Form 10-K

                       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, 2001
                                       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 0-24175

                      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: Limited Partnership
Units

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

Prospectus  dated November 29, 1996,  filed pursuant to Rule 424(b)  (Commission
File No. 333-08879) is hereby incorporated by reference into Part IV hereof.


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|






                                       1
<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 General Partner of the  Partnership is ATEL Financial  Services
LLC (ATEL).  Prior to converting to a limited liability company  structure,  the
General Partner 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, the
Partnership  commenced operations in its primary business (leasing  activities).
As of  November  27,  1998,  the  Partnership  had  received  subscriptions  for
15,000,000  ($150,000,000)  Limited  Partnership  Units  and  the  offering  was
terminated.   As  of  December  31,  2001,  14,996,050  Units  were  issued  and
outstanding.

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  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.

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, 2001, the  Partnership  had purchased  equipment with a total
acquisition price of $295,738,953.

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.
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 aggregate
credit rating of Baa or better or to such hospitals or municipalities.



                                       2
<PAGE>

During  2001  and  2000,  no  single  lessee  generated  more  than  10%  of the
Partnership's lease revenues.  During 1999 certain lessees generated significant
portions of the Partnership's total lease revenues as follows:

<TABLE>
<CAPTION>
          Lessee                             Type of Equipment          2001     2000    1999
          ------                             -----------------          ----     ----    ----
<S>                                          <C>                          <C>     <C>    <C>
Burlington Northern Santa Fe Railroad        Locomotives & intermodal     *       *      10%
   Company                                      containers
</TABLE>
*  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 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, 2001, 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 *
        ---------        --------------      ----------         ----------
Manufacturing               $20,148,978       $ 6,598,632       $ 12,995,002
Transportation               15,633,616         7,357,523         12,511,925
Aircraft                      3,764,124         4,330,088          1,814,760
Other                         2,146,575           340,470          1,354,717
Office automation             6,200,335           911,459          6,044,229
Food processing               1,879,008         1,304,001          1,662,983
Furniture and fixtures        1,350,493           765,340          1,068,345
Mining                          816,729           888,685            173,808
Materials handling              572,978            25,095            746,386
                        ----------------  ----------------  -----------------
                            $52,512,836      $ 22,521,293       $ 38,372,155
                        ================  ================  =================

* 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, 2001 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 offset exists.

                                       3
<PAGE>

                                   Purchase Price Excluding Percentage of Total
       Asset Types                     Acquisition Fees          Acquisitions
       -----------                     ----------------          ------------
Transportation, rail cars                 $ 64,328,409                 21.76%
Manufacturing                               45,709,520                 15.46%
Mining                                      30,756,101                 10.40%
Transportation, other                       26,723,940                  9.04%
Transportation, intermodal containers       26,631,519                  9.01%
Marine vessels                              22,335,250                  7.55%
Motor Vehicles                              12,519,832                  4.23%
Office automation                           11,449,934                  3.87%
Materials handling                           9,942,309                  3.36%
Medical                                      9,133,951                  3.09%
Aircraft                                     6,310,979                  2.13%
Railroad locomotives                         5,010,960                  1.69%
Other *                                     24,886,249                  8.41%
                                      -----------------      -----------------
                                         $ 295,738,953                100.00%
                                      =================      =================

                                   Purchase Price Excluding  Percentage of Total
    Industry of Lessee                 Acquisition Fees          Acquisitions
    ------------------                 ----------------          ------------
Transportation, rail                      $ 73,779,368                 24.95%
Municipalities                              45,050,058                 15.23%
Transportation, other                       43,079,361                 14.57%
Manufacturing, other                        34,283,793                 11.59%
Electronics                                 26,062,302                  8.81%
Mining                                      17,670,967                  5.98%
Business services                           15,093,493                  5.10%
Primary metals                              13,251,254                  4.48%
Other *                                     27,468,357                  9.29%
                                      -----------------      -----------------
                                         $ 295,738,953                100.00%
                                      =================      =================

* Individual amounts included in "Other" represent less than 2.5% of the total.

For further information regarding the Partnership's equipment lease portfolio as
of December 31, 2001,  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  material
physical properties other than the equipment held for lease as set forth in Item
1.


Item 3.  LEGAL PROCEEDINGS

No material legal  proceedings are currently  pending against the Partnership or
against  any of its assets.  The  following  is a  discussion  of legal  matters
involving  the  Partnership,  but  which do not  represent  claims  against  the
Partnership or its assets.

