Form 10K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

           |X|  Annual report  pursuant to section 13 or 15(d) of the
                Securities Exchange Act of 1934 (no fee required) For
                the Year Ended December 31, 1997
                                                    OR
           |_|  Transition  report pursuant to section 13 or 15(d) of
                the Securities Exchange Act of 1934 (no fee required)
                For the transition period from ____ to ____

                        Commission File number 333-08879

                      ATEL Capital Equipment Fund VII, L.P.

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

           235 Pine Street, 6th Floor, San Francisco, California 94104
                    (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: None

Indicate  by a check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes |X| No |_|

State the aggregate market value of voting stock held by  non-affiliates  of the
registrant: Inapplicable


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-K  (ss.229.405)  is not  contained  herein,  and  will  not be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
<PAGE>
                                     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 Partnership is conducting a public  offering of 15,000,000  units of Limited
Partnership  interest  (Units),  at a price of $10 per Unit.  As of December 31,
1997, the Partnership  had received  subscriptions  for 6,716,846  ($67,168,460)
Limited  Partnership  Units,  all of which  were  issued  or  outstanding  as of
December 31, 1997. On January 6, 1997,  subscriptions  for the minimum number of
Units (120,000,  $1,200,000) had been received and the General Partner requested
that the subscriptions,  except those received from Pennsylvania  investors (400
units,  $4,000),  be released to the Partnership.  On that date, the Partnership
commenced  operations  in  its  primary  business  (leasing  activities).  As of
February 13, 1997, the Partnership had received  subscriptions for 774,425 units
($7,744,250)  and the General  Partner  requested  that the  remaining  funds in
escrow (from Pennsylvania investors) be released to the Partnership.

The Partnership's  principal objectives are to invest in a diversified portfolio
of  equipment  which 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,  ending 72 months after the end of the year in
which the  Final  Closing  occurs  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.


Narrative Description of Business

The  Partnership  has acquired and intends to acquire various types of equipment
and to lease such  equipment  pursuant to  "Operating"  leases and "High Payout"
leases,  where  "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 is the  intention  of the  General  Partner  that  a  majority  of the
aggregate  purchase  price of equipment will  represent  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 will be
invested in equipment acquired from a single manufacturer.

The Partnership will generally only purchase  equipment for which a lease exists
or for which a lease will be entered into at the time of the purchase.

As of December 31, 1997, the  Partnership  had purchased  equipment with a total
acquisition price of $142,385,311.

The  Partnership's  objective  is to  lease a  minimum  of 75% of the  equipment
acquired  with the net  proceeds of the  offering  to lessees  which (i) have an
aggregate credit rating by Moody's Investor  service,  Inc. of Baa or better, or
the credit  equivalent as determined by the General Partner,  with the aggregate
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 the General
Partner, would not satisfy the general credit rating criteria for the portfolio.
<PAGE>

During 1997 certain lessees generated  significant portions of the Partnership's
total lease revenues as follows:

Lessee                           Type of Equipment
------                           ------------------
Burlington Northern Santa       Locomotives &
  Fe Railroad Company             intermodal containers                   24%
Cargill, Incorporated           Covered Rail Hopper Cars                  15%

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 which 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 the General Partner or the Partnership), such 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.

The General  Partner will seek 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.

Equipment Leasing Activities:

Through December 31, 1997, the Partnership has disposed of certain leased assets
as set forth below:

                                                       Excess of
 Type of         Original                              Rents Over
Equipment        Equipment Cost   Sale Price           Expenses *
--------
Tractors              $35,000            $33,666            $6,119
Railcars               99,000             96,747             9,415
               ---------------  ----------------- -----------------
                     $134,000           $130,413           $15,534
               ===============  ================= =================

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

The Partnership has acquired a diversified portfolio of equipment. The equipment
has been leased to lessees in various industries. The following tables set forth
the types of equipment acquired by the Partnership through December 31, 1997 and
the  industries  to which the  assets  have been  leased.  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 setoff exists.

<PAGE>

                                  Purchase price excluding   Percentage of total
       Asset types                   acquisition fees            acquisitions
       -----------                   ----------------            ------------
Transportation, intermodal containers    $26,631,519                 18.71%
Manufacturing                             24,849,113                 17.45%
Transportation, rail cars                 21,649,412                 15.20%
Other                                     16,640,192                 11.69%
Motor Vehicles                            12,407,749                  8.71%
Transportation, other                     10,903,940                  7.66%
Medical                                    7,152,721                  5.02%
Mining                                     6,275,273                  4.41%
Railroad locomotives                       5,010,960                  3.52%
Office automation                          3,948,070                  2.77%
Aircraft                                   3,754,018                  2.64%
Materials handling                         3,162,344                  2.22%
                                     ----------------      -----------------
                                        $142,385,311                100.00%
                                     ================      =================

                                  Purchase price excluding   Percentage of total
   Industry of lessee                acquisition fees            acquisitions
   ------------------                ----------------            ------------
Municipalities                           $36,825,777                 25.88%
Transportation, other                      25,092,815                17.62%
Electronics                                21,605,944                15.17%
Transportation, rail                       21,270,099                14.94%
Manufacturing, other                       12,220,882                 8.58%
Primary metals                              8,718,938                 6.12%
Business services                           6,141,076                 4.31%
Oil & gas                                   2,902,773                 2.04%
Other                                       7,607,007                 5.34%
                                     ----------------      -----------------
                                        $142,385,311                100.00%
                                     ================      =================

For further information regarding the Partnership's equipment lease portfolio as
of December 31, 1997,  see Note 3 to the financial  statements,  Investments  in
equipment  and  leases,   set  forth  in  Item  8,   Financial   Statements  and
Supplementary Data.


Item 2.  PROPERTIES

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


Item 3.  LEGAL PROCEEDINGS

Inapplicable.


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

Inapplicable.



<PAGE>

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS
              AND RELATED MATTERS

Market Information

The Units are transferable  subject to restrictions on transfers which have been
imposed under the securities  laws of certain  states.  However,  as a result of
such restrictions, the size of the Partnership and its investment objectives, to
the General Partner's knowledge,  no established public secondary trading market
has developed and it is unlikely  that a public  trading  market will develop in
the future.

Holders

As of December 31, 1997, a total of 2,683 investors were record holders of Units
in the Partnership.

Dividends

The  Partnership  does not make  dividend  distributions.  However,  the Limited
Partners of the  Partnership are entitled to certain  distributions  as provided
under the Limited Partnership Agreement.

