year
increase in payments made against accounts payable and accrued liabilities decreased cash flow by $1.1 million, and was mainly a result of 2006 accruals related to maintenance and management fees that were paid in 2007.

The aforementioned decreases in cash flow were partially offset by increases of $192 thousand resulting from a reduction in insurance invoices prepaid by the Partnership
in 2007, and $122 thousand resulting from a year over year rise in unearned rents received.



8



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Investing Activities

Net cash provided by investing activities decreased by $2.2 million, or 41%, for the year ended December 31, 2007 as compared to 2006. The net decrease in cash flow reflects a $3.3 million reduction in proceeds from sales of lease
assets and a $326 thousand decrease in payments received on the Partnerships investment in direct financing leases offset, in part, by a $1.4 million decline in capitalized costs of improving existing railcars.

The reduction in proceeds from sales of lease assets was mainly due to the year over year decrease in sales of terminating lease assets, as more assets under leases
scheduled for termination were released rather than sold; while the decrease in payments received on direct finance leases was attributable to the declining balance of the Partnerships direct finance lease portfolio as a result of run-off and
dispositions.

Capitalized costs of improving railcars declined mainly due to the timing of refurbishments needed on certain of the Partnerships
existing fleet of railcars.

Financing Activities

Net
cash used in financing activities increased by $2.8 million, or 28%, for the year ended December 31, 2007 as compared to 2006. The net increase in cash used was comprised of $13.0 million of distributions paid to the General Partner and Limited
Partners during 2007, versus none in 2006, partially offset by a $10.1 million year over year decline in cash used to repay debt as the majority of the Partnerships borrowings had been repaid during 2006.

Results of Operations

As of January 7, 1997,
subscriptions for the minimum amount of the offering ($1.2 million) had been received by the Partnership. On that date, the Partnership commenced operations in its primary business (acquiring equipment to engage in equipment leasing and sales
activities).

As of December 31, 2007, there were concentrations (defined as greater than 10%) of equipment leased to lessees in certain industries
(as a percentage of total equipment cost) as follows:



|               |  |    |  
|-------------- |  | -- | -
|Transportation |  | 66 | %
|Marine Vessels |  | 25 | %

During 2007, one customer accounted for 51% of the Partnerships revenue from leases. In 2006, two customers
comprised 49% of the Partnerships revenue from leases.

Cost reimbursements to the General Partner are based on its costs incurred in performing
administrative services for the Partnership. These costs are allocated to each managed entity based on certain criteria such as existing or new leases, number of investors or equity depending upon the type of cost incurred.

The Partnership Agreement places an annual limit and a cumulative limit for cost reimbursement to AFS and/or affiliates. The cumulative limit increases annually. Any
reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent of the cumulative limit.
As of December 31, 2007, costs reimbursable to AFS in the future years totaled approximately $577 thousand.

2007 versus 2006

The Partnership had net income of $2.9 million for the year ended December 31, 2007 compared to a net loss of $496 thousand for the year ended December 31,
2006. The results for 2007 reflect a decrease in total operating expense offset, in part, by a smaller decrease in total revenues when compared to prior year.

Revenues

Total revenues for 2007 decreased by $99 thousand, or 1%, as compared to 2006. The net decrease in total revenues was primarily a
result of a reduction in operating lease revenue that was mostly offset by increases in gain on sales of assets, other revenue and interest income.

During
2007, operating lease revenue decreased by $1.6 million, or 11%, as compared to 2006. The decrease was mainly due to continued run-off of the Partnerships lease portfolio and increased sales of terminating lease assets.



9



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Partly offsetting the decline in lease revenue were increases in net gain on sales of assets, other revenue and interest
income totaling $1.2 million, $249 thousand and $114 thousand, respectively. Net gain on sales of assets increased primarily due to a stronger market demand during 2007, as compared to 2006, which resulted in higher sales proceeds and net gains
recognized on assets sold during 2007 as compared to assets sold during 2006. Other revenue increased as a result of a year over year rise in maintenance costs associated with returned equipment that were billed back to certain lessees; while
interest income grew due to an increase in average cash balances held in interest earning accounts.

Expenses

Total expenses for 2007 declined by $3.5 million or 24%, as compared to 2006. The net decrease in expenses was primarily a result of decreases in depreciation, impairment
loss provision and interest expense offset, in part, by increases in vessel maintenance expense and incentive management fees paid to the General Partner.

During 2007, depreciation expense decreased by $2.7 million when compared to prior year. The decrease in depreciation expense was primarily due to run-off of the lease asset portfolio and sales of terminating lease assets, and is consistent
with the decline in operating lease revenue. Likewise, the Partnerships reserve for impairment losses declined by $870 thousand during 2007, as compared to 2006, primarily due to charge-offs associated with certain impaired barges and
containers that were sold in 2007. Lastly, interest expense declined by $338 thousand during 2007 versus 2006 due to the decline in the Partnerships debt, a majority of which was paid-off by the end of 2006.

The aforementioned decreases in expenses were partially offset by increases in railcar maintenance expense and incentive management fees paid to the General Partner
totaling $197 thousand and $194 thousand, respectively. Maintenance expense increased mostly due to the timing of required repairs in 2007 versus 2006, the aging of the Funds lease asset portfolio, and the impact of inflation on maintenance
costs, while the increase in incentive management fees paid to the General Partner was a result of the resumption of periodic distributions in 2007.

Other

The Partnership recorded other income of $25 thousand and $76 thousand for the years ended December 31, 2007 and 2006,
respectively. Other income for 2007 was comprised of $14 thousand of foreign currency gain and $11 thousand of unrealized gains on interest rate swap contracts, while other income for 2006 was comprised of $48 thousand of unrealized gains on
interest rate swap contracts and $28 thousand of foreign currency gain.

Derivative Financial Instruments

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which established new accounting and reporting
standards for derivative instruments. SFAS No. 133 has been amended by SFAS No. 137, issued in June 1999, by SFAS No. 138, issued in June 2000 and by SFAS No. 149, issued in June 2003.

SFAS No. 133, as amended, requires the Partnership to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments
at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow, or foreign currency hedges, and establishes accounting standards for reporting changes in the fair value of the derivative instruments.
If derivative financial instruments are utilized, the Partnership will be required to record derivative instruments at fair value in the balance sheet and recognize the offsetting gains or losses as adjustments to net income or other comprehensive
income, as appropriate.

The Partnership records interest rate swap hedging instruments at fair value in the balance sheet and recognized the offsetting
gains or losses in net income or other comprehensive income, as appropriate. See Note 9 to the financial statements, Receivables funding program, as set forth in Part II, Item 7, Financial Statements and Supplementary Data.

Recent Accounting Pronouncements

In December 2007, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141R, Business Combinations (SFAS 141R). SFAS 141R replaces SFAS 141 and establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure
requirements which will enable users to evaluate the nature and financial effects of the business combination.



10



---

This standard is effective for fiscal years beginning after December 15, 2008. The Partnership does not presently
anticipate the adoption of SFAS 141R to significantly impact its financial position, results of operations or cash flows.

In February 2007, the FASB
issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement No. 115 (SFAS 159). This Statement permits entities to choose to measure
many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Boards long-term measurement objectives for accounting
for financial instruments. SFAS 159 is effective for the Partnership as of January 1, 2008. The Partnership does not presently anticipate the adoption of SFAS 159 to significantly impact its financial position, results of operations or cash
flows.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS 157). This standard clarifies the
definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. The provisions of SFAS 157 were to be effective for fiscal years
beginning after November 15, 2007. However, in February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, which defers the effective date of SFAS No. 157 as it pertains to fair value measurements of nonfinancial
assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. The Partnership will adopt SFAS 157 except as it applies to its investment in equipment and leases, and other nonfinancial assets and nonfinancial
liabilities as noted in FSP FAS 157-2. The Fund is in the process of determining the financial impact the partial adoption of SFAS 157 will have on its results of operations and financial position.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for Income
Taxes (FIN 48), to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides guidance on deregulation, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Partnership adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a significant effect on the Partnerships financial position, results of operations or cash
flows.

Critical Accounting Policies and Estimates

The policies discussed below are considered by management of the Partnership to be critical to an understanding of the Partnerships financial statements because their application requires significant complex or subjective judgments,
decisions, or assessments, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. The
Partnership also states these accounting policies in the Notes to the financial statements and in relevant sections in this discussion and analysis. For all of these policies, management cautions that future events rarely develop exactly as
forecast, and the best estimates routinely require adjustment.

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Such
estimates relate primarily to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts.



11



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Equipment on operating leases and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the
equipments estimated salvage or residual values at the end of the leases. Maintenance costs associated with the Funds portfolio of leased assets are expensed as incurred.

Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases; the needs of the lessees and
the terms to be negotiated, but initial leases are generally be from 24 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.

Direct financing leases and related revenue recognition:

Income from
direct financing lease transactions is reported using the financing method of accounting, in which the Partnerships investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The
interest income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding.

Allowances for
losses on direct financing leases are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are
written-off to the allowance as they are deemed uncollectible.