Applied Magnetics Corporation:

In  January  2000,  Applied  Magnetics  Corporation  filed for  protection  from
creditors  under Chapter 11 of the U.S.  Bankruptcy  Code. The  Partnership  had
assets  with a total net book value of  $8,048,095  leased to Applied  Magnetics
Corporation  at the  bankruptcy  filing date.  On January 31, 2000,  the General
Partner was  appointed to the Official  Committee  of  Unsecured  Creditors  and
currently  serves as the  Chairperson of the Committee.  Procedures were quickly
undertaken for the  liquidation of the  Partnership's  leased  equipment,  which
proceeds  resulted in recoveries  of  $1,773,798 or 21.7% of original  equipment
cost. As of November 1, 2000, liquidation of the assets was completed.



                                       4
<PAGE>

The debtor filed a Plan of Reorganization (the "Plan"),  which was approved by a
vote of the creditors of the debtor in October 2001.  The Plan provided that the
Debtor change its name to  "Integrated  Micro-Technology",  and enter into a new
line of business, the manufacture and production of "micro-machines". As part of
the Plan, the Partnership,  along with the other unsecured creditors, receives a
proportionate  share of their unsecured  claims, in the form of ownership shares
and warrants in the newly formed business. The success of this new business plan
is highly uncertain.

The Partnership  anticipates  additional amounts may be recoverable  through its
equity interests in the reorganized  lessee's business,  however, any recoveries
above the amounts received upon liquidation of the  Partnership's  equipment are
highly uncertain and speculative.

Pioneer Companies, Inc.:

On July 31, 2001,  petitions  for  reorganization  under  Chapter 11 of the U.S.
Bankruptcy  Code  were  filed  by  the  Pioneer  Companies,  Inc.,  et  al.  The
Partnership's  Proof of Claim was timely  filed on October  14,  2001,  with the
Bankruptcy  Clerk in Houston.  The  Partnership  is the successor in interest to
First Union Rail Corporation  (FURC) under four (4) tank car lease schedules for
36 tank cars with Pioneer  Chlor-Alkali  Company,  Inc. n/k/a Pioneer  Americas,
Inc. (together,  the "Lease").  FURC manages the Lease for the Partnership.  The
Order Confirming  Debtor's Joint Plan of Reorganization  Under Chapter 11 of the
Bankruptcy  Code ("Plan") was entered on November 28, 2001. The Effective  Date,
as defined in the Plan, was December 31, 2001.  Pursuant to Schedules  6.1(a)(x)
and 6.1(a)(y) of the Plan, the Lease was rejected by the debtor.

Although the  equipment  was to be returned to FURC by December  31,  2001,  the
debtor  has  continued  to use and pay for the  equipment  under  the Lease on a
month-to-month  basis.  A letter  agreement  has been  forwarded  to  debtor  to
formalize an understanding for debtor's continued use of the equipment under the
terms of the  Lease at least  until  March  31,  2002.  The full  extent  of any
recovery is not known at this time.


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

None.


                                     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, 2001, a total of 5,586 investors were record holders of Units
in the Partnership.



                                       5
<PAGE>

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  has  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 reinvestment period ends December 31, 2004.

The rate for monthly  distributions  from 2001  operations was $0.0833 per Unit.
The  distributions  were paid in  February  2001  through  December  2001 and in
January 2002. For each quarterly  distribution  (paid in April, July and October
2001 and in January 2002) the rate was $0.25 per Unit.  Distributions  were from
2001 cash flows from operations.

The rate for monthly  distributions  from 2000  operations was $0.0833 per Unit.
The  distributions  were paid in  February  2000  through  December  2000 and in
January 2001. For each quarterly  distribution  (paid in April, July and October
2000 and in January 2001) the rate was $0.25 per Unit.  Distributions  were from
2000 cash flows from operations.

The rate for monthly  distributions  from 1999  operations was $0.0833 per Unit.
The  distributions  were paid in  February  1999  through  December  1999 and in
January 2000. For each quarterly  distribution  (paid in April, July and October
1999 and in January 2000) the rate was $0.25 per Unit.  Distributions  were from
1999 cash flows from operations.

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

<TABLE>
<CAPTION>
                                                  2001              2000             1999              1998              1997
                                                  ----              ----             ----              ----              ----
<S>                                                   <C>               <C>             <C>                <C>              <C>
Distributions of net income (loss)                    $ 0.01            $ 0.53          $ (0.17)           $ 0.46           $ (0.20)
Return of investment                                    0.99              0.48             1.17              0.45              0.99
                                             ---------------- ----------------- ---------------- ----------------- -----------------
Distributions per Unit                                  1.00              1.01             1.00              0.91              0.79
Differences due to timing of distributions                 -             (0.01)               -              0.09              0.21
                                             ---------------- ----------------- ---------------- ----------------- -----------------
Nominal distribution rates from above                 $ 1.00            $ 1.00           $ 1.00            $ 1.00            $ 1.00
                                             ================ ================= ================ ================= =================
</TABLE>




                                       6
<PAGE>

Item 6.  SELECTED FINANCIAL DATA

The following  table  presents  selected  financial  data of the  Partnership at
December 31, 2001, 2000, 1999, 1998 and 1997. This financial data should be read
in  conjunction  with the financial  statements and related notes included under
Part II Item 8.