The General  Partner  shall have sole  discretion in  determining  the amount of
distributions;  provided, however, that the General Partner will not reinvest in
equipment,  but will  distribute,  subject to payment of any  obligations of the
Partnership,  such  available  cash  from  operations  and  cash  from  sales or
refinancing  as may be  necessary  to cause total  distributions  to the Limited
Partners for each year during the reinvestment period to equal $1.00 per Unit.

The rate for monthly  distributions  from 1997  operations was $0.0833 per Unit.
The  distributions  were made in  February  1997  through  December  1997 and in
January 1998. For each quarterly  distribution  (made in April, July and October
1997 and in January 1998) the rate was $0.25 per Unit.  Distributions  were from
1997 cash  flows  from  operations.  The  amounts  paid to holders of Units were
adjusted  based on the length of time  within  the  previous  calendar  month or
quarter that the Units were outstanding.

The following table presents summarized  information regarding  distributions to
Limited Partners:

                                                               1997
                                                               ----
Distributions of net loss                                     $ (0.20)
Return of investment                                             1.00
                                                           ------------
Distributions per unit                                           0.79
Differences due to timing of distributions                       0.21
                                                           ------------
Nominal distribution rates from above                           $1.00
                                                           ============


<PAGE>

Information provided pursuant to ss. 228.701 (Item 701(f)) (formerly included in
Form SR):

(1) Effective date of the offering:  November 29, 1996;  File Number:  33388

(2) Offering commenced:  November 29, 1996

(3) The offering did not terminate before any securities were sold.

(4) The  offering  has  not  been  terminated  prior  to the  sale of all of the
securities.

(5) The managing underwriter is ATEL Securities Corporation.

(6) The  title of the  registered  class of  securities  is  "Units  of  Limited
Partnership interest"

(7) Aggregate amount and offering price of securities  registered and sold as of
December 31, 1997.

<TABLE>
<CAPTION>
                                                     Aggregate                           Aggregate
                                                      price of                            price of
                                                      offering                            offering
                                     Amount            amount            Amount            amount
Title of Security                  Registered        registered           sold              sold

<S>                                   <C>            <C>                   <C>            <C>
Limited Partnership units             15,000,000     $ 150,000,000         6,716,846      $ 67,168,460
</TABLE>

(8)  Costs  incurred  for  the  issuers   account  in
connection with the issuance and  distribution of the
securities registered for each category listed below:

<TABLE>
<CAPTION>
                                  Direct or indirect payments to
                                   directors, officers, general
                                  partners of the issuer or their
                                   associates; to persons owning
                                    ten percent or more of any         Direct or
                                   class of equity securities of        indirect
                                 the issuer; and to affiliates of     payments to
                                   the issuer                            others            Total
<S>                                    <C>                               <C>               <C>

Underwriting discounts and
commissions                            $ 944,377                         $ 5,436,627       $ 6,381,004

Other expenses                                 -                           3,272,580         3,272,580

                                 ----------------                   ----------------- -----------------
Total expenses                         $ 944,377                         $ 8,709,207       $ 9,653,584
                                 ================                   ================= =================

(9) Net offering proceeds to the issuer after the total expenses in item 8:               $ 57,514,876


<PAGE>

(10) The  amount  of  net  offering  proceeds  to the
     issuer  used  for  each of the  purposes  listed
     below:

                                    Direct or indirect payments
                                  to directors, officers, general
                                  partners of the issuer or their
                                      associates; to persons
                                    owning ten percent or more         Direct or
                                      of any class of equity            indirect
                                   securities of the issuer; and      payments to
                                    to affiliates of the issuer          others            Total

Purchase and installation of
machinery and equipment                      $ -                        $ 57,179,034      $ 57,179,034

Working capital                                -                             335,842           335,842
                                 ----------------                   ----------------- -----------------
                                             $ -                        $ 57,514,876      $ 57,514,876
                                 ================                   ================= =================
</TABLE>

(11) The use of the proceeds in Item 10 does not represent a material  change in
the uses of proceeds described in the prospectus.


Item 6.  SELECTED FINANCIAL DATA

The following  table  presents  selected  financial  data of the  Partnership at
December 31, 1997 and 1996.  This  financial  data should be read in conjunction
with the financial  statements  and related notes  included under Item 8 of this
report.

                                                       1997              1996
                                                       ----              ----
Gross revenues                                        $ 7,373,981        $ -

Net loss                                                ($738,233)       $ -

Weighted average Limited Partner Units
   outstanding                                          3,380,442         50

Net loss per Unit, based on weighted average
   Units outstanding                                      $ (0.20)       $ -

Distributions per Unit, based on weighted average
   Units outstanding                                       $ 0.79        $ -

Total Assets                                        $ 104,416,786      $ 600

Non-recourse Debt                                     $ 8,127,374        $ -

Total Partners' Capital                              $ 53,900,414      $ 600



<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS


Capital Resources and Liquidity

The Partnership  commenced its offering on November 29, 1996. As of December 31,
1996,  all of the proceeds of the offering were held by the escrow  agent.  Upon
sale of the minimum amount of Units (120,000 Units) ($1,200,000) and the receipt
of  the  proceeds  thereof  on  January  7,  1997,  the  Partnership   commenced
operations.  During  the  funding  period  and until the  Partnership's  initial
portfolio of equipment has been purchased,  funds which have been received,  but
which  have  not  yet  been  invested  in  leased  equipment,  are  invested  in
interest-bearing  accounts  or  high-quality/short-term  commercial  paper.  The
Partnership's  public offering  provides for a total maximum  capitalization  of
$150,000,000.

During the funding  period,  the  Partnership's  primary  source of liquidity is
subscription  proceeds from the public  offering of Units.  The liquidity of the
Partnership  will vary in the future,  increasing  to the extent cash flows from
leases and  proceeds of asset sales exceed  expenses,  and  decreasing  as lease
assets are acquired,  as  distributions  are made to the Limited Partners and to
the extent expenses exceed cash flows from leases and proceeds from asset sales.

As another source of liquidity,  the Partnership is expected to have contractual
obligations  with 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 General  Partner's  success in  re-leasing or selling
the equipment as it comes off lease.

The  Partnership  participates  with the  General  Partner  and  certain  of its
affiliates in a $90,000,000  revolving  line of credit (which has been increased
to  $105,000,000  through  March 31,  1998) with a  financial  institution  that
includes certain financial covenants.  The line of credit expires on October 28,
1998. As of December 31, 1997,  the  Partnership  had  $40,390,460 of borrowings
under this line of credit and the remaining availability was $17,754,812.