Direct financing leases are generally placed in a non-accrual status (i.e., no revenue is
recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the credit worthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon managements judgment, direct
finance lessees with balances less than 90 days delinquent may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery
of the remaining unpaid lease payments is probable.

Asset valuation:

Recorded values of the Partnerships asset portfolio are periodically reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An
impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at
the end of the assets expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations
in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the
difference between the fair value (as determined by a valuation method using discounted estimated future cash flows) of the asset and its carrying value on the measurement date.



|Item 7. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

See the Report of
Independent Registered Public Accounting Firm, Financial Statements and Notes to Financial Statements attached hereto at pages 13 through 29.



12



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners

ATEL Capital Equipment Fund VII, L.P.

We have audited the accompanying balance sheet of ATEL Capital Equipment Fund VII, L.P. (Partnership) as of December 31, 2007, and the related
statements of operations, changes in partners capital, and cash flows for each of the years in the two-year period ended December 31, 2007. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Partnerships internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Partnerships internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of ATEL Capital Equipment Fund VII, L.P. as of December 31, 2007, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles.

/s/ Moss Adams LLP

San Francisco, California

March 25, 2008



13



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ATEL CAPITAL EQUIPMENT FUND VII, L.P.

BALANCE SHEET

DECEMBER 31, 2007

(In Thousands)



|                                                                                                           |  |   |       
|---------------------------------------------------------------------------------------------------------- |  | - | ------
|ASSETS                                                                                                     |  |   |       
|Cash and cash equivalents                                                                                  |  | $ | 3,909 
|Accounts receivable, net of allowance for doubtful accounts of $516                                        |  |   | 1,775 
|Investments in equipment and leases, net of accumulated depreciation and reserve for impairment of $54,224 |  |   | 17,570
|Other assets                                                                                               |  |   | 34    
|                                                                                                           |  |   |       
|Total assets                                                                                               |  | $ | 23,288
|                                                                                                           |  |   |       
|LIABILITIES AND PARTNERS CAPITAL                                                                          |  |   |       
|Accounts payable and accrued liabilities:                                                                  |  |   |       
|General Partner                                                                                            |  | $ | 546   
|Other                                                                                                      |  |   | 754   
|Accrued interest payable                                                                                   |  |   | 1     
|Non-recourse debt                                                                                          |  |   | 24    
|Interest rate swap contracts                                                                               |  |   | 7     
|Unearned operating lease income                                                                            |  |   | 210   
|                                                                                                           |  |   |       
|Total liabilities                                                                                          |  |   | 1,542 
|                                                                                                           |  |   |       
|Commitments and contingencies                                                                              |  |   |      
|Partners capital:                                                                                         |  |   |       
|General Partner                                                                                            |  |   |      
|Limited Partners                                                                                           |  |   | 21,746
|                                                                                                           |  |   |       
|Total Partners capital                                                                                    |  |   | 21,746
|                                                                                                           |  |   |       
|Total liabilities and Partners capital                                                                    |  | $ | 23,288
|                                                                                                           |  |   |       

See accompanying Notes.



14



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ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2007 AND 2006

(In Thousands Except for Units and Per Unit Data)



|                                                            |  |      |            |   |      |   |            |  
|----------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                            |  | 2007 |            |   | 2006 |  
|Revenues:                                                   |  |      |            |   |      |   |            |  
|Leasing activities:                                         |  |      |            |   |      |   |            |  
|Operating leases                                            |  | $    | 13,050     |   |      | $ | 14,657     |  
|Direct financing leases                                     |  |      | 100        |   |      |   | 179        |  
|Gain (loss) on sales of assets                              |  |      | 535        |   |      |   | (689       | )
|Interest income                                             |  |      | 238        |   |      |   | 124        |  
|Other                                                       |  |      | 368        |   |      |   | 119        |  
|                                                            |  |      |            |   |      |   |            |  
|Total revenue                                               |  |      | 14,291     |   |      |   | 14,390     |  
|Expenses:                                                   |  |      |            |   |      |   |            |  
|Depreciation of operating lease assets                      |  |      | 5,203      |   |      |   | 7,940      |  
|Marine vessel maintenance and other operating costs         |  |      | 2,475      |   |      |   | 2,377      |  
|Interest expense                                            |  |      | 22         |   |      |   | 360        |  
|Cost reimbursements to General Partner                      |  |      | 750        |   |      |   | 750        |  
|Provision for impairment loss                               |  |      | 84         |   |      |   | 954        |  
|Equipment and incentive management fees to General Partner  |  |      | 522        |   |      |   | 328        |  
|Railcar and equipment maintenance                           |  |      | 590        |   |      |   | 393        |  
|Professional fees                                           |  |      | 358        |   |      |   | 387        |  
|Insurance                                                   |  |      | 206        |   |      |   | 210        |  
|Outside services                                            |  |      | 321        |   |      |   | 383        |  
|Other management fees                                       |  |      | 560        |   |      |   | 521        |  
|Equipment storage                                           |  |      | 2          |   |      |   | 8          |  
|State income and franchise taxes                            |  |      | 96         |   |      |   | 104        |  
|Amortization of initial direct costs                        |  |      | 1          |   |      |   | 12         |  
|Provision for (reversal of provision for) doubtful accounts |  |      | (21        | ) |      |   | 23         |  
|Other                                                       |  |      | 246        |   |      |   | 212        |  
|                                                            |  |      |            |   |      |   |            |  
|Total expenses                                              |  |      | 11,415     |   |      |   | 14,962     |  
|                                                            |  |      |            |   |      |   |            |  
|Income (loss) from operations                               |  |      | 2,876      |   |      |   | (572       | )
|Other income, net                                           |  |      | 25         |   |      |   | 76         |  
|                                                            |  |      |            |   |      |   |            |  
|Net income (loss)                                           |  | $    | 2,901      |   |      | $ | (496       | )
|                                                            |  |      |            |   |      |   |            |  
|Net income (loss):                                          |  |      |            |   |      |   |            |  
|General Partner                                             |  | $    | 972        |   |      | $ |           |  
|Limited Partners                                            |  |      | 1,929      |   |      |   | (496       | )
|                                                            |  |      |            |   |      |   |            |  
|                                                            |  | $    | 2,901      |   |      | $ | (496       | )
|                                                            |  |      |            |   |      |   |            |  
|Net income (loss) per Limited Partnership Unit              |  | $    | 0.13       |   |      | $ | (0.03      | )
|Weighted average number of Units outstanding                |  |      | 14,985,550 |   |      |   | 14,992,098 |  

See accompanying Notes.



15



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ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENT OF CHANGES IN PARTNERS CAPITAL

TWO YEARS ENDED DECEMBER 31,
2007

(In Thousands Except for Units and Per Unit Data)



|                                                                     |  |                  |   |  |        |         |   |                |   |      |                                   |  |   |       |   |  |   |         |  
|-------------------------------------------------------------------- |  | ---------------- | - |  | ------ | ------- | - | -------------- | - | ---- | --------------------------------- |  | - | ----- | - |  | - | ------- | -
|                                                                     |  |                  |   |  |        |         |   | GeneralPartner |   |      | AccumulatedOtherComprehensiveLoss |  |   | Total |  
|                                                                     |  | Limited Partners |   |  |        |        
|                                                                     |  | Units            |   |  | Amount |         |   |                |  
|Balance December 31, 2005                                            |  | 14,995,550       |   |  | $      | 32,330  |   |                | $ |     |                                   |  | $ | (90   | ) |  | $ | 32,240  |  
|Adjustment for portion of swap liability charged to interest expense |  |                 |   |  |        |        |   |                |   |     |                                   |  |   | 90    |   |  |   | 90      |  
|Rescissions of capital contributions                                 |  | (10,000          | ) |  |        | (26     | ) |                |   |     |                                   |  |   |      |   |  |   | (26     | )
|Net loss                                                             |  |                 |   |  |        | (496    | ) |                |   |     |                                   |  |   |      |   |  |   | (496    | )
|                                                                     |  |                  |   |  |        |         |   |                |   |      |                                   |  |   |       |   |  |   |         |  
|Balance December 31, 2006                                            |  | 14,985,550       |   |  |        | 31,808  |   |                |   |     |                                   |  |   |      |   |  |   | 31,808  |  
|Distributions to Limited Partners ($0.80 per Unit)                   |  |                 |   |  |        | (11,991 | ) |                |   |     |                                   |  |   |      |   |  |   | (11,991 | )
|Distributions to General Partner                                     |  |                 |   |  |        |        |   |                |   | (972 | )                                 |  |   |      |   |  |   | (972    | )
|Net income                                                           |  |                 |   |  |        | 1,929   |   |                |   | 972  |                                   |  |   |      |   |  |   | 2,901   |  
|                                                                     |  |                  |   |  |        |         |   |                |   |      |                                   |  |   |       |   |  |   |         |  
|Balance December 31, 2007                                            |  | 14,985,550       |   |  | $      | 21,746  |   |                | $ |     |                                   |  | $ |      |   |  | $ | 21,746  |  
|                                                                     |  |                  |   |  |        |         |   |                |   |      |                                   |  |   |       |   |  |   |         |  

See accompanying Notes.