<TABLE>
<CAPTION>
                                                  2001              2000             1999              1998              1997
                                                  ----              ----             ----              ----              ----
<S>                                              <C>              <C>              <C>               <C>                <C>
Gross revenues                                   $30,646,525      $ 41,463,919     $ 39,634,771      $ 37,195,090       $ 7,373,981

Net income (loss)                                $ 2,939,818       $ 9,158,705     $ (2,159,370)      $ 5,279,496        $ (738,233)

Weighted average Units outstanding                14,996,050        14,996,050       14,996,050        10,729,510         3,380,442

Net income (loss) allocated to
   Limited Partners                                $ 140,295       $ 7,938,589     $ (2,622,996)      $ 4,883,534        $ (682,866)

Net income (loss) per Unit, based on
   weighted average Units outstanding                 $ 0.01            $ 0.53          $ (0.17)           $ 0.46           $ (0.20)

Distributions per Unit, based on
   weighted average Units outstanding                 $ 1.00            $ 1.01           $ 1.00            $ 0.91            $ 0.79

Total Assets                                    $135,853,619     $ 157,600,746    $ 191,424,300     $ 212,456,902      $104,416,786

Non-recourse Debt                                $ 9,971,225      $ 15,452,741     $ 21,780,420      $ 16,599,347       $ 8,127,374

Other long-term debt                             $38,540,000      $ 44,877,000     $ 53,181,000      $ 61,553,000               $ -

Total Partners' Capital                          $79,492,851      $ 94,163,608    $ 101,313,784     $ 119,711,246      $ 53,900,414
</TABLE>


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


Capital Resources and Liquidity

The Partnership's public offering provided for a total maximum capitalization of
$150,000,000.  As of November 27, 1998, the offering was  concluded.  As of that
date, subscriptions for 15,000,000 Units had been received and accepted.

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.



                                       7
<PAGE>

The  Partnership  participates  with the  General  Partner  and  certain  of its
affiliates  in  a  $62,000,000   revolving  line  of  credit  with  a  financial
institution  that  includes  certain  financial  covenants.  The line of  credit
expires on April 12, 2002.  The General  Partner is currently  negotiating a new
line of credit and  anticipates  that the current  line of credit will either be
replaced upon its expiration or that the current line of credit will be extended
until the new one is finalized.  As of December 31, 2001,  borrowings  under the
facility were as follows:
<TABLE>
<CAPTION>

<S>                                                                                               <C>
Amount borrowed by the Partnership under the acquisition facility                                 $      4,100,000
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
   facility                                                                                             13,500,000
                                                                                                 -----------------
Total borrowings under the acquisition facility                                                         17,600,000
Amounts borrowed by the General Partner and its sister corporation under the warehouse facility *       10,999,501
                                                                                                 -----------------
Total outstanding balance                                                                         $    28,599,501
                                                                                                 =================

Total available under the line of credit                                                          $    62,000,000
Total outstanding balance                                                                             (28,599,501)
                                                                                                 -----------------
Remaining availability                                                                            $    33,400,499
                                                                                                 =================
</TABLE>

*  (Unaudited)  The  carrying  value of the  assets  pledged as  collateral  and
financed at December 31, 2001 was $17,955,014.

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  affiliated
partnerships and limited  liability  companies,  the Partnership and the General
Partner.

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,
2001,  the  Partnership  had  commitments  to  purchase  lease  assets  totaling
approximately $1,764,000.

As of December 31, 2001, cash balances  consisted of working capital and amounts
reserved for distributions to be paid in January 2002, generated from operations
in 2001.

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 1998, the Partnership  established a $65 million  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  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 the General Partner to enter
into interest rate swap agreements with certain hedge counterparties (also rated
A1/P1) to mitigate the interest rate risk  associated with a variable rate note.
The General Partner anticipated that this program would allow 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 February 2002.



                                       8
<PAGE>

See Item 7a and Note 5 to the financial  statements for  additional  information
regarding this program and related interest rate swaps.

It is the intention of the Partnership to use the receivables funding program as
its primary source of debt financing.  The Partnership  will continue to use its
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  Limited
Partnership  Agreement  limits  such  borrowings  to 50% of the  total  cost  of
equipment, in aggregate.

See Note 4 to the financial  statements  for  additional  information  regarding
non-recourse debt.

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

            2001 vs. 2000:

Cash flows from operations  decreased from $28,382,888 in 2000 to $23,869,682 in
2001,  a decrease  of  $4,513,206.  Rents from  operating  leases is the primary
source of operating cash flows. Sales of operating lease assets in 2000 and 2001
led to the decrease in operating lease revenues compared to 2000.