The Partnership  anticipates reinvesting a portion of lease payments from assets
owned in new leasing  transactions.  Such reinvestment will occur only after the
payment  of  all  obligations,   including  debt  service  (both  principal  and
interest), the payment of management and acquisition fees to the General Partner
and providing for cash  distributions to the Limited  Partners.  At December 31,
1997,  commitments to purchase lease assets totaled  $43,525,161.  These amounts
are expected to be funded from the existing line of credit,  additional offering
proceeds,  additional non-recourse  borrowings,  existing cash balances and cash
flows generated by operations.

As of December 31, 1997,  all cash  balances  consisted of amounts  reserved for
distributions  ($770,452) in January 1998, generated from operations in 1997 and
working capital.

The Partnership  currently has available adequate reserves to meet its immediate
cash requirements,  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.  The General  Partner  envisions  no such
requirements for operating purposes.

In the near future,  the  Partnership  expects to establish a $65 million dollar
receivables  funding  program with a receivables  financing  company that issues
commercial  paper rated A1 from Standard and Poors and P1 from Moody's  Investor
Services.  In this  receivables  funding  program,  the lenders  will  receive a
general  lien  against  all  of  the  otherwise   unencumbered   assets  of  the
Partnership.  The program provides for borrowing at a variable interest rate and
requires the General  Partner to enter into hedge  agreements with certain hedge
counterparties  (also rated A1/P1) to mitigate the interest rate risk associated
with a variable rate note.  The General  Partner  anticipates  that this program
will  allow  the  Partnership  to avail  itself  of lower  cost  debt  than that
available for individual non-recourse debt transactions.  It is the intention of
the Partnership to use the receivables  funding program to finance assets leased
to those credits which, in the opinion of the General Partner, have a relatively
lower potential risk of lease default then those lessees with equipment financed
with  non-recourse  debt. The  Partnership  will continue to use its traditional
sources of non-recourse secured debt financing on a transaction basis as a means
of mitigating credit risk.


The General  Partner  expects that  aggregate  borrowings  in the future will be
approximately  50% of aggregate  equipment cost. In any event,  the Agreement of
Limited  Partnership  limits  such  borrowings  to  50%  of the  total  cost  of
equipment, in aggregate.
<PAGE>

The  Partnership  commenced  regular  distributions,  based on cash  flows  from
operations,  beginning with the month of January 1997. See Items 5 and 6 of this
report for additional information regarding distributions.

If  inflation  in the general  economy  becomes  significant,  it may affect the
Partnership  inasmuch 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.

Cash Flows

In 1997,  the  Partnership's  primary  source  of cash was the  proceeds  of its
offering of Limited  Partnership Units.  Borrowings under the line of credit was
the other major  source of cash in 1997.  Once the  offering is  completed,  the
initial  portfolio of lease  equipment is acquired  and  long-term  financing is
finalized,  the major  source of cash is  expected  to be rents  from  operating
leases and proceeds from the sales of lease assets.

Cash  flows  from  operating  activities  was for the  most  part  generated  by
operating lease rents.

The only sources of cash from investing  activities  were proceeds from sales of
lease assets and rents from direct financing leases.  Neither was significant in
1997 compared to the financing sources of cash.


Results of Operations

As of January 7, 1997,  subscriptions  for the  minimum  amount of the  offering
($1,200,000) had been received and accepted by the Partnership. As of that date,
the  Partnership   commenced   operations  in  its  primary  business   (leasing
activities).  There  were no  operations  in 1996.  Because of the timing of the
commencement of operations and the fact that the initial portfolio  acquisitions
have not been  completed,  the results of operations in 1997 are not expected to
be comparable to future periods. After the Partnership's public offering and its
initial  asset  acquisition  stage  terminate,  the  results of  operations  are
expected to change significantly.

In 1997, operations resulted in a net loss of $738,233.  Operations commenced in
1997 and the Partnership's offering of Units will continue through most of 1998.
As a result, the Partnership's  operations are expected to change  considerably.
The results of 1998 operations are not expected to comparable to those of 1997.

The  Partnership's  primary  source of revenues is rents  generated by operating
leases.  Such leases are expected to be the most significant  source of revenues
in future  periods,  however,  the  amounts of such  revenues  are  expected  to
increase as a result of continuing asset purchases.


<PAGE>

Depreciation  expense  related to operating  lease  assets is the  Partnership's
largest  expense and it is  expected to increase in future  periods as assets on
operating leases are purchased.


Impact of the Year 2000

The year 2000 issue is the result of computer  programs  being written using two
digits rather than four to define the  applicable  year.  Any computer  programs
that have time  sensitive  software may  recognize a date using "00" as the year
1900  rather  than the year  2000.  This  could  result in a system  failure  or
miscalculation causing disruptions of operations, including, among other things,
a  temporary  inability  to process  transactions  or engage in  similar  normal
business activities.

The  Partnership  believes  that it will not be  required  to modify or  replace
significant  portions of its software and that the year 2000 issue will not pose
significant  operational problems for its computer systems. The Partnership does
not expect  that the costs  related to the year 2000 issue will be  significant.
Ultimately,  the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year  2000  issue is  addressed  by  businesses  and  other  entities  whose
financial  condition or operational  capability is important to the Partnership.
Therefore,  the Partnership is communicating to these parties to ensure they are
aware of the year  2000  issue,  to learn  how they are  addressing  it,  and to
evaluate any likely impact on the Partnership.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


See Financial  Statements and Notes to Financial  Statements  attached hereto at
pages 12 through 23.

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS






The Partners
ATEL Capital Equipment Fund VII, L.P.


We have audited the accompanying  balance sheets of ATEL Capital  Equipment Fund
VII,  L.P.  as of  December  31,  1997 and 1996 and the  related  statements  of
operations,  changes  in  partners'  capital  and cash  flows for the year ended
December 31, 1997 and the related statements of changes in partners' capital and
cash  flows  for the  period  from May 17,  1996  (inception)  through  December
31,1996.  These financial statements are the responsibility of the Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of ATEL Capital  Equipment Fund
VII,  L.P.  at December  31,  1997 and 1996 and the  results of its  operations,
changes in its partners'  capital and its cash flows for the year ended December
31, 1997 and its changes in partners' capital and cash flows for the period from
May 17, 1996 (inception)  through December 31,1996, in conformity with generally
accepted accounting principles.