16



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ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2007 AND 2006

(In Thousands)



|                                                                                     |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                     |  | 2007 |         |   | 2006 |  
|Operating activities:                                                                |  |      |         |   |      |   |         |  
|Net income (loss)                                                                    |  | $    | 2,901   |   |      | $ | (496    | )
|Adjustments to reconcile net income (loss) to cash provided by operating activities: |  |      |         |   |      |   |         |  
|(Gain) loss on sales of assets                                                       |  |      | (535    | ) |      |   | 689     |  
|Depreciation of operating lease assets                                               |  |      | 5,203   |   |      |   | 7,940   |  
|Amortization of initial direct costs                                                 |  |      | 1       |   |      |   | 12      |  
|Portion of swap liability charged to interest expense                                |  |      |        |   |      |   | 90      |  
|Change in fair value of interest rate swap contracts                                 |  |      | (11     | ) |      |   | (48     | )
|Provision for (reversal of provision for) doubtful accounts                          |  |      | (21     | ) |      |   | 23      |  
|Provision for impairment loss                                                        |  |      | 84      |   |      |   | 954     |  
|Changes in operating assets and liabilities:                                         |  |      |         |   |      |   |         |  
|Accounts receivable                                                                  |  |      | (878    | ) |      |   | 80      |  
|Other assets                                                                         |  |      | 196     |   |      |   | 4       |  
|Accounts payable:                                                                    |  |      |         |   |      |   |         |  
|General Partner                                                                      |  |      | (31     | ) |      |   | (48     | )
|Other                                                                                |  |      | (350    | ) |      |   | 721     |  
|Accrued interest payable                                                             |  |      |        |   |      |   | (39     | )
|Unearned lease income                                                                |  |      | (147    | ) |      |   | (25     | )
|                                                                                     |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                                            |  |      | 6,412   |   |      |   | 9,857   |  
|Investing activities:                                                                |  |      |         |   |      |   |         |  
|Proceeds from sales of lease assets                                                  |  |      | 2,818   |   |      |   | 6,159   |  
|Reduction of net investment in direct financing leases                               |  |      | 366     |   |      |   | 692     |  
|Initial direct cost payments                                                         |  |      |        |   |      |   | (8      | )
|Improvements to operating leases                                                     |  |      |        |   |      |   | (1,441  | )
|                                                                                     |  |      |         |   |      |   |         |  
|Net cash provided by investing activities                                            |  |      | 3,184   |   |      |   | 5,402   |  
|Financing activities:                                                                |  |      |         |   |      |   |         |  
|Repayments of:                                                                       |  |      |         |   |      |   |         |  
|Receivables funding program obligation                                               |  |      |        |   |      |   | (3,580  | )
|Acquisition facility                                                                 |  |      |        |   |      |   | (6,500  | )
|Non-recourse debt                                                                    |  |      | (91     | ) |      |   | (102    | )
|Distributions:                                                                       |  |      |         |   |      |   |         |  
|General Partner                                                                      |  |      | (972    | ) |      |   |        |  
|Limited Partners                                                                     |  |      | (11,991 | ) |      |   |        |  
|Rescissions and repurchases of capital contributions                                 |  |      |        |   |      |   | (26     | )
|                                                                                     |  |      |         |   |      |   |         |  
|Net cash used in financing activities                                                |  |      | (13,054 | ) |      |   | (10,208 | )
|Net (decrease) increase in cash and cash equivalents                                 |  |      | (3,458  | ) |      |   | 5,051   |  
|Cash and cash equivalents at beginning of year                                       |  |      | 7,367   |   |      |   | 2,316   |  
|                                                                                     |  |      |         |   |      |   |         |  
|Cash and cash equivalents at end of year                                             |  | $    | 3,909   |   |      | $ | 7,367   |  
|                                                                                     |  |      |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                   |  |      |         |   |      |   |         |  
|Cash paid during the year for taxes                                                  |  | $    | 96      |   |      | $ | 96      |  
|                                                                                     |  |      |         |   |      |   |         |  
|Cash paid during the year for interest                                               |  | $    | 22      |   |      | $ | 399     |  
|                                                                                     |  |      |         |   |      |   |         |  

See accompanying Notes.



17



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ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|1. | Organization and Limited Partnership matters:
|-- | ---------------------------------------------

ATEL Capital
Equipment Fund VII, L.P. (the Partnership) was formed under the laws of the State of California on May 17, 1996 for the purpose of acquiring equipment to engage in equipment leasing and sales activities, primarily in the United
States. The Partnership may continue until December 31, 2017. The General Partner of the Partnership is ATEL Financial Services, LLC (AFS), a California limited liability company. Prior to converting to a limited liability company
structure, AFS was formerly known as ATEL Financial Corporation.

The Partnership conducted a public offering of 15,000,000 Units of Limited Partnership
Interest (Units), at a price of $10 per Unit. On January 7, 1997, subscriptions for the minimum number of Units (120,000, $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that
the subscriptions be released to the Partnership. On that date, the Partnership commenced operations in its primary business (acquiring equipment to engage in equipment leasing and sales activities). Gross contributions in the amount of $150 million
(15,000,000 units) were received as of November 27, 1998, inclusive of $500 of Initial Partners capital investment and $100 of AFS capital investment. The offering was terminated on November 27, 1998.

The Partnerships principal objectives have been to invest in a diversified portfolio of equipment that will (i) preserve, protect and return the
Partnerships invested capital; (ii) generate regular distributions to the partners of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase
additional equipment during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), which ended December 31, 2004 and (iii) provide additional distributions
following the Reinvestment Period and until all equipment has been sold. The Partnership is governed by its Limited Partnership Agreement (Partnership Agreement).

Pursuant to the Partnership Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Partnership (Note 6). AFS is required to maintain in the Partnership reasonable cash reserves
for working capital, the repurchase of Units and contingencies.

The Partnership is in the liquidation phase of its life cycle as defined in the
Partnership Agreement.



|2. | Summary of significant accounting policies:
|-- | -------------------------------------------

Basis of
presentation:

The accompanying balance sheet as of December 31, 2007 and the related statements of operations, changes in partners capital,
and cash flows for each of the two years ended December 31, 2007 have been prepared in accordance with accounting principles generally accepted in the United States, (GAAP). Certain prior year amounts have been reclassified to
conform to the current year presentation. These reclassifications had no effect on equity or net income.

Footnote and tabular amounts are presented in
thousands, except as to Units and per Unit data.

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Such
estimates primarily relate to the determination of residual values at the end of the lease term, expected future cash flows used for impairment analysis purposes, and determination of the allowance for doubtful accounts.

Cash and cash equivalents:

Cash and cash equivalents include cash in
banks and cash equivalent investments with original maturities of ninety days or less.



18



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ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|2. | Summary of significant accounting policies (continued):
|-- | -------------------------------------------------------



Credit risk:

Financial instruments that potentially subject the Partnership to concentrations of credit risk include cash and cash equivalents, direct finance lease receivables and accounts receivable. The Partnership places its cash deposits and
temporary cash investments with creditworthy, high quality financial institutions. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Partnership. Accounts receivable represent amounts
due from lessees in various industries, related to equipment on operating leases and direct financing leases.

Accounts receivable:

Accounts receivable represent the amounts billed under operating and direct finance lease contracts which are currently due to the Partnership. Allowances for doubtful
accounts are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and invoiced amounts. Accounts receivable are charged off to the allowance on specific
identification basis. Amounts recovered that were previously written-off are recorded as other income in the period received.

Direct financing leases
and related revenue recognition:

Income from direct financing lease transactions is reported using the financing method of accounting, in which the
Partnerships investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest income portion of each rental payment is calculated so as to generate a constant rate of return on
the net receivable outstanding.

Allowances for losses on direct financing leases are typically established based on historical charge off and collection
experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are written-off to the allowance as they are deemed uncollectible.

Direct financing leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally,
management periodically reviews the credit worthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon managements judgment, direct finance lessees with balances less than 90 days delinquent may be placed
in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.

Equipment on operating leases and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipments estimated salvage or residual values at the end of the leases.
Maintenance costs associated with the Funds portfolio of leased assets are expensed as incurred.

Operating lease revenue is recognized on a
straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally from 24 to 120
months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.

Initial
direct costs:

In prior years, the Partnership capitalized initial direct costs (IDC) associated with the origination and funding of lease
assets as defined in SFAS No. 91 Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. IDC included both internal costs (e.g., labor and overhead) and external
broker fees incurred with the acquisition. Remaining IDC is being amortized on a lease by lease basis based on actual lease term using a straight-line method for operating leases and the effective interest rate method for direct finance



19



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|2. | Summary of significant accounting policies (continued):
|-- | -------------------------------------------------------



leases. Upon disposal of the underlying lease assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related
to leases that were not consummated were not eligible for capitalization as initial direct costs. Such amounts were expensed as acquisition expense.

Asset valuation:

Recorded values of the Partnerships asset portfolio are periodically reviewed for impairment in accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The
estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the assets expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that
the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in
quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows) of the asset and its carrying value on
the measurement date.

Segment reporting:

The
Partnership adopted the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes annual and interim standards for operating segments of a Partnership. It also
requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenue, and its major customers. The Partnership is not organized by multiple operating segments for
the purpose of making operating decisions or assessing performance. Accordingly the Partnership operates in one reportable operating segment in the United States.