In 2001 and  2000,  sources  of cash  from  investing  activities  consisted  of
proceeds  from the sales of lease  assets and from rents from  direct  financing
leases.  Proceeds from the sales of lease assets  decreased from  $10,439,849 in
2000 to  $3,830,077  in 2001,  a  decrease  of  $6,609,772.  Rents  from  direct
financing  leases  decreased by $293,602 as a result of sales of lease assets in
2000 and 2001.

In 2001,  financing  sources of cash consisted of proceeds of long-term debt and
borrowings on the line of credit.  In 2000,  financing sources of cash consisted
of proceeds of long-term debt,  proceeds of non-recourse  debt and borrowings on
the line of credit.  The proceeds of long-term  debt were used to repay the line
of  credit.  The  additional  non-recourse  debt  was  assumed  as a part of the
acquisition of leased assets in 2001 and 2000.

Cash used to repay  long-term  debt  decreased as a result of reduced  scheduled
payments,  net of the  effect of the  additional  borrowings  in 2001.  Overall,
average debt balances were lower in 2001 than in 2000.

            2000 vs. 1999:

Cash flows from operations  decreased from $29,817,476 in 1999 to $28,382,888 in
2000,  a decrease  of  $1,434,588.  Rents from  operating  leases is the primary
source of operating cash flows.  Purchases of operating lease assets in 1999 led
to the slight increase in operating lease revenues compared to 1999.



                                       9
<PAGE>

In 2000,  sources of cash from investing  activities  consisted of proceeds from
the sales of lease assets and from rents from direct financing leases.  Proceeds
from the sales of lease assets  increased from $2,469,199 in 1999 to $10,439,849
in 2000, an increase of $7,970,650. Rents from direct financing leases decreased
by $851,900 as a result of lease  maturities  and sales of lease  assets in 1999
and 2000.

In 2000,  financing  sources of cash  consisted of proceeds of  long-term  debt,
proceeds of non-recourse debt and borrowings on the line of credit. The proceeds
of  long-term  debt  were  used to repay  the  line of  credit.  The  additional
non-recourse  debt was assumed as a part of the  acquisition of leased assets in
2000.

Cash  used  for   distributions  to  partners  did  not  change   significantly.
Non-recourse  debt payments  increased as a result of the early repayment of the
debt associated with the leases to Applied  Magnetics.  See Item 3 for a further
discussion of the Applied Magnetics lease.

Cash used to repay long-term debt decreased as a result scheduled payments,  net
of the  effect of the  additional  borrowings  in 2000.  Overall,  average  debt
balances were lower in 2000 than in 1999.

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.

            2001 vs. 2000:

Operations  resulted in net income of  $2,939,818 in 2001 compared to $9,158,705
in 2000.

Revenues from leases  decreased from $38,849,507 in 2000 to $31,726,016 in 2001,
a decrease of  $7,123,491.  Decreases  resulted  from asset sales in 2000 and in
2001. Gains and losses on sales of assets decreased from a gain of $2,381,787 in
2000 to a loss of $1,145,708 in 2001, a decrease of  $3,527,495.  Such gains and
losses are not expected to be consistent from one period to another.

Depreciation  expense  decreased  in 2001  compared to 2000 as a result of asset
sales in 2000 and 2001.

Interest  expense  declined as a result of scheduled debt payments and the early
extinguishment of the Applied Magnetics debt in 2000. Total debt,  including the
line of credit,  decreased from  $60,329,741 at December 31, 2000 to $52,611,225
at December 31, 2001.

            2000 vs. 1999:

Operations resulted in net income of $9,158,705 compared to a loss of $2,159,370
in 1999.

Revenues from leases  increased from $38,780,392 in 1999 to $38,849,507 in 2000,
an increase of $69,115.  Increases resulting from asset purchases in 1999 and in
2000  were  offset by the  effects  of  assets  sales.  Gains on sales of assets
increased  from  $784,853  in  1999  to  $2,381,787  in  2000,  an  increase  of
$1,596,934.  Such gains and losses are not  expected to be  consistent  from one
period to another.

Depreciation  expense  increased  slightly  (less than 2%) compared to 1999 as a
result of asset acquisitions in 1999.

Interest  expense  declined as a result of scheduled debt payments and the early
extinguishment   of  the  Applied   Magnetics   debt.   These   repayments   and
extinguishments  exceeded  the amounts of new  borrowings  in 2000.  Total debt,
including the line of credit, decreased from $86,111,420 at December 31, 1999 to
$60,329,741 at December 31, 2000.



                                       10
<PAGE>

In 2000, there were no new major lease defaults similar to the Applied Magnetics
default  in 1999.  Consequently,  there  were no new  provisions  for  losses or
doubtful accounts in 2000.

The Partnership  recognized an extraordinary gain on the early extinguishment of
debt of  $2,056,574.  This was related to the  non-recourse  debt on the Applied
Magnetics leases, which was extinguished upon foreclosure by the lender in 2000.