                                                       ERNST & YOUNG LLP
San Francisco, California
February 6, 1998




<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                                 BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996


                                     ASSETS

                                                  1997              1996
                                                  ----              ----
Cash and cash equivalents                         $2,014,706              $600

Accounts receivable                                  917,219                 -

Other assets                                         200,000                 -

Investments in equipment and leases              101,284,861                 -
                                            ----------------- -----------------
Total assets                                    $104,416,786              $600
                                            ================= =================




                        LIABILITIES AND PARTNERS' CAPITAL


Non-recourse debt                                 $8,127,374

Lines of credit                                   40,390,460

Accounts payable and accruals:
   General Partner                                   334,256
   Other                                             535,621

Accrued interest payable                             197,664

Unearned lease income                                930,997
                                            -----------------
                                                  50,516,372

Partners' capital:
     General Partner                                (247,461)             $100
     Limited Partners                             54,147,875               500
                                            ----------------- -----------------
Total partners' capital                           53,900,414               600
                                            ----------------- -----------------
Total liabilities and partners' capital         $104,416,786              $600
                                            ================= =================




                             See accompanying notes.

<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                             STATEMENT OF OPERATIONS

                          YEAR ENDED DECEMBER 31, 1997


Revenues:

Leasing activities:
   Operating leases                                                 $7,139,544
   Direct financing leases                                             171,026
   Gain on sales of assets                                               3,752
Interest income                                                         56,642
Other                                                                    3,017
                                                              -----------------
                                                                     7,373,981

Expenses:

Depreciation and amortization                                        5,847,827
Interest                                                               714,701
Administrative cost reimbursements to General Partner                  645,437
Equipment and incentive management fees to affiliates                  358,846
Provision for losses and impairments                                    74,277
Professional fees                                                       90,305
Other                                                                  380,821
                                                              -----------------
                                                                     8,112,214
                                                              -----------------
Net loss                                                             ($738,233)
                                                              =================

Net loss:
   General Partner                                                    ($55,367)
   Limited Partners                                                   (682,866)
                                                              -----------------
                                                                     ($738,233)
                                                              =================

Net loss per Limited Partnership unit                                   ($0.20)

Weighted average number of units outstanding                         3,380,442



                             See accompanying notes.

<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

                          YEAR ENDED DECEMBER 31, 1997
                AND FOR THE PERIOD FROM MAY 17, 1996 (INCEPTION)
                            THROUGH DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                            Limited Partners       General
                                                                 Units            Amount           Partner            Total

<S>                                                               <C>            <C>                 <C>             <C>
Capital contributions                                                    50             $ 500             $ 100             $ 600
                                                            ---------------- ----------------- ----------------- -----------------
Balance December 31, 1996                                                50               500               100               600

Capital contributions received                                    6,716,846        67,168,460                 -        67,168,460
Less selling commissions to affiliates                                             (6,381,004)                -        (6,381,004)
Other syndication costs to affiliates                                              (3,272,580)                -        (3,272,580)
Distributions to Limited Partners ($0.79 per Unit)                                 (2,684,635)                -        (2,684,635)
Distributions to General Partner                                                            -          (192,194)         (192,194)
Net loss                                                                             (682,866)          (55,367)         (738,233)
                                                            ---------------- ----------------- ----------------- -----------------
Balance December 31, 1997                                         6,716,896      $ 54,147,875        $ (247,461)     $ 53,900,414
                                                            ================ ================= ================= =================
</TABLE>




                             See accompanying notes.

<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF CASH FLOWS

                          YEAR ENDED DECEMBER 31, 1997
                AND FOR THE PERIOD FROM MAY 17, 1996 (INCEPTION)
                            THROUGH DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                                                     1997              1996
                                                                                                     ----              ----
<S>                                                                                                  <C>                     <C>
Operating activities:
Net loss                                                                                              ($738,233)
Adjustment to reconcile net loss to net cash provided by
   operating activities:
     Depreciation and amortization                                                                    5,847,827
     Provision for losses and impairments                                                                74,277
    Gain on sales of assets (3,752) Changes in operating assets and liabilities:
         Accounts receivable                                                                           (917,219)
         Other assets                                                                                  (200,000)
         Accounts payable, General Partner                                                              334,256
         Accounts payable, other                                                                        535,621
         Accrued interest payable                                                                       197,664
         Unearned lease income                                                                          930,997
                                                                                               -----------------
Net cash provided by operating activities                                                             6,061,438
                                                                                               -----------------

Investing activities:
Purchases of equipment on operating leases                                                          (89,242,615)
Purchases of equipment on direct financing leases                                                   (16,841,671)
Purchases of equipment on leveraged leases                                                           (1,449,068)
Initial direct lease costs                                                                              (32,744)
Reduction of net investment in direct financing leases                                                  232,472
Proceeds from sales of assets                                                                           130,413
                                                                                               -----------------
Net cash used in investing activities                                                              (107,203,213)
                                                                                               -----------------

Financing activities:
Capital contributions received                                                                       67,168,460              $600
Payment of syndication costs to General Partner                                                      (9,653,584)
Distributions to Limited Partners                                                                    (2,684,635)
Distributions to General Partner                                                                       (192,194)
Borrowings under lines of credit                                                                     59,174,080
Repayments of borrowings under lines of credit                                                      (18,783,620)
Proceeds of non-recourse debt                                                                         8,324,416
Repayments of non-recourse debt                                                                        (197,042)
                                                                                               ----------------- -----------------
Net cash provided by financing activities                                                           103,155,881               600
                                                                                               ----------------- -----------------

Net increase in cash and cash equivalents                                                             2,014,106               600
Cash and cash equivalents at beginning of period                                                            600                 -
                                                                                               ----------------- -----------------
Cash and cash equivalents at end of period                                                           $2,014,706              $600
                                                                                               ================= =================

Supplemental disclosures of cash flow information:
Cash paid during the year for interest                                                                $ 517,037
                                                                                               =================
</TABLE>
                             See accompanying notes.

<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


1.  Organization and Partnership matters:

ATEL Capital  Equipment Fund VII, L.P. (the Fund),  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. Contributions in the amount
of $600 were received as of July 17, 1996, $100 of which represented the General
Partner's (ATEL Financial  Corporation's) (ATEL's) continuing interest, and $500
of which represented the Initial Limited Partners' capital investment.