The Partnerships chief operating decision makers are the General Partners Chief Executive Officer and its Chief Operating Officer. The Partnership believes that its equipment leasing business operates as one reportable segment
because: a) the Partnership measures profit and loss at the equipment portfolio level as a whole; b) the chief operating decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio;
c) the Partnership does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Partnership has not chosen to organize its business around different products and services other than
equipment lease financing; and e) the Partnership has not chosen to organize its business around geographic areas.

The primary geographic regions in which
the Partnership seeks leasing opportunities are North America and Europe. The table below summarizes the sources, by nation, of the Partnerships operating revenues for the year ended December 31, 2007 and 2006:



|               |  |      |   |  |      |  
|-------------- |  | ---- | - |  | ---- | -
|               |  | 2007 |   |  | 2006 |  
|United States  |  | 98   | % |  | 99   | %
|United Kingdom |  | 2    | % |  | 1    | %

Certain of the Partnerships lessee customers have international operations. In these instances, the
Partnership is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical for the Partnership to track, on an asset-by-asset day-by-day
basis, where these assets are deployed.



20



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|2. | Summary of significant accounting policies (continued):
|-- | -------------------------------------------------------



The Partnership recognizes all derivatives as either assets or liabilities in the balance sheet and measure those
instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow, or foreign currency hedges, and establishes accounting standards for reporting changes in the fair value of the derivative
instruments. Upon adoption on January 1, 2001, the Partnership recorded its interest rate swap hedging instruments at fair value in the balance sheet, designated the interest rate swaps as cash flow hedges, and recognized the offsetting gains
or losses as adjustments to be reported in net income or other comprehensive income, as appropriate. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.
Such interest rate swaps are linked to and adjust effectively the interest rate sensitivity of specific long-term debt.

The effective portion of the
change in fair value of the interest rate swaps is recorded in Accumulated Other Comprehensive Income (AOCI) and the ineffective portion (if any) directly in earnings. Amounts in AOCI are reclassified into earnings in a
manner consistent with the earnings pattern of the underlying hedged item (generally reflected in interest expense). If a hedged item is de-designated prior to maturity, previous adjustments to AOCI are recognized in earnings to match the
earnings recognition pattern of the hedged item (e.g., level yield amortization if hedging an interest bearing instruments). Interest income or expense on most hedging derivatives used to manage interest rate exposure is recorded on an accrual basis
as an adjustment to the yield of the link exposures over the periods covered by the contracts. This matches the income recognition treatment of the exposure (i.e., the liabilities, which are carried at historical cost, with interest recorded on an
accrual basis).

Credit exposure from derivative financial instruments, which are assets, arises from the risk of a counterparty default on the derivative
contract. The amount of the loss created by the default is the replacement cost or current positive fair value of the defaulted contract.

Unearned
operating lease income:

The Partnership records prepayments on operating leases as a liability, unearned operating lease income. The liability is
recorded when the prepayments are received and recognized as operating lease revenue ratably over the period to which the prepayments relate.

Income
taxes:

Pursuant to the provisions of Section 701 of the Internal Revenue Code, a partnership is not subject to federal income taxes. Accordingly,
the Partnership has provided current income and franchise taxes for only those states which levy taxes on partnerships. For the years ended December 31, 2007 and 2006, the related provision for state income taxes and franchise fees was
approximately $96 thousand and $104 thousand, respectively.

The tax bases of the Partnerships net assets and liabilities vary from the amounts
presented in these financial statements at December 31, 2007 (in thousands):



|                                        |  |   |         |  
|--------------------------------------- |  | - | ------- | -
|Financial statement basis of net assets |  | $ | 21,746  |  
|Tax basis of net assets (unaudited)     |  |   | (13,473 | )
|                                        |  |   |         |  
|Difference                              |  | $ | 35,219  |  
|                                        |  |   |         |  

The primary differences between the tax basis of the net assets and the amounts recorded in the financial
statements are the result of differences in accounting for syndication costs and differences in depreciation methods used in the financial statements and the Partnerships tax returns.



21



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|2. | Summary of significant accounting policies (continued):
|-- | -------------------------------------------------------



The following reconciles the net income (loss) reported in these financial statements to the income reported on the
Partnerships federal tax return (unaudited) for each of the years ended December 31 (in thousands):



|                                              |  |      |        |   |      |   |        |  
|--------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                              |  | 2007 |        |   | 2006 |  
|Net income (loss) per financial statements    |  | $    | 2,901  |   |      | $ | (496   | )
|Tax adjustments (unaudited):                  |  |      |        |   |      |   |        |  
|Adjustment to depreciation expense            |  |      | 4,405  |   |      |   | 6,404  |  
|Provision for doubtful accounts               |  |      | (21    | ) |      |   | (156   | )
|Provision for losses                          |  |      | 84     |   |      |   | 954    |  
|Adjustments to lease revenues                 |  |      | (2,501 | ) |      |   | 7,647  |  
|                                              |  |      |        |   |      |   |        |  
|Net income per federal tax return (unaudited) |  | $    | 4,868  |   |      | $ | 14,353 |  
|                                              |  |      |        |   |      |   |        |  

Per unit data:

Net income (loss) and distributions per unit are based upon the weighted average number of Limited Partnership units outstanding during the period.

Other income, net:

Other income (loss) consists of gains and losses on interest rate swap contracts and foreign currency transactions. For
the year ended December 31, 2007, other income, net totaled $25 thousand and consisted of a net foreign currency gain of $14 thousand and favorable fair value adjustments on interest rate swap contracts of $11 thousand. For the year ended
December 31, 2006, the Partnership generated $76 thousand of other income comprised of favorable fair value adjustments on interest rate swap contracts totaling $48 thousand and net foreign currency gain of $28 thousand.

Recent accounting pronouncements:

In December 2007, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141R, Business Combinations (SFAS 141R). SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements
which will enable users to evaluate the nature and financial effects of the business combination. This standard is effective for fiscal years beginning after December 15, 2008. The Partnership does not presently anticipate the adoption of SFAS
141R to significantly impact its financial position, results of operations or cash flows.

In February 2007, the FASB issued Statement No. 159,
The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement No. 115 (SFAS 159). This Statement permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having
to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Boards long-term measurement objectives for accounting for financial instruments. SFAS 159 is
effective for the Partnership as of January 1, 2008. The Partnership does not presently anticipate the adoption of SFAS 159 to significantly impact its financial position, results of operations or cash flows.



22



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|2. | Summary of significant accounting policies (continued):
|-- | -------------------------------------------------------



In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS
157). This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. The provisions of SFAS 157
were to be effective for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, which defers the effective date of SFAS No. 157 as it pertains to
fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. The Partnership will adopt SFAS 157 except as it applies to its investment in equipment and leases, and other
nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2. The Fund is in the process of determining the financial impact the partial adoption of SFAS 157 will have on its results of operations and financial position.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for
Income Taxes (FIN 48), to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. FIN 48 also provides guidance on deregulation, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Partnership adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a significant effect on the Partnerships financial position, results of operations or
cash flows.



|3. | Concentration of credit risk and major customers:
|-- | -------------------------------------------------

The Partnership
leases equipment to lessees in diversified industries. Leases are subject to AFSs credit committee review. The leases provide for the return of the equipment upon default.

As of December 31, 2007, there were concentrations (defined as greater than 10%) of equipment leased to lessees in certain industries (as a percentage of total equipment cost) as follows:



|               |  |    |  
|-------------- |  | -- | -
|Transportation |  | 66 | %
|Marine Vessels |  | 25 | %

During 2007, one customer accounted for 51% of the Partnerships revenue from leases. In 2006, two customers
comprised 49% of the Partnerships revenue from leases.



|4. | Reserves, impairments and provisions for doubtful accounts:
|-- | -----------------------------------------------------------

Activity in the reserve for losses and impairments and allowances for doubtful accounts consists of the following (in thousands):



|                                    |  |                                  |      |   |                               |   |     |  
|----------------------------------- |  | -------------------------------- | ---- | - | ----------------------------- | - | --- | -
|                                    |  | Reserve forLosses andImpairments |      |   | Allowance forDoubtfulAccounts |  
|Balance as of December 31, 2005     |  | $                                | 983  |   |                               | $ | 514 |  
|Provision (adjustment to provision) |  |                                  | 954  |   |                               |   | 23  |  
|Charge offs                         |  |                                  | (983 | ) |                               |   |    |  
|                                    |  |                                  |      |   |                               |   |     |  
|Balance as of December 31, 2006     |  |                                  | 954  |   |                               |   | 537 |  
|Provision (adjustment to provision) |  |                                  | 84   |   |                               |   |    |  
|Charge offs                         |  |                                  | (954 | ) |                               |   | (21 | )
|                                    |  |                                  |      |   |                               |   |     |  
|Balance as of December 31, 2007     |  | $                                | 84   |   |                               | $ | 516 |  
|                                    |  |                                  |      |   |                               |   |     |  



23



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|5. | Investments in equipment and leases:
|-- | ------------------------------------