Derivative Financial Instruments

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("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, and by SFAS No. 138, issued in June 2000.

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.

The  Partnership  adopted  SFAS No. 133, as  amended,  on January 1, 2001.  Upon
adoption,  the Partnership  recorded  interest rate swap hedging  instruments at
fair value in the balance sheet and recognized  the  offsetting  gains or losses
reported in net income or other comprehensive income, as appropriate. See Note 5
to the financial statements for additional information.

Recent accounting pronouncement:

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  144,  Accounting  for the  Impairment  or
Disposal of Long-Lived Assets (SFAS 144), which addresses  financial  accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No.  121,  Accounting  for the  Impairment  of  Long-Lived  Assets  and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30,  Reporting the Results of Operations  for a disposal of a
segment of a business.  SFAS 144 is effective for fiscal years  beginning  after
December 15, 2001, with earlier application encouraged.  The Partnership expects
to adopt SFAS 144 as of January 1, 2002 and it does not expect that the adoption
of the Statement will have a significant  impact on the Partnership's  financial
position and results of operations.


Item 7a.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership,  like most other companies, is exposed to certain market risks,
including  primarily  changes in interest rates.  The  Partnership  believes its
exposure to other market risks including  foreign  currency  exchange rate risk,
commodity  risk and equity price risk are  insignificant  to both its  financial
position and results of operations.

In general,  the  Partnership's  strategy is to manage its  exposure to interest
rate risk by obtaining fixed rate debt. Current fixed rate debt is structured so
as to match the cash flows  required to service the debt to the payment  streams
under fixed rate lease  receivables.  The payments under the leases are assigned
to the lenders in  satisfaction  of the debt.  Furthermore,  the Partnership has
historically been able to maintain a stable spread between its cost of funds and
lease yields in both periods of rising and falling interest rates. Nevertheless,
the  Partnership  frequently  funds leases with its floating rate line of credit
and is,  therefore,  exposed to  interest  rate risk until fixed  interest  rate
financing is arranged,  or the floating  interest rate line of credit is repaid.
As of December 31, 2001,  there was an outstanding  balance of $4,100,000 on the
floating rate line of credit and the effective  interest rate of the  borrowings
was 4.75%.



                                       11
<PAGE>

Also,  as  described  in the caption  "Capital  Resources  and  Liquidity,"  the
Partnership  entered into a receivables funding facility in 1998. Since interest
on the  outstanding  balances  under the facility  varies,  the  Partnership  is
exposed to market risks  associated  with changing  interest rates. To hedge its
interest rate risk,  the  Partnership  enters into  interest  rate swaps,  which
effectively convert the underlying interest  characteristic on the facility from
floating to fixed. Under the swap agreements,  the Partnership makes or receives
variable  interest  payments  to or from the  counterparty  based on a  notional
principal  amount.  The net differential  paid or received by the Partnership is
recognized  as an  adjustment  to  interest  expense  related  to  the  facility
balances.  The amount paid or received  represents  the  difference  between the
payments  required under the variable interest rate facility and the amounts due
under  facility at the fixed  (hedged)  interest  rate. As of December 31, 2001,
borrowings on the facility were $38,540,000 and the associated variable interest
rate was  2.0624%.  The  average  fixed  interest  rate  achieved  with the swap
agreements was 6.084%.

In general, these swap agreements eliminate the Partnership's interest rate risk
associated with variable rate borrowings. However, the Partnership is exposed to
and manages credit risk  associated  with the  counterparty by dealing only with
institutions it considers  financially  sound.  If these  agreements were not in
place,  based on the Partnership's  facility  borrowings at December 31, 2001, a
hypothetical 1.00% increase or decrease in market interest rates, would increase
or decrease the  Partnership's  2002 variable  interest expense by approximately
$322,000.

See the Notes to the financial statements for additional information.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the  Report  of  Independent  Auditors,  Financial  Statements  and Notes to
Financial Statements attached hereto at pages 13 through 31.



                                       12
<PAGE>

                REPORT OF ERNST & YOUNG LLP, 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.  (Partnership)  as of  December  31,  2001 and 2000,  and the related
statements of operations,  changes in partners'  capital and cash flows for each
of the three  years in the period  ended  December  31,  2001.  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 auditing standards generally accepted
in the United States. 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, 2001 and 2000,  and the results of its  operations and
its cash flows for each of the three  years in the  period  ended  December  31,
2001, in conformity with accounting  principles generally accepted in the United
States.