Upon the sale of the  minimum  amount of Units of Limited  Partnership  interest
(Units) (120,000 Units)  ($1,200,000) and the receipt of the proceeds thereof on
January 7, 1997, the Partnership commenced operations.

The Partnership or the General Partner on behalf of the Partnership,  will incur
costs in  connection  with the  organization,  registration  and issuance of the
Units.  The amount of such costs to be born by the Partnership is limited to 15%
of Gross  Proceeds of up to  $25,000,000  and 14% of Gross Proceeds in excess of
$25,000,000.

The Partnership's business consists of leasing various types of equipment. As of
December 31, 1997,  the original  terms of the leases  ranged from one to eleven
years.

Pursuant to the Limited  Partnership  Agreement,  the General  Partner  receives
compensation  and   reimbursements  for  services  rendered  on  behalf  of  the
Partnership  (Note 5).  The  General  Partner is  required  to  maintain  in the
Partnership  reasonable  cash reserves for working  capital,  the  repurchase of
Units and contingencies.


2. Summary of significant accounting policies:

Equipment on operating leases:

Revenues  from  operating  leases  are  recognized  evenly  over the life of the
related leases.

Equipment on operating leases is stated at cost.  Depreciation is being provided
by use of the  straight-line  method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.

Direct financing leases:

Income from direct  financing  lease  transactions  is reported on 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 income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.

Statements of cash flows:

For purposes of the Statements of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.


<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


2. Summary of significant accounting policies (continued):

Income taxes:

The  Partnership  does not provide for income  taxes since all income and losses
are the liability of the  individual  partners and are allocated to the partners
for inclusion in their individual tax returns.

The tax basis of the  Partnership's  net assets and liabilities  varies from the
amounts presented in these financial statements (unaudited):

   Financial statement basis of net assets                         $53,900,414
   Tax basis of net assets                                          56,424,733
                                                                  -------------
   Difference                                                       $2,524,319
                                                                  =============

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


The following  reconciles the net loss reported in these financial statements to
the loss reported on the Partnership's federal tax return (unaudited):

   Net loss per financial statements                                 ($738,233)
   Adjustment to depreciation expense                               (6,820,550)
   Adjustments to lease revenues                                      (382,993)
   Provision for losses                                                 74,277
                                                                  -------------
   Net loss per federal tax return                                 ($7,867,499)
                                                                  =============

Per unit data:

Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.

Credit Risk:

Financial   instruments   which   potentially   subject   the   Partnership   to
concentrations  of credit risk  include cash and cash  equivalents  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 and direct financing  leases.  See Note 7 for a description of lessees
by industry as of December 31, 1997.

Use of estimates:

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


<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


3. Investments in equipment and leases:

As of December 31, 1997, the  Partnership's  investments in equipment and leases
consist of the following:

<TABLE>
<CAPTION>
                                                                               Depreciation
                                                                                Expense or         Reclass-
                                                                               Amortization     ifications or    December 31,
                                                               Additions        of Leases        Dispositions          1997
                                                               ---------        ---------        ------------          ----
<S>                                                           <C>                <C>                 <C>            <C>
Net investment in operating leases                             $ 89,242,615      $ (5,847,381)       $ (126,661)     $ 83,268,573
Net investment in direct financing leases                        16,841,671          (232,472)                -        16,609,199
Net investment in leveraged leases                                1,449,068                 -                 -         1,449,068
Reserve for losses                                                  (74,277)                -                 -           (74,277)
Initial direct costs, net of accumulated amortization
   of $446 in 1997                                                   32,744              (446)                -            32,298
                                                            ---------------- ----------------- ----------------- -----------------
                                                              $ 107,491,821      $ (6,080,299)       $ (126,661)    $ 101,284,861
                                                            ================ ================= ================= =================
</TABLE>

Operating leases:

Property on operating lease consists of the following additions and dispositions
during 1997 and as of December 31, 1997:

<TABLE>
<CAPTION>
                                                     Reclass-
                                                  ifications or       December 31,
                                  Additions        Dispositions           1997
                                  ---------        ------------           ----
<S>                                <C>                 <C>             <C>
Transportation                     $ 51,219,754         $ (99,000)     $ 51,120,754
Manufacturing                        14,342,104                 -        14,342,104
Mining                                6,275,273                 -         6,275,273
Motor vehicles                        5,454,671                 -         5,454,671
Aircraft                              3,430,000                 -         3,430,000
Materials handling                    3,162,344           (35,000)        3,127,344
Other                                 2,601,605                 -         2,601,605
Office automation                     1,624,385                 -         1,624,385
Furniture and fixtures                1,132,479                 -         1,132,479
                               ----------------- ----------------- -----------------
                                     89,242,615          (134,000)       89,108,615
Less accumulated depreciation        (5,847,381)            7,339        (5,840,042)
                               ----------------- ----------------- -----------------
                                   $ 83,395,234        $ (126,661)     $ 83,268,573
                               ================= ================= =================
</TABLE>
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


Direct financing leases:

As of December  31,  1997,  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, 1997:


Total minimum lease payments receivable                       $ 14,612,091
Estimated residual values of leased equipment (unguaranteed)     7,106,748
                                                             --------------
Investment in direct financing leases                           21,718,839
Less unearned income                                            (5,109,640)
                                                             --------------
Net investment in direct financing leases                     $ 16,609,199
                                                             ==============

All of the property on leases was acquired in 1997.

At December 31, 1997,  the aggregate  amounts of future  minimum lease  payments
under operating and direct financing leases are as follows:
                                                                Direct
    Year ending       Operating        Financing
    December 31,        Leases          Leases            Total
    ------------        ------          ------            -----
             1998     $ 16,890,991      $ 2,278,884      $ 19,169,875
             1999       16,446,553        2,523,513        18,970,066
             2000       13,957,704        2,523,513        16,481,217
             2001       11,797,592        2,523,513        14,321,105
             2002        8,521,950        2,116,959        10,638,909
       Thereafter        6,240,298        2,645,709         8,886,007
                    --------------- ---------------- -----------------
                      $ 73,855,088     $ 14,612,091      $ 88,467,179
                    =============== ================ =================

Leveraged leases:

As of December 31, 1997, investment in leveraged leases consists of railroad box
cars.  The following  lists the  components of the  Partnership's  investment in
leveraged leases as of December 31, 1997:

Aggregate rentals receivable                                         $2,241,056
Less aggregate principal and interest payable on non-recourse loans  (2,033,287)
Estimated residual value of leased assets                             1,672,855
Less unearned income                                                   (431,556)
                                                                   -------------
Net investment in leveraged leases                                  $ 1,449,068
                                                                   =============


<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


4.  Non-recourse debt:

At December 31, 1997,  non-recourse  debt consists of notes payable to financial
institutions.  The notes are due in varying  monthly,  quarterly and semi-annual
payments.  Interest  on the notes is at rates from 8.3% to 10.0%.  The notes are
secured by assignments of lease payments and pledges of assets.  At December 31,
1997, the carrying value of the pledged assets is approximately $9,596,682.  The
notes mature from 2002 through 2004.