The Partnerships
investments in equipment and leases consist of the following (in thousands):



|                                          |  |                         |        |                                           |   |        |                                                          |  |   |                         |   |  |   |       
|----------------------------------------- |  | ----------------------- | ------ | ----------------------------------------- | - | ------ | -------------------------------------------------------- |  | - | ----------------------- | - |  | - | ------
|                                          |  | BalanceDecember 31,2006 |        | Reclassifications&Additions
/Dispositions |   |        | Depreciation/AmortizationExpense orAmortizationof Leases |  |   | BalanceDecember 31,2007
|Net investment in operating leases        |  | $                       | 24,169 |                                           | $ | (2,281 | )                                                        |  | $ | (5,195                  | ) |  | $ | 16,693
|Net investment in direct financing leases |  |                         | 1,325  |                                           |   | (134   | )                                                        |  |   | (366                    | ) |  |   | 825   
|Assets held for sale or lease, net        |  |                         | 11     |                                           |   | 48     |                                                          |  |   | (8                      | ) |  |   | 51    
|Initial direct costs                      |  |                         | 2      |                                           |   |       |                                                          |  |   | (1                      | ) |  |   | 1     
|                                          |  |                         |        |                                           |   |        |                                                          |  |   |                         |   |  |   |       
|Total                                     |  | $                       | 25,507 |                                           | $ | (2,367 | )                                                        |  | $ | (5,570                  | ) |  | $ | 17,570
|                                          |  |                         |        |                                           |   |        |                                                          |  |   |                         |   |  |   |       

Impairment of investments in leases and assets held for sale or lease:

Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. As a result of those reviews, management determined that
the fair values of certain assets, as detailed below, declined in value to the extent that the carrying values had become impaired. The fair value of the assets was determined based on the sum of the discounted estimated future cash flows of the
assets. During the fourth quarter of 2007, a charge to operations totaling $84 thousand was recorded for the decline in value of those assets. A charge to operations of $954 thousand was recorded for the year ended December 31, 2006. The nature
of the impaired assets was barges and containers in both 2007 and 2006.

Impairment losses are recorded as an adjustment to the net investment in operating
leases. Depreciation expense and impairment losses on property subject to operating leases and property held for lease or sale consist of the following for each of the years ended December 31 (in thousands):



|                                       |  |      |       |      |   |      
|-------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                       |  | 2007 |       | 2006
|Depreciation of operating lease assets |  | $    | 5,203 |      | $ | 7,940
|Impairment losses                      |  |      | 84    |      |   | 954  
|                                       |  |      |       |      |   |      
|Total                                  |  | $    | 5,287 |      | $ | 8,894
|                                       |  |      |       |      |   |      

All of the property subject to leases was acquired in the years 1997 through 2002.

Operating leases:

Property on operating leases consists of the
following (in thousands):



|                              |  |                         |         |   |           |   |        |                                  |  |   |                         |   |  |   |         |  
|----------------------------- |  | ----------------------- | ------- | - | --------- | - | ------ | -------------------------------- |  | - | ----------------------- | - |  | - | ------- | -
|                              |  | BalanceDecember 31,2006 |         |   | Additions |   |        | Reclassificationsor Dispositions |  |   | BalanceDecember 31,2007 |  
|Transportation                |  | $                       | 69,499  |   |           | $ |       |                                  |  | $ | (22,922                 | ) |  | $ | 46,577  |  
|Marine vessels/barges         |  |                         | 4,107   |   |           |   |       |                                  |  |   | 13,752                  |   |  |   | 17,859  |  
|Mining equipment              |  |                         | 4,222   |   |           |   |       |                                  |  |   |                        |   |  |   | 4,222   |  
|Construction                  |  |                         | 1,227   |   |           |   |       |                                  |  |   | (455                    | ) |  |   | 772     |  
|Material handling             |  |                         | 1,146   |   |           |   |       |                                  |  |   | (733                    | ) |  |   | 413     |  
|Other                         |  |                         | 1,880   |   |           |   |       |                                  |  |   | (1,448                  | ) |  |   | 432     |  
|                              |  |                         |         |   |           |   |        |                                  |  |   |                         |   |  |   |         |  
|                              |  |                         | 82,081  |   |           |   |       |                                  |  |   | (11,806                 | ) |  |   | 70,275  |  
|Less accumulated depreciation |  |                         | (57,912 | ) |           |   | (5,195 | )                                |  |   | 9,525                   |   |  |   | (53,582 | )
|                              |  |                         |         |   |           |   |        |                                  |  |   |                         |   |  |   |         |  
|Total                         |  | $                       | 24,169  |   |           | $ | (5,195 | )                                |  | $ | (2,281                  | ) |  | $ | 16,693  |  
|                              |  |                         |         |   |           |   |        |                                  |  |   |                         |   |  |   |         |  



24



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|5. | Investments in equipment and leases (continued):
|-- | ------------------------------------------------



Direct financing leases:

As of December 31, 2007, investment in direct financing leases, consist of various transportation, manufacturing and medical equipment. The following lists the components of the Partnerships investment in direct financing leases
as of December 31, 2007 (in thousands):



|                                                             |  |   |     |  
|------------------------------------------------------------ |  | - | --- | -
|Total minimum lease payments receivable                      |  | $ | 299 |  
|Estimated residual values of leased equipment (unguaranteed) |  |   | 615 |  
|                                                             |  |   |     |  
|Investment in direct financing leases                        |  |   | 914 |  
|Less unearned income                                         |  |   | (89 | )
|                                                             |  |   |     |  
|Net investment in direct financing leases                    |  | $ | 825 |  
|                                                             |  |   |     |  

At December 31, 2007, the aggregate amounts of future minimum lease payments to be received under operating
and direct financing leases are as follows (in thousands):



|                             |  |                 |        |                       |   |       |  |   |       
|---------------------------- |  | --------------- | ------ | --------------------- | - | ----- |  | - | ------
|                             |  | OperatingLeases |        | DirectFinancingLeases |   | Total
|Year ended December 31, 2008 |  | $               | 4,066  |                       | $ | 236   |  | $ | 4,302 
|2009                         |  |                 | 3,291  |                       |   | 48    |  |   | 3,339 
|2010                         |  |                 | 1,292  |                       |   | 15    |  |   | 1,307 
|2011                         |  |                 | 747    |                       |   |      |  |   | 747   
|2012                         |  |                 | 537    |                       |   |      |  |   | 537   
|Thereafter                   |  |                 | 140    |                       |   |      |  |   | 140   
|                             |  |                 |        |                       |   |       |  |   |       
|                             |  | $               | 10,073 |                       | $ | 299   |  | $ | 10,372
|                             |  |                 |        |                       |   |       |  |   |       

The Partnership utilizes a straight line depreciation method for equipment in all of the categories currently in
its portfolio of operating lease transactions. The useful lives for investment in leases by category are as follows (in years):



|                      |  |            
|--------------------- |  | -----------
|Equipment category    |  | Useful Life
|Transportation, rail  |  | 30-35      
|Mining                |  | 30-40      
|Marine vessels        |  | 20-30      
|Manufacturing         |  | 10-20      
|Materials handling    |  | 7-10       
|Transportation, other |  | 7-10       
|Office furniture      |  | 7-10       
|Office automation     |  | 3-5        



|6. | Related party transactions:
|-- | ---------------------------

The terms of the Partnership Agreement
provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Partnership.

The
Partnership Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Partnership. Administrative services provided include Partnership accounting, investor relations, legal counsel and lease and
equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as disposition of equipment. Reimbursable costs incurred by AFS are allocated to the Partnership
based upon estimated time incurred by employees working on Partnership business and an allocation of rent and other costs based on utilization studies.



25



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|6. | Related party transactions (continued):
|-- | ---------------------------------------



Each of ATEL Leasing Corporation (ALC), ATEL Equipment Corporation (AEC), ATEL Investor
Services (AIS) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Partnership. Acquisition services are performed for the Partnership by ALC; equipment management, lease administration and asset
disposition services are performed by AEC; investor relations and communications services are performed by AIS; and general administrative services for the Partnership are performed by AFS.

Cost reimbursements to the General Partner are based on its costs incurred in performing administrative services for the Partnership. These costs are allocated to each
managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.

Incentive
management fees are computed as 4.0% of distributions of cash from operations, as defined in the Partnership Agreement and equipment management fees are computed as 3.5% of gross revenues from operating leases, as defined in the Partnership
Agreement plus 2.0% of gross revenues from full payout leases, as defined in the Partnership Agreement.

AFS earned fees, commissions and reimbursements,
pursuant to the Partnership Agreement as follows during each of the years ended December 31 (in thousands):



|                                                           |  |      |       |      |   |      
|---------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                           |  | 2007 |       | 2006
|Equipment and incentive management fees to General Partner |  | $    | 522   |      | $ | 328  
|Cost reimbursements to General Partner                     |  |      | 750   |      |   | 750  
|                                                           |  |      |       |      |   |      
|                                                           |  | $    | 1,272 |      | $ | 1,078
|                                                           |  |      |       |      |   |      

The Partnership Agreement places an annual limit and a cumulative limit for cost reimbursements to AFS and/or
affiliates. The cumulative limit increases annually. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be
reimbursable in future years to the extent of the cumulative limit. As of December 31, 2007, costs reimbursable to AFS in future years totaled approximately $577 thousand.



|7. | Non-recourse debt:
|-- | ------------------

At December 31, 2007, non-recourse debt
consists of one note payable to a financial institution. The note is due in monthly installments. Interest on the note is at fixed rate of 7.0% per annum. The note is secured by assignments of lease payments and pledges of assets. At
December 31, 2007, the carrying value of the pledged assets is $155 thousand. The note matures in 2008.