                                                           /s/ ERNST & YOUNG LLP

San Francisco, California
February 1, 2002





                                       13
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                                 BALANCE SHEETS

                           DECEMBER 31, 2001 AND 2000


                                     ASSETS

                                                   2001              2000
                                                   ----              ----
Cash and cash equivalents                           $ 936,189       $ 1,321,417

Accounts receivable, net of allowance for
     doubtful accounts of $118,067 in 2001,
     none in 2000                                   5,759,540         6,222,311

Other assets                                          108,015            90,011

Investments in equipment and leases               129,049,875       149,967,007
                                             ----------------- -----------------
Total assets                                    $ 135,853,619      $157,600,746
                                             ================= =================




                       LIABILITIES AND PARTNERS' CAPITAL


Non-recourse debt                                 $ 9,971,225      $ 15,452,741

Other long-term debt                               38,540,000        44,877,000

Line of credit                                      4,100,000                 -

Accounts payable and accruals:
   General Partner                                    580,916           605,684
   Other                                              510,598           703,761

Accrued interest payable                              355,458           533,858

Interest rate swap contracts                        1,326,006                 -

Unearned lease income                                 976,565         1,264,094
                                             ----------------- -----------------
                                                   56,360,768        63,437,138

Total partners' capital                            79,492,851        94,163,608
                                             ----------------- -----------------
Total liabilities and partners' capital         $ 135,853,619      $157,600,746
                                             ================= =================


                             See accompanying notes.


                                       14
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


<TABLE>
<CAPTION>
Revenues:                                                                2001              2000              1999
                                                                         ----              ----              ----
Leasing activities:
<S>                                                                    <C>               <C>               <C>
   Operating leases                                                    $ 30,657,648      $ 37,500,588      $ 36,784,290
   Direct financing leases                                                1,068,368         1,153,226         1,852,614
   Leveraged leases                                                               -           195,693           143,488
   (Loss) gain on sales of assets                                        (1,145,708)        2,381,787           784,853
Interest income                                                              55,569           157,678            49,225
Other                                                                        10,648            74,947            20,301
                                                                    ---------------- ----------------- -----------------
                                                                         30,646,525        41,463,919         39,634,771
Expenses:
Depreciation and amortization                                            20,023,249        25,306,146        24,868,782
Interest                                                                  4,029,695         5,307,064         6,082,904
Other                                                                     1,345,396           973,204         1,467,738
Equipment and incentive management fees to affiliates                     1,175,912         1,770,779         1,892,306
Cost reimbursements to General Partner                                      851,382           917,952           556,577
Professional fees                                                           163,006            86,643           146,794
Provision for doubtful accounts                                             118,067                 -           724,906
Provision for losses and impairments                                              -                 -         6,054,134
                                                                    ---------------- ----------------- -----------------
                                                                         27,706,707        34,361,788        41,794,141
                                                                    ---------------- ----------------- -----------------
Income (loss) before extraordinary item                                   2,939,818         7,102,131        (2,159,370)
Extraordinary gain on early extinguishment of debt                                -         2,056,574                 -
                                                                    ---------------- ----------------- -----------------
Net income (loss)                                                       $ 2,939,818       $ 9,158,705      $ (2,159,370)
                                                                    ================ ================= =================

Net income (loss):
   General Partner                                                      $ 2,799,523       $ 1,220,116         $ 463,626
   Limited Partners                                                         140,295         7,938,589        (2,622,996)
                                                                    ---------------- ----------------- -----------------
                                                                        $ 2,939,818       $ 9,158,705      $ (2,159,370)
                                                                    ================ ================= =================

Income (loss) before extraordinary item per Limited Partnership unit         $ 0.01            $ 0.40           $ (0.17)
Extraordinary gain on early extinguishment of debt
   per Limited Partnership unit                                                   -              0.13                 -
                                                                    ---------------- ----------------- -----------------
Net income (loss) per Limited Partnership unit                               $ 0.01            $ 0.53           $ (0.17)
                                                                    ================ ================= =================

Weighted average number of units outstanding                              14,996,050       14,996,050         14,996,050
</TABLE>








                             See accompanying notes.


                                       15
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                                                      Other
                                                                                                   Comprehensive
                                                              Limited Partners      General           Income
                                                              ----------------
                                                  Units            Amount           Partner           (Loss)            Total
                                                  -----            ------           -------           ------            -----
<S>                                               <C>             <C>                <C>            <C>               <C>
Balance December 31, 1998                         14,996,050     $ 120,428,411       $ (717,165)              $ -      $119,711,246

Distributions to Limited Partners
   ($1.00 per Unit)                                                (14,977,030)               -                 -       (14,977,030)
Distributions to General Partner                                             -       (1,261,062)                -        (1,261,062)
Net income                                                          (2,622,996)         463,626                 -        (2,159,370)
                                             ---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 1999                         14,996,050       102,828,385       (1,514,601)                -       101,313,784