Future minimum payments of non-recourse debt are as follows:

   Year ending
   December 31,      Principal         Interest           Total
            1998        $ 752,125         $ 296,811       $ 1,048,936
            1999        1,258,792           984,894         2,243,686
            2000        1,703,036           540,650         2,243,686
            2001        1,861,393           382,293         2,243,686
            2002        1,466,096           219,272         1,685,368
      Thereafter        1,085,932           108,820         1,194,752
                  ---------------- ----------------- -----------------
                      $ 8,127,374       $ 2,532,740      $ 10,660,114
                  ================ ================= =================


5.  Related party transactions:

The terms of the Limited Partnership  Agreement provide that the General Partner
and/or   Affiliates   are  entitled  to  receive   certain  fees  for  equipment
acquisition, management and resale and for management of the Partnership.

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

Substantially  all  employees  of the General  Partner  record time  incurred in
performing administrative services on behalf of all of the Partnerships serviced
by the General  Partner.  The General Partner believes that the costs reimbursed
are the lower of (i) actual costs incurred on behalf of the  Partnership or (ii)
the amount the  Partnership  would be  required to pay  independent  parties for
comparable  administrative  services  in the same  geographic  location  and are
reimbursable in accordance with the Limited Partnership Agreement.


<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


5.  Related party transactions (continued):

The  General   Partner   and/or   Affiliates   earned  fees,   commissions   and
reimbursements,  pursuant to the Limited Partnership Agreement as follows during
1997:


Selling commissions (equal to 9.5% of the selling price of the
Limited Partnership units, deducted from Limited Partners' capital  $6,381,004

Reimbursement of other syndication costs                             3,272,580

Administrative costs reimbursed to General Partner                     645,437

Incentive  management  fees  (computed  as 4.0% of  distributions
of cash  from operations,  as defined in the  Limited  Partnership
Agreement)  and  equipment management  fees (computed as 3.5% of
gross revenues from operating  leases,  as defined in the Limited
Partnership Agreement plus 2% of gross revenues from full payout
leases, as defined in the Limited Partnership Agreement).              358,846
                                                                  -------------
                                                                   $10,657,867
                                                                  =============


6.  Partners' capital:

As  of  December  31,  1997,  6,716,896  Units  ($67,168,960)  were  issued  and
outstanding.  The Fund is authorized to issue up to 15,000,050 Units,  including
the 50 Units issued to the initial limited partners.

The  Partnership  Net Profits,  Net Losses,  and Tax Credits are to be allocated
92.5% to the Limited Partners and 7.5% to the General Partner.

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

First,  Distributions  of Cash  from  Operations  shall be 88.5% to the  Limited
Partners,  7.5% to the  General  Partner  and 4% to the  General  Partner 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
Limited Partnership Agreement.

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

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

<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


6.  Partners' capital (continued):

First,  Distributions  of Sales or  Refinancings  shall be 92.5% to the  Limited
Partners  and 7.5% to the  General  Partner,  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 the General Partner and 7.5% to the
General  Partner or its  affiliate  designated as the recipient of the Incentive
Management Fee.

7. Concentration of credit risk and major customers:

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

As of  December  31,  1997  there  were  concentrations  (greater  than  10%) of
equipment  leased to lessees in certain  industries  (as a  percentage  of total
equipment cost) as follows:


                           Municipalities             26%
                           Transportation, other      18%
                           Transportation, rail       15%
                           Electronics                15%

During 1997, two customers  comprised 24% and 15% of the Partnership's  revenues
from leases.


8.  Lines of credit:

The  Partnership  participates  with the  General  Partner  and  certain  of its
Affiliates in a $90,000,000 revolving credit agreement (which has been increased
to $105,000,000  through March 31, 1998) with a group of financial  institutions
which  expires on October  28,  1998.  The  agreement  includes  an  acquisition
facility and a warehouse facility which are used to provide bridge financing for
assets on leases.  Draws on the acquisition  facility by any individual borrower
are secured only by that  borrower's  assets,  including  equipment  and related
leases.  Borrowings on the warehouse facility are recourse jointly to certain of
the Affiliates, the Partnership and the General Partner.

During 1997,  the  Partnership  borrowed  $59,174,080  under the line of credit.
Repayments on the line of credit were  $18,783,620  during 1997 and  $40,390,460
remained outstanding as of December 31, 1997. At December 31, 1997, the rates on
such borrowings varied from 7.47% to 8.50%.

The credit agreement  includes certain  financial  covenants  applicable to each
borrower.  The  Partnership  was in compliance with its covenants as of December
31, 1997. At December 31, 1997, $17,754,812 was available under this agreement.


<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


9. Fair value of financial instruments:

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

Cash and cash equivalents:

The carrying amount of cash and cash equivalents approximates fair value because
of the short 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, 1997 is $8,534,223.

Line of credit:

The  carrying  amounts  of the  Partnership's  variable  rate  lines  of  credit
approximate fair value.



<PAGE>

Item 9.  CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
           ACCOUNTING AND FINANCIAL DISCLOSURES

Inapplicable.


                                    PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS

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

All of the outstanding capital stock of ATEL Financial  Corporation (the General
Partner) is held by ATEL Capital  Group  ("ACG"),  a holding  company  formed to
control the General  Partner and  affiliated  companies  pursuant to a corporate
restructuring  completed in July 1994.  The  outstanding  capital  stock of ATEL
Capital Group is owned 75% by A. J. Batt and 25% by Dean Cash,  and was obtained
in the  restructuring in exchange for their capital  interests in ATEL Financial
Corporation.

Each of ATEL Leasing Corporation  ("ALC"),  ATEL Equipment  Corporation ("AEC"),
ATEL  Investor  services  ("AIS") and ATEL  Financial  Corporation  ("AFC") 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  service are
performed by AEC, investor relations and communications service are performed by
AIS and general administrative service for the Partnership are performed by AFC.
ATEL  Securities  Corporation  ("ASC"),  is a  wholly-owned  subsidiary  of ATEL
Financial Corporation.