Future minimum payments of non-recourse debt
are as follows (in thousands):



|                              |  |           |    |          |   |       |  |   |   
|----------------------------- |  | --------- | -- | -------- | - | ----- |  | - | --
|                              |  | Principal |    | Interest |   | Total
|Year ending December 31, 2008 |  | $         | 24 |          | $ |      |  | $ | 24
|                              |  |           |    |          |   |       |  |   |   
|                              |  | $         | 24 |          | $ |      |  | $ | 24
|                              |  |           |    |          |   |       |  |   |   



|8. | Borrowing facilities:
|-- | ---------------------

The Partnership participated with AFS and
certain of its affiliates, as defined in the Partnership Agreement, in a financing arrangement (the Master Terms Agreement) comprised of: (1) a working capital term loan facility to AFS, (2) an acquisition facility and
(3) a warehouse facility to AFS, the Partnership and affiliates, and (4) a venture facility available to an affiliate. The Master Terms Agreement is with a group of financial institutions and includes certain financial and non-financial
covenants. The Master Terms Agreement, which originally totaled $75 million and expired on June 28, 2007, was renewed for an additional two years with an availability of $65 million pending redefinition of the lender base. On July 28,
2007, with a redefinition of the lender base, the facility was amended to reset availability to $75 million. The Partnership was removed as a party to the Master Terms Agreement on January 31, 2007.



26



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|9. | Receivables funding program:
|-- | ----------------------------

In 1998, the Partnership entered into
a $65 million receivables funding program (the Program) with a third party receivables financing company that issues commercial paper rated A1 by Standard and Poors and P1 by Moodys Investor Services. Under the Program, the
receivables financing company received a general lien against all of the otherwise unencumbered assets of the Partnership. The program provided for borrowing at a variable interest rate and required AFS, on behalf of the Partnership, to enter into
interest rate swap agreements with certain counterparties (also rated A1/P1) to mitigate the interest rate risk associated with a variable rate note. The Program expired as to new borrowings in April 2002. The receivables funding program terminated
in January 2007.

As of December 31, 2007, the Partnership receives or pays interest on interest rate agreements with a notional principal totaling
approximately $613 thousand on the difference between nominal rates ranging from 5.79% to 7.58% and variable rates ranging from 4.64% to 4.74% at December 31, 2007. No actual borrowing or lending is involved. The termination of swaps was to
coincide with the maturity of the debt. Through the swap agreements, the interest rates on the borrowings have been effectively fixed. The interest to be paid or received on the swap contracts is accrued as interest rates change and is currently
recognized as an adjustment to interest expense. The interest rate swaps are carried at fair value on the balance sheet with unrealized gain/loss included in the statement of operations in other income or loss.

The interest rate swaps were originally designated as cash flow hedges of the interest payment on the long term debt. Effective January 1, 2005, the Partnership
de-designated the original hedge relationships. Prior to this de-designation, changes in the fair value of the swaps were recognized in accumulated other comprehensive loss (AOCL). Subsequent to this de-designation, changes in fair value
of the swaps generally were reflected in the statement of operations in other income, net. In addition, amounts remaining in AOCL subsequent to the de-designation of the swaps are to be reclassified into earnings in a manner consistent with the
earnings pattern of the previously hedged expected interest payments. The entire amount of AOCL totaling $90 thousand was charged to earnings (included in interest expense) during the first half of 2006.

Borrowings under the Program are as follows (in thousands):



|              |  |                        |        |                         |   |                                 |  |                           |     |  |                                      |    |   |  |      |  
|------------- |  | ---------------------- | ------ | ----------------------- | - | ------------------------------- |  | ------------------------- | --- |  | ------------------------------------ | -- | - |  | ---- | -
|Date Borrowed |  | OriginalAmountBorrowed |        | BalanceDecember 31,2007 |   | NotionalBalanceDecember 31,2007 |  | SwapValueDecember 31,2007 |     |  | Payment RateOn InterestSwapAgreement |   
|7/1/1998      |  | $                      | 25,000 |                         | $ |                                |  | $                         | 246 |  | $                                    | (1 | ) |  | 6.16 | %
|4/16/1999     |  |                        | 9,000  |                         |   |                                |  |                           |    |  |                                      |   |   |  | *    |  
|1/26/2000     |  |                        | 11,700 |                         |   |                                |  |                           | 355 |  |                                      | (6 | ) |  | 7.58 | %
|5/25/2001     |  |                        | 2,000  |                         |   |                                |  |                           | 12  |  |                                      |   |   |  | 5.79 | %
|9/28/2001     |  |                        | 6,000  |                         |   |                                |  |                           |    |  |                                      |   |   |  | *    |  
|1/31/2002     |  |                        | 4,400  |                         |   |                                |  |                           |    |  |                                      |   |   |  | *    |  
|              |  |                        |        |                         |   |                                 |  |                           |     |  |                                      |    |   |  |      |  
|              |  | $                      | 58,100 |                         | $ |                                |  | $                         | 613 |  | $                                    | (7 | ) |  |      |  
|              |  |                        |        |                         |   |                                 |  |                           |     |  |                                      |    |   |  |      |  



|* | Under the terms of the Program, no interest rate swap agreements were required for these borrowings.
|- | ----------------------------------------------------------------------------------------------------



|10. | Commitments:
|--- | ------------

At December 31, 2007, the Partnership had no
commitments to purchase lease assets.



27



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|11. | Guarantees:
|--- | -----------

The Partnership enters into contracts that contain a
variety of indemnifications. The Partnerships maximum exposure under these arrangements is unknown. However, the Partnership has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

In the normal course of business, the Partnership enters into contracts of various types, including lease contracts, contracts for the sale or purchase of lease
assets, management contracts, loan agreements, credit lines and other debt facilities. It is prevalent industry practice for most contracts of any significant value to include provisions that each of the contracting parties  in addition to
assuming liability for breaches of the representations, warranties, and covenants that are part of the underlying contractual obligations  also assume an obligation to indemnify and hold the other contracting party harmless for such breaches,
for harm caused by such partys gross negligence and willful misconduct, including, in certain instances, certain costs and expenses arising from the contract.

The General Partner has substantial experience in managing similar leasing programs subject to similar contractual commitments in similar transactions, and the losses and claims arising from these commitments have
been insignificant, if any. Generally, to the extent these contracts are performed in the ordinary course of business under the reasonable business judgment of the General Partner, no liability will arise as a result of these provisions. The General
Partner has no reason to believe that the facts and circumstances relating to the Partnerships contractual commitments differ from those it has entered into on behalf of the prior programs it has managed. The General Partner knows of no facts
or circumstances that would make the Partnerships contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Partnership believes that these indemnification obligations
are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Partnerships similar commitments is remote. Should any such indemnification obligation become payable,
the Partnership would separately record and/or disclose such liability in accordance with GAAP.



|12. | Partners capital:
|--- | ------------------

As of December 31, 2007, 14,985,550
Units were issued and outstanding. The Partnership was authorized to issue up to 15,000,050 Units, including the 50 Units issued to the Initial Limited Partners, as defined.

The Partnerships Net Profits, Net Losses, and Tax Credits are to be allocated 92.5% to the Limited Partners and 7.5% to AFS. In accordance with the terms of the Partnership Agreement, additional allocations of
income were made to AFS in 2007. The amounts allocated were determined to bring AFSs ending capital account balance to zero at the end of each period.

As defined in the Partnership Agreement, available Cash from Operations shall be distributed as follows:

First, Distributions of Cash from
Operations shall be 88.5% to the Limited Partners, 7.5% to AFS and 4% to AFS or its affiliate designated as the recipient of the Incentive Management Fee, until the Limited Partners have received Aggregate Distributions in an amount equal to their
Original Invested Capital, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital, as defined in the Partnership Agreement.

Second, 85% to the Limited Partners, 7.5% to AFS and 7.5% to AFS or its affiliate designated as the recipient of the Incentive Management Fee.

As defined in the Partnership Agreement, available Cash from Sales or Refinancing are to be distributed as follows:

First,
Distributions of Sales or Refinancing shall be 92.5% to the Limited Partners and 7.5% to AFS, until the Limited Partners have received Aggregate Distributions in an amount equal to their Original Invested Capital, as defined, plus a 10% per
annum cumulative (compounded daily) return on their Adjusted Invested Capital.

Second, 85% to the Limited Partners, 7.5% to AFS and 7.5% to AFS or its
affiliate designated as the recipient of the Incentive Management Fee.