Distributions to Limited Partners
   ($1.01 per Unit)                                                (15,088,765)               -                 -       (15,088,765)
Distributions to General Partner                                             -       (1,220,116)                -        (1,220,116)
Net income (loss)                                                    7,938,589        1,220,116                 -         9,158,705
                                             ---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 2000                         14,996,050        95,678,209       (1,514,601)                -        94,163,608

Distributions to Limited Partners
   ($1.00 per Unit)                                                (14,999,647)               -                 -       (14,999,647)
Distributions to General Partner                                             -       (1,284,922)                -        (1,284,922)
Cumulative effect of change in
   accounting principle at
   January 1, 2001                                                           -                -           281,661           281,661
Unrealized decrease in value of
   interest rate swap contracts                                              -                -        (1,607,667)       (1,607,667)
Net income                                                             140,295        2,799,523                 -         2,939,818
                                             ---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 2001                         14,996,050      $ 80,818,857              $ -      $ (1,326,006)     $ 79,492,851
                                             ================ ================= ================ ================= =================
</TABLE>



                             See accompanying notes.


                                       16
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
<TABLE>
<CAPTION>

                                                                       2001              2000              1999
                                                                       ----              ----              ----
Operating activities:
<S>                                                                   <C>               <C>              <C>
Net income (loss)                                                     $ 2,939,818       $ 9,158,705      $ (2,159,370)
Adjustment to reconcile net income (loss) to net cash provided by
   operating activities:
     Leveraged lease income                                                     -          (195,693)         (143,488)
     Depreciation and amortization                                     20,023,249        25,306,146        24,868,782
     Provision for losses and impairments                                       -                 -         6,054,134
     Provision for doubtful accounts                                      118,067                 -           724,906
     Loss (gain) on sales of assets                                     1,145,708        (2,381,787)         (784,853)
     Extraordinary gain on early extinguishment of debt                         -        (2,056,574)                -
     Changes in operating assets and liabilities:
         Accounts receivable                                              344,704          (596,206)           29,875
         Other assets                                                     (18,004)           39,996            39,996
         Accounts payable, General Partner                                (24,768)         (829,967)        1,057,696
         Accounts payable, other                                         (193,163)          277,865          (258,579)
         Accrued interest payable                                        (178,400)         (180,839)          (91,056)
         Unearned lease income                                           (287,529)         (158,758)          479,433
                                                                  ---------------- ----------------- -----------------
Net cash provided by operating activities                              23,869,682        28,382,888        29,817,476
                                                                  ---------------- ----------------- -----------------

Investing activities:

Proceeds from sales of assets                                           3,830,077        10,439,849         2,469,199
Reduction of net investment in direct financing leases                  2,261,062         2,554,664         3,406,564
Purchases of equipment on direct financing leases                      (4,344,293)       (1,678,000)         (860,492)
Initial direct lease costs                                                (48,560)          (18,370)         (880,362)
Purchases of equipment on operating leases                             (1,950,111)                -       (13,793,316)
                                                                  ---------------- ----------------- -----------------
Net cash (used in) provided by investing activities                      (251,825)       11,298,143        (9,658,407)
                                                                  ---------------- ----------------- -----------------

Financing activities:
Distributions to Limited Partners                                     (14,999,647)      (15,088,765)      (14,977,030)
Distributions to General Partner                                       (1,284,922)       (1,220,116)       (1,261,062)
Borrowings under line of credit                                        12,900,000           450,000        15,822,824
Repayments of borrowings under line of credit                          (8,800,000)      (11,600,000)      (16,454,531)
Proceeds of other long-term debt                                        8,000,000        11,700,000         9,000,000
Repayments of other long-term debt                                    (14,337,000)      (17,947,426)      (17,372,000)
Repayments of non-recourse debt                                        (5,481,516)       (6,912,082)       (4,339,675)
Proceeds of non-recourse debt                                                   -           584,403         9,520,748
                                                                  ---------------- ----------------- -----------------
Net cash used in financing activities                                 (24,003,085)      (40,033,986)      (20,060,726)
                                                                  ---------------- ----------------- -----------------
Net (decrease) increase in cash and cash equivalents                     (385,228)         (352,955)           98,343
Cash and cash equivalents at beginning of year                          1,321,417         1,674,372         1,576,029
                                                                  ---------------- ----------------- -----------------
Cash and cash equivalents at end of year                                $ 936,189       $ 1,321,417       $ 1,674,372
                                                                  ================ ================= =================
</TABLE>


                                       17
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


<TABLE>
<CAPTION>
                                                                       2001              2000              1999
                                                                       ----              ----              ----

<S>                                                                   <C>               <C>              <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest                                $ 4,208,095       $ 5,487,903       $ 6,173,960
                                                                  ================ ================= =================

Schedule of non-cash transactions:

Extraordinary gain on early extinguishment of debt                            $ -       $ 2,056,574               $ -
                                                                  ================ ================= =================
</TABLE>




                             See accompanying notes.