The officers and directors of ATEL Capital Group, ATEL Financial Corporation and
their affiliates are as follows:

A. J. Batt                 Chairman of the Board of Directors of ACG, AFC, ALC,
                           AEC, AIS and ASC; President and Chief Executive
                           Officer of ACG, AFC and AEC

Dean L. Cash               Director, Executive Vice President and Chief
                           Operating Officer of ACG, AFC, and AEC; Director,
                           President and Chief Executive Officer of ALC, AIS
                           and ASC

F. Randall Bigony          Senior Vice President and Chief Financial Officer of
                           ACG, AFC, ALC, AIS and AEC

Donald E. Carpenter        Vice President and Controller of ACG, AFC, ALC, AEC
                           and AIS; Chief Financial Officer of ASC

Vasco H. Morais            General Counsel for ACG, AFC, ALC, AIS and AEC

William J. Bullock         Director of Asset Management of AEC

Russell H. Wilder          Vice President - Credit of AEC

John P. Scarcella          Vice President of ASC


<PAGE>

A. J. Batt, age 61, founded ATEL in 1977 and has been its president and chairman
of the  board of  directors  since  its  inception.  From  1973 to 1977,  he was
employed by GATX  Leasing  Corporation  as  manager-data  processing  and equity
placement for the lease underwriting department, which was involved in equipment
financing  for  major  corporations.  From  1967 to 1973  Mr.  Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support  services for computer  time-sharing  applications  for corporations and
financial  institutions.  Prior to that time, he was employed by North  American
Aviation as an  engineer  involved in the Apollo  project.  Mr. Batt  received a
B.Sc.  degree with honors in  mathematics  and physics  from the  University  of
British Columbia in 1961.

Dean L. Cash,  age 47, 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.   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.

F.  Randall  Bigony,  age 40,  joined  ATEL in  1992  to  review  administrative
operations  within  ATEL  Financial  Corporation  and to develop  and  implement
functional  plans to  support  company  growth.  He  currently  oversees  ATEL's
accounting, MIS and treasury functions. From 1987 until joining ATEL, Mr. Bigony
was  president  of F.  Randall  Bigony & Co., a  consulting  firm that  provided
financial and strategic  planning  services to emerging growth  companies.  From
1983 to 1987,  he was a manager  with the  accounting  firm of Ernst &  Whinney,
serving  clients in its management  consulting  practice.  Mr. Bigony received a
B.A.  degree in business  from the  University  of  Massachusetts  and an M.B.A.
degree in finance from the University of California,  Berkeley. He is a founding
board  member and acting  treasurer  of the I Have a Dream  Foundation  Bay Area
Chapter.

Donald E. Carpenter, age 49, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath,  certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983,  Mr.  Carpenter  was an  audit  senior  with  Deloitte,  Haskins  & Sells,
certified public accountants,  in San Jose,  California.  From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter  received a
B.S. degree in mathematics  (magna cum laude) from California State  University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.

Vasco H. Morais, age 39, 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 and a J.D. degree in 1986 from Golden Gate University Law
School.  Mr.  Morais  has been an active  member of the State Bar of  California
since 1986.
<PAGE>

William J.  Bullock,  age 34,  joined  ATEL in 1991,  as the  director  of asset
management. He assumed responsibility for the disposition of off-lease equipment
and  residual  valuation  analysis on new lease  transactions.  Prior to joining
ATEL,  Mr.  Bullock  was a senior  member of the  equipment  group at  McDonnell
Douglas  Finance  Corporation  ("MDFC")  responsible for managing its $4 billion
portfolio of leases.  Mr. Bullock was involved in negotiating sales and renewals
as well as preparing and  inspecting  equipment.  Prior to joining MDFC in 1989,
Mr. Bullock was the Senior  Negotiator at Equitable  Leasing (a subsidiary of GE
Capital Equipment Corp.) in San Diego. At Equitable, he handled the end-of-lease
negotiations  and equipment  dispositions of a portfolio  comprised of equipment
leased primarily to Fortune 200 companies.  Mr. Bullock has been a member of the
Equipment Lessors  Association  ("ELA") since 1987 and has authored ELA industry
articles.  He  received a B.S.  degree in  Finance in 1987 from San Diego  State
University and is pursuing his M.B.A.

Russell  H.  Wilder,  age 42,  joined  ATEL in  1992 as Vice  President  of ATEL
Business Credit, a wholly-owned  subsidiary of ACG. Immediately prior to joining
ATEL,  Mr.  Wilder was a personal  property  broker  specializing  in  equipment
leasing  and  financing  and an  outside  contractor  in the areas of credit and
collections.  From 1985 to 1990 he was Vice President and Manager of Leasing for
Fireside Thrift Co., a Teledyne subsidiary,  and was responsible for all aspects
of setting up and  managing  the  department,  which  operated as a small ticket
lease  funding  source.  From  1983 to  1985 he was  with  Wells  Fargo  Leasing
Corporation  as  Assistant  Vice  President  in the credit  department  where he
oversaw all credit analysis on  transactions in excess of $2 million.  From 1978
to 1983 he was District Credit Manager with  Westinghouse  Credit  Corporation's
Industrial Group and was responsible for all non-marketing operations of various
district offices. Mr. Wilder holds a B.S. with Honors in Agricultural  Economics
and Business  Management from the University of California at Davis. He has been
awarded the Certified Lease Professional  designation by the Western Association
of Equipment Lessors.

John P. Scarcella,  age 35, joined ATEL Securities as vice president in 1992. He
is involved in the marketing of securities offered by ASC. Prior to joining ASC,
from 1987 to 1991,  he was  employed  by Lansing  Pacific  Fund,  a real  estate
investment  trust in San Mateo,  California  and acted as  director  of investor
relations.   From  1984  to  1987,   Mr.   Scarcella   acted  as  broker  dealer
representative  for Lansing  Capital  Corporation,  where he was involved in the
marketing of direct  participation  programs and REITs. Mr. Scarcella received a
B.S.C.  degree with emphasis in investment finance in 1983 and an M.B.A.  degree
with a concentration in marketing in 1991 from Santa Clara University.