28



---

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS



|12. | Partners capital (continued):
|--- | ------------------------------



Distributions to Limited Partners were as follows (in thousands except Units and per Unit data):



|                                             |  |      |            |      |   |           
|-------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                             |  | 2007 |            | 2006
|Distributions declared                       |  | $    | 11,991     |      | $ |          
|Weighted average number of Units outstanding |  |      | 14,985,550 |      |   | 14,992,098
|                                             |  |      |            |      |   |           
|Weighted average distributions per Unit      |  | $    | 0.80       |      | $ |          
|                                             |  |      |            |      |   |           



|13. | Fair value of financial instruments:
|--- | ------------------------------------

The following disclosure of
the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments. Fair value estimates,
methods and assumptions, set forth below for the Partnerships financial instruments, are made solely to comply with the requirements of Statement No. 107 and should be read in conjunction with the Partnerships financial statements
and related notes.

The Partnership has determined the estimated fair value amounts by using market information and valuation methodologies that it
considers appropriate. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Partnership could
realize or has realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For all of these reasons, the aggregation of the fair
values presented herein does not represent, and should not be construed to represent, their underlying value.

Cash and cash equivalents, and other
accounts:

The recorded amounts of the Partnerships cash and cash equivalents, accounts receivable, accounts payable and accruals at
December 31, 2007 approximate fair value because of the liquidity and short-term maturity of these instruments.

Non-recourse debt:

The fair value of the Partnerships non-recourse debt is estimated using discounted cash flow analyses, based on the Partnerships current incremental
borrowing rates for similar types of borrowing arrangements. The estimated fair value of the Partnerships non-recourse debt at December 31, 2007 is $24 thousand.

Interest rate swaps:

The fair value of interest rate swaps is estimated by management based on independent
valuations or discounting the fixed cash flows paid under each swap using the rate at which the Partnership could enter into new swaps of similar maturities. Swaps are recorded on the balance sheet at fair value at December 31, 2007.



29



---

|Item 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|------- | -------------------------------------------------------------------------------------

None.



|Item 8A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of disclosure controls
and procedures

The Partnerships General Partners Chief Executive Officer, and Executive Vice President and Chief Financial Officer and
Chief Operating Officer (Management), evaluated the effectiveness of the Partnerships disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the
evaluation of the Partnerships disclosure controls and procedures, the Chief Executive Officer and Executive Vice President and Chief Financial Officer and Chief Operating Officer concluded that as of the end of the period covered by this
report, the design and operation of these disclosure controls and procedures were effective.

The Partnership does not control the financial reporting
process, and is solely dependent on the Management of the General Partner, who is responsible for providing the Partnership with financial statements in accordance with generally accepted accounting principles in the United States. The General
Partners disclosure controls and procedures were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States.

Managements Report on Internal Control over Financial Reporting

The Management of the General Partner is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in
Exchange Act Rule 13a-15(f) for the Partnership, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2007. The internal control process of the General Partner, as is applicable
to the Partnership, was designed to provide reasonable assurance to Management regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that:



| | (1) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in
the United States, and that the Partnerships receipts and expenditures are being made only in accordance with authorization of the Management of the General Partner; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material
effect on the financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All internal control processes, no matter how well designed, have inherent limitations. Therefore, even
those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control
may vary over time.

Management of the General Partner assessed the effectiveness of its internal control over financial reporting, as is applicable to the
Partnership, as of December 31, 2007. In making this assessment, it used the criteria set forth in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on its assessment, Management of the General Partner concluded that the General Partners internal control over financial reporting, as is applicable to the Partnership, was effective as of December 31, 2007.

The Partnership is a non-accelerated filer for the 2007 fiscal year. Accordingly, the Partnerships independent registered public accounting firm is not
currently required to issue an audit report on the Partnerships internal control over financial reporting.

Changes in internal control

There were no changes in the General Partners internal control over financial reporting, as is applicable to the Partnership, during the
quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, the General Partners internal control over financial reporting, as is applicable to the Partnership.



30



---

PART III



|Item 9. | DIRECTORS AND EXECUTIVE OFFICERS
|------- | --------------------------------

The registrant is a Limited
Partnership and, therefore, has no officers or directors.

ATEL Financial Services, LLC (AFS) is the Partnerships General Partner. AFS is
controlled by ATEL Capital Group (ACG or ATEL), a holding company formed to control ATEL and affiliated companies, through its subsidiaries, ATEL Leasing Corporation (ALC), AFSs General Partner, and ATEL
Business Credit, Inc. (ABC), the other member of AFS. ALC and ABC are AFSs only members. The outstanding voting capital stock of ATEL Capital Group is owned 100% by Dean L. Cash.

Each of ATEL Leasing Corporation (ALC), ATEL Equipment Corporation (AEC), ATEL Investor Services (AIS) and ATEL Financial Services,
LLC (AFS) is a subsidiary under the control of ATEL Capital Group and performs services for the Partnership. Acquisition services are performed for the Partnership by ALC, equipment management, lease administration and asset disposition
services are performed by AEC, investor relations and communications services are performed by AIS and general administrative services for the Partnership are performed by AFS. ATEL Securities Corporation (ASC) is a wholly-owned
subsidiary of AFS which performed distribution services in connection with the Partnerships public offering of its Units.

The officers and directors
of ATEL Capital Group and its affiliates are as follows:



|                   |  |                                                                                                                                   
|------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------
|Dean L. Cash       |  | President and Chief Executive Officer of ATEL
Financial Services, LLC (General Partner)                                           
|Paritosh K. Choksi |  | Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (General Partner)
|Vasco H. Morais    |  | Executive Vice President, Secretary and General Counsel of ATEL Financial Services, LLC (General Partner)                         

Dean L. Cash, age 57, joined ATEL as director of marketing in 1980 and has been a vice president since 1981,
executive vice president since 1983 and a director since 1984. He has been President and CEO since April 2001. Prior to joining ATEL, Mr. Cash was a senior marketing representative for Martin Marietta Corporation, data systems division, from
1979 to 1980. From 1977 to 1979, he was employed by General Electric Corporation, where he was an applications specialist in the medical systems division and a marketing representative in the information services division. Mr. Cash was a
systems engineer with Electronic Data Systems from 1975 to 1977, and was involved in maintaining and developing software for commercial applications. Mr. Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A. degree
with a concentration in finance in 1975 from Florida State University. Mr. Cash is an arbitrator with the American Arbitration Association.

Paritosh
K. Choksi, age 54, joined ATEL in 1999 as a director, senior vice president and its chief financial officer. He became its executive vice president and CFO/COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief financial officer at Wink
Communications, Inc. from 1997 to 1999. From 1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial services and management company, where he held various positions during his tenure, and was senior vice president, chief
financial officer and director when he left the company. Mr. Choksi was involved in all corporate matters at Phoenix and was responsible for Phoenixs capital market needs. He also served on the credit committee overseeing all corporate
investments, including its venture lease portfolio. Mr. Choksi was a part of the executive management team which caused Phoenixs portfolio to increase from $50 million in assets to over $2 billion. Mr. Choksi is a member of the board
of directors of Syntel, Inc. Mr. Choksi received a bachelor of technology degree in mechanical engineering from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the University of California, Berkeley.

Vasco H. Morais, age 49, joined ATEL in 1989 as general counsel to provide legal support in the drafting and reviewing of lease documentation, advising on general
corporate law matters, and assisting on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of Americas equipment leasing subsidiaries, providing in-house legal support on the
documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in
the corporate and securities legal department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A. degree in 1982 from the University of California in Berkeley, a
J.D. degree in 1986 from Golden Gate University Law School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais has been an active member of the State Bar of California since 1986.



31



---

Audit Committee

ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC. ATEL Financial Services, LLC is the General Partner of the registrant. The board of directors of ATEL Leasing Corporation acts as the audit committee of the
registrant. Dean L. Cash and Paritosh K. Choksi are members of the board of directors of ALC and are deemed to be financial experts. They are not independent of the Partnership.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on a review of Forms 3, 4 and 5, the
Partnership is not aware of any failures to file reports of beneficial ownership required to be filed during or for the year ended December 31, 2007.

Code of Ethics

A Code of Ethics that is applicable to the Partnership, including the Chief Executive Officer and Chief Financial
Officer and Chief Operating Officer of its General Partner, ATEL Financial Services, LLC, or persons acting in such capacity on behalf of the Partnership, is included as Exhibit 14.1 to this report.



|Item 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The registrant is a Limited Partnership
and, therefore, has no officers or directors.

Set forth hereinafter is a description of the nature of remuneration paid and to be paid to AFS and its
Affiliates. The amount of such remuneration paid in 2007 and 2006 is set forth in Item 7 of this report under the caption Financial Statements and Supplementary Data - Notes to the Financial Statements - Related party transactions,
at Note 6 thereof, which information is hereby incorporated by reference.

Equipment Management Fees

As compensation for its service rendered generally in managing or supervising the management of the Partnerships equipment and in supervising other ongoing service
and activities including, among others, arranging for necessary maintenance and repair of equipment, collecting revenue, paying operating expenses, determining the equipment is being used in accordance with all operative contractual arrangements,
property and sales tax monitoring and preparation of financial data, AFS or its affiliates are entitled to receive management fees which are payable for each fiscal quarter and are to be in an amount equal to (i) 3.5% of the gross lease
revenues from operating leases and (ii) 2% of gross lease revenues from full payout leases, as defined, which contain net lease provisions.