                                       18
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

    December 31, 2001


1.  Organization and 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.

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 General  Partner of the  Partnership is ATEL Financial  Services LLC (ATEL).
Prior to  converting  to a limited  liability  company  structure,  the  General
Partner was formerly known as ATEL Financial Corporation.

The Partnership's business consists of leasing various types of equipment. As of
December 31, 2001, the original terms of the leases ranged from eighteen  months
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 6).  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:

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.

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

Direct financing leases:

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 income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.

Investment in leveraged leases:

Leases which are financed  principally with non-recourse debt at lease inception
and which meet certain other  criteria are  accounted  for as leveraged  leases.
Leveraged lease contracts  receivable are stated net of the related non-recourse
debt service (which  includes  unpaid  principal and aggregate  interest on such
debt) plus estimated  residual values.  Unearned income represents the excess of
anticipated  cash flows (after  taking into account the related debt service and
residual  values)  over the  investment  in the lease and is  amortized  using a
constant rate of return  applied to the net investment  when such  investment is
positive.



                                       19
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


2.  Summary of significant accounting policies (continued):

Statements of cash flows:

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

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):

                                                  2001              2000
                                                  ----              ----
     Financial statement basis of net assets    $ 79,492,851      $ 94,163,608
     Tax basis of net assets                      (1,474,318)       28,061,745
                                             ---------------- -----------------
     Difference                                 $ 80,967,169      $ 66,101,863
                                             ================ =================

The  primary  differences  between  the tax basis of net assets and the  amounts
recorded in the financial statements are the result of differences in 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 income  (loss)  reported in these  financial
statements  to  the  loss  reported  on the  Partnership's  federal  tax  return
(unaudited):

<TABLE>
<CAPTION>
                                                   2001              2000              1999
                                                   ----              ----              ----
<S>                                               <C>               <C>              <C>
  Net income (loss) per financial statements      $ 2,939,818       $ 9,158,705      $ (2,159,370)
  Adjustment to depreciation expense              (18,455,212)      (20,229,067)      (38,503,336)
  Adjustments to lease revenues                     2,381,967           573,208         3,664,666
  Provision for losses                               (118,067)                -         6,054,134
                                              ---------------- ----------------- -----------------
  Net loss per federal tax return               $ (13,251,494)     $(10,497,154)     $(30,943,906)
                                              ================ ================= =================
</TABLE>

Per unit data:

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




                                       20
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

    December 31, 2001


2.  Summary of significant accounting policies (continued):

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 8 for a description of lessees
by industry as of December 31, 2001, 2000 and 1999.

Basis of presentation:

The accompanying  financial  statements as of December 31, 2001 and 2000 and for
the three years ended  December 31, 2001 have been prepared in  accordance  with
accounting  principles  generally  accepted in the United States.  Certain prior
year amounts have been reclassified to conform to the current year presentation.

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.

Reserve for losses and impairments:

The  Partnership  maintains a reserve on its investments in equipment and leases
for losses and impairments which are inherent in the portfolio as of the balance
sheet date. The General Partner's evaluation of the adequacy of the allowance is
a judgmental  estimate that is based on a review of individual leases, past loss
experience and other factors.  While the General Partner  believes the allowance
is adequate to cover known losses, it is reasonably  possible that the allowance
may change in the near term.  However,  such  change is not  expected  to have a
material  effect on the financial  position or future  operating  results of the
Partnership.  It is the Partnership's policy to charge off amounts which, in the
opinion  of the  General  Partner,  are  not  recoverable  from  lessees  or the
disposition of the collateral. See Note 11.

Derivative financial instruments:

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("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, and by SFAS No. 138, issued in June 2000.

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.  Upon  adoption  on January 1, 2001,  the
Partnership  adjusted hedging instruments to fair value in the balance sheet and
recognized the  offsetting  gains or losses as adjustments to be reported in net
income or other comprehensive income, as appropriate.



                                       21
<PAGE>

                     ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


2.  Summary of significant accounting policies (continued):

The Partnership utilizes cash flow hedges comprised of interest rate swaps. 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 hedging  derivatives 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
dedesignated 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  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 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.

Recent accounting pronouncement:

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  144,  Accounting  for the  Impairment  or
Disposal of Long-Lived Assets (SFAS 144), which addresses  financial  accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No.  121,  Accounting  for the  Impairment  of  Long-Lived  Assets  and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30,  Reporting the Results of Operations  for a disposal of a
segment of a business.  SFAS 144 is effective for fiscal years  beginning  after
December 15, 2001, with earlier application encouraged.  The Partnership expects
to adopt SFAS 144 as of January 1, 2002 and it does not expect that the adoption
of the Statement will have a significant  impact on the Partnership's  financial
position and results of operations.




                                       22
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


3.  Investments in equipment and leases:

The Partnership's investments in equipment and