Item 11.  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 the  General  Partner  and  their  Affiliates.  The  amount  of such
remuneration  paid  through  December  31,  1997 is set  forth in Item 8 of this
report under the caption "Financial Statements and Supplementary Data - Notes to
the Financial  Statements - Related party transactions," at Note 5 thereof which
information is hereby incorporated by reference.

Selling Commissions

The  Partnership  will pay  selling  commissions  in the amount of 9.5% of Gross
Proceeds,  as defined,  to ATEL  Securities  Corporation,  an  affiliate  of the
General  Partner.  Of this  amount,  the majority is expected to be reallowed to
other broker/dealers.
<PAGE>

Through  December  31,  1997,  $6,381,004  of such  commissions  had been either
accrued  or paid to the  General  Partner  or its  affiliates.  Of that  amount,
$5,436,627 was reallowed to other broker/dealers.

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,  the  General  Partner 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  revenues  from
"operating" leases and (ii) 2% of gross revenues from "full payout" leases which
contain net lease provisions.

See Note to the  financial  statements  included  in Item 8 of this  report  for
amounts paid.

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,  the General Partner shall be entitled to receive
the Incentive management fee which shall be payable for each fiscal quarter.

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

First,  Distributions  of Cash  from  Operations  shall be 88.5% to the  Limited
Partners,  7.5% to the  General  Partner  and 4% to the  General  Partner 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
Limited Partnership Agreement.

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

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

First,  Distributions  of Sales or  Refinancings  shall be 92.5% to the  Limited
Partners  and 7.5% to the  General  Partner,  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 the General Partner and 7.5% to the
General  Partner or its  affiliate  designated as the recipient of the Incentive
Management Fee.


<PAGE>

See Note to the  financial  statements  included  in Item 8 of this  report  for
amounts paid.

Equipment Resale Fees

As compensation  for service  rendered in connection with the sale of equipment,
the General  Partner  shall be 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 Limited 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,  the General Partner shall
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  provide that (i) the General Partner 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) the General Partner or its affiliates
have rendered  substantial  re-leasing  service in connection with such re-lease
and (iv) the General  Partner or its  affiliates are  compensated  for rendering
equipment management service. To date, none have been accrued or paid.

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 the general  partner.  See  financial  statements
included in Item 8, Part I of this report for amounts  allocated  to the General
Partner in 1997.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

Security Ownership of Certain Beneficial Owners

At December 31, 1997 no investor is known to hold  beneficially  more than 5% of
the issued and outstanding Units.

<PAGE>
Security Ownership of Management

The  shareholders  of the  General  Partner  are  beneficial  owners of  Limited
Partnership Units as follows:

<TABLE>
<CAPTION>
           (1)                                   (2)                               (3)                                 (4)
                                                  Name and Address of               Amount and Nature of             Percent
      Title of Class                               Beneficial Owner                 Beneficial Ownership             of Class

<S>                                                                                                                   <C>
Limited Partnership Units                     A. J. Batt                       Initial Limited Partner Units          0.00037%
                                              235 Pine Street, 6th Floor     25 Units ($250)
                                                San Francisco, CA 94104       (owned by wife)

Limited Partnership Units                     Dean Cash                        Initial Limited Partner Units          0.00037%
                                              235 Pine Street, 6th Floor     25 Units ($250)
                                                San Francisco, CA 94104       (owned by wife)
</TABLE>

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.

The General Partner 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 therefor of Limited Partners holding 10%
or more of the total outstanding Limited Partnership units.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  responses  to Item 1 of this report  under the caption  "Equipment  Leasing
Activities," Item 8 of this report under the caption  "Financial  Statements and
Supplemental  Data  -  Notes  to  the  Financial   Statements  -  Related  party
transactions"  at Note 5 thereof,  and Item 11 of this report  under the caption
"Executive Compensation," are hereby incorporated herein by reference.




<PAGE>
                                     PART IV



Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
               ON FORM 8-K

                      (a) Financial Statements and Schedules
                        1. Financial Statements
                           Included in Part II of this report:
                           Report of Independent Auditors
                           Balance Sheets at December 31, 1997 and 1996
                           Statement of Operations for the year ended December
                              31, 1997
                           Statements of Changes in  Partners'  Capital  for the
                              year ended  December  31,  1997 and for the period
                              from May 17, 1996 (inception) through December 31,
                              1996
                           Statement of Cash Flows for the year  ended  December
                              31,   1997  and  the  period  from  May  17,  1996
                              (inception) through December 31, 1996
                           Notes to Financial Statements

                        2. Financial Statement Schedules
                           Allschedules  for  which  provision  is  made  in the
                              applicable    accounting    regulations   of   the
                              Securities   and  Exchange   Commission   are  not
                              required  under the  related  instructions  or are
                              inapplicable, and therefore have been omitted.

                      (b)  Reports  on Form 8-K for the  fourth  quarter of 1997
                           None

                      (c) Exhibits
                           (3)and  (4)   Agreement   of   Limited   Partnership,
                              included  as  Exhibit  B  to  Prospectus  (Exhibit
                              28.1), is incorporated  herein by reference to the
                              report on Form 10K for the period  ended  December
                              31, 1996 (File No. 333-08879).


<PAGE>

                                              SIGNATURES


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



                    Date:  3/27/1998

                      ATEL Capital Equipment Fund VII, L.P.
                                             (Registrant)


        By:  ATEL Financial Corporation,
             General Partner of Registrant



                        By:   /s/  A. J. Batt
                              --------------------------------------------------
                              A. J. Batt,
                              President and Chief Executive Officer of
                              ATEL Financial Corporation (General
                              Partner)




                        By:    /s/ Dean Cash
                              --------------------------------------------------
                              Dean Cash,
                              Executive vice President of ATEL
                              Financial Corporation (General Partner)






<PAGE>

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/ A. J. Batt        President, chairman and chief   3/27/1998
---------------------------------- executive officer of ATEL
               A. J. Batt          Financial Corporation



              /s/ Dean Cash        Executive vice president and    3/27/1998
---------------------------------- director of ATEL Financial
                Dean Cash          Corporation



          /s/ F. Randall Bigony    Principal financial officer     3/27/1998
---------------------------------- of registrant; principal
            F. Randall Bigony      financial officer of ATEL
                                   Financial Corporation



         /s/ Donald E. Carpenter   Principal accounting officer    3/27/1998
---------------------------------- of registrant; principal
           Donald E. Carpenter     accounting officer of ATEL
                                   Financial Corporation





Supplemental  Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:

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-K, and copies thereof will be furnished  supplementally to the
Commission when forwarded to the security holders.