Incentive Management Fees

As compensation for its service rendered in establishing and maintaining the
composition of the Partnerships equipment portfolio and its acquisition and debt strategies and supervising fund administration including supervision the preparation of reports and maintenance of financial and operating data of the
Partnership, Securities and Exchange Commission and Internal Revenue service filings, returns and reports, AFS is entitled to receive the Incentive management fee which shall be payable for each fiscal quarter.

See Note 6 to the financial statements included in Item 7, Financial Statements and Supplementary Data, of this report for amounts paid for equipment management
fees and incentive management fees.

Available Cash from Operations, as defined in the Partnership Agreement, shall be distributed as follows:

First, Distributions of Cash from Operations shall be 88.5% to the Limited Partners, 7.5% to AFS and 4% to AFS or its affiliate designated as the recipient of the
Incentive Management Fee, until the Limited Partners have received Aggregate Distributions in an amount equal to their Original Invested Capital, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested
Capital, as defined in the Partnership Agreement.



32



---

Second, 85% to the Limited Partners, 7.5% to AFS and 7.5% to AFS or its affiliate designated as the recipient of the
Incentive Management Fee.

Available Cash from Sales or Refinancing, as defined in the Partnership Agreement, shall be distributed as follows:

First, Distributions of Sales or Refinancing shall be 92.5% to the Limited Partners and 7.5% to AFS, until the Limited Partners have received Aggregate
Distributions in an amount equal to their Original Invested Capital, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital.

Second, 85% to the Limited Partners, 7.5% to AFS and 7.5% to AFS or its affiliate designated as the recipient of the Incentive Management Fee.

Equipment Resale Fees

As compensation for service rendered
in connection with the sale of equipment, AFS is entitled to receive an amount equal to the lesser of (i) 3% of the sales price of the equipment, or (ii) one-half the normal competitive equipment sales commission charged by unaffiliated
parties for such service. Such fee is payable only after the Limited Partners have received a return of their adjusted invested capital (as defined in the Partnership Agreement) plus 10% of their adjusted invested return of their adjusted invested
capital (as defined in the Partnership Agreement) plus 10% of their adjusted invested capital per annum calculated on a cumulative basis, compounded daily, commencing the last day of the quarter in which the Limited Partner was admitted to the
Partnership. To date, none have been accrued or paid.

Equipment Re-lease Fee

As compensation for providing re-leasing service, AFS is entitled to receive fees equal to 2% of the gross rentals or the comparable competitive rate for such service relating to comparable equipment, whichever is
less, derived from the re-lease provided that (i) AFS or their affiliates have and will maintain adequate staff to render such service to the Partnership, (ii) no such re-lease fee is payable in connection with the re-lease of equipment to
a previous lessee or its affiliates, (iii) AFS or its affiliates have rendered substantial re-leasing service in connection with such re-lease and (iv) AFS or its affiliates are compensated for rendering equipment management service.

General Partners Interest in Operating Proceeds

Net income, net loss and investment tax credits are allocated 92.5% to the Limited Partners and 7.5% to AFS. In accordance with the terms of the Partnership Agreement, additional allocations of income were made to AFS in 2006 and 2005. The
amounts allocated were determined so as to bring AFSs ending capital account balance to zero at the end of each period.



|Item 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------

Security Ownership of Certain Beneficial Owners

At December 31, 2007, no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.

Security Ownership of Management

The ultimate shareholders of AFS are beneficial owners of Limited Partnership Units as follows:



|                          |  |                                                                    |  |                                                               |  |                    |  
|------------------------- |  | ------------------------------------------------------------------ |  | ------------------------------------------------------------- |  | ------------------ | -
|(1) Title of Class        |  | (2) Name and Address of Beneficial Owner                           |  | (3) Amount and Nature of Beneficial Ownership                 |  | (4)Percentof Class |  
|Limited Partnership Units |  | Dean Cash 600 California Street, 6th Floor San Francisco, CA 94108 |  | Initial Limited Partner Units 25 Units
($250) (owned by wife) |  | 0.0002             | %



33



---

Changes in Control

The Limited Partners have the right, by vote of the Limited Partners owning more than 50% of the outstanding Limited Partnership units, to remove a General Partner.

AFS may at any time call a meeting of the Limited Partners or a vote of the Limited Partners without a meeting, on matters on which they are entitled to vote, and shall call such meeting or for vote without a meeting
following receipt of a written request therefore of Limited Partners holding 10% or more of the total outstanding Limited Partnership units.



|Item 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

The responses to
Item 1 of this report under the caption Equipment Leasing Activities, Item 7 of this report under the caption Financial Statements and Supplemental Data - Notes to the Financial Statements - Related party
transactions at Note 6 thereof, and Item 10 of this report under the caption Executive Compensation, are hereby incorporated by reference.



|Item 13. | EXHIBITS
|-------- | --------



|(a) | Exhibits
|--- | --------



|               |  |                                                                               |  |                                                        
|-------------- |  | ----------------------------------------------------------------------------- |  | -------------------------------------------------------
|Exhibit Number |  | Description                                                                   |  | Reference toPrior Filing orExhibit NumberAttachedHereto
|               |  |                                                                              
|3              |  | Articles of Incorporation Bylaws                                              |  | 3a                                                     
|               |  |                                                                              
|4              |  | Instruments defining the rights of security holders, including indentures     |  | 3a                                                     
|               |  |                                                                              
|14             |  | Code of Ethics                                                                |  | 14.1                                                   
|               |  |                                                                              
|31             |  | Certification of Dean L. Cash pursuant to Rules 13a-14(a) and 15d-14(a)       |  | 31.1                                                   
|               |  |                                                                              
|31             |  | Certification of Paritosh K. Choksi pursuant to Rules 13a-14(a) and 15d-14(a) |  | 31.2                                                   
|               |  |                                                                              
|32             |  | Certification of Dean L. Cash pursuant to 18 U.S.C. section 1350              |  | 32.1                                                   
|               |  |                                                                              
|32             |  | Certification of Paritosh K. Choksi pursuant to 18 U.S.C. section 1350        |  | 32.2                                                   



|3a | Agreement of Limited Partnership, included as exhibit B to the Prospectus filed as exhibit 28.1 to the Registrants Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 333-08879), is hereby incorporated herein by reference.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------

During the most recent two
years, the Partnership incurred audit and other fees with its principal auditors as follows (in thousands):



|           |  |      |    |      |   |    
|---------- |  | ---- | -- | ---- | - | ---
|           |  | 2007 |    | 2006
|Audit fees |  | $    | 82 |      | $ | 100
|Other fees |  |      | 1  |      |   |   
|           |  |      |    |      |   |    
|           |  | $    | 83 |      | $ | 100
|           |  |      |    |      |   |    

Audit Fees consist of the aggregate fees and expenses billed in connection with the audit of the
Partnerships annual financial statements (including activities relating to the evaluation of its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act) and the review of the financial statements included in
the Partnerships quarterly reports on Form 10-Q.



34



---

Other fees represent costs incurred in connection with various Agreed-Upon Procedures engagements.

ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC. ATEL Financial Services, LLC is the General Partner of the registrant. The board of
directors of ATEL Leasing Corporation acts as the audit committee of the registrant. Engagements for audit services, audit related services and tax services are approved in advance by the Chief Financial Officer of ATEL Leasing Corporation acting on
behalf of the board of directors of ATEL Leasing Corporation in its role as the audit committee of the Partnership.



35



---

SIGNATURES

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



|                                      |  |                                                             |  |                                                                                                                                   
|------------------------------------- |  | ----------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Date: March 25, 2008                 
|                                     
|ATEL Capital Equipment Fund VII, L.P.
|(Registrant)                         
|                                      | 
|By:                                   |  | ATEL Financial Services, LLC, General
Partner of Registrant
|                                      |  |                                                            
|                                      |  | By:                                                         |  | /s/ Dean L. Cash                                                                                                                  
|                                      |  |                                                             |  | Dean L. Cash,                                                                                                                     
|                                      |  |                                                             |  | President and Chief Executive Officer of ATEL
Financial Services, LLC (General Partner)                                           
|                                      |  |                                                            
|                                      |  | By:                                                         |  | /s/ Paritosh K. Choksi                                                                                                            
|                                      |  |                                                             |  | Paritosh K. Choksi,                                                                                                               
|                                      |  |                                                             |  | Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (General Partner)

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



|                                          |  |                                                                                                                                    |  |               
|----------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|SIGNATURE                                 |  | CAPACITIES                                                                                                                         |  | DATE          
|                                          |  |                                                                                                                                   
|/s/ Dean L. Cash Dean L.
Cash             |  | President and Chief Executive Officer of ATEL Financial
Services, LLC (General Partner)                                            |  | March 25, 2008
|                                          |  |                                                                                                                                   
|/s/ Paritosh K. Choksi Paritosh K. Choksi |  | Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (General Partner) |  | March 25, 2008

No proxy materials have been or will be sent to security holders. An annual report will be furnished to security
holders subsequent to the filing of this report on Form 10-KSB, and copies thereof will be furnished supplementally to the Commission when forwarded to the security holders.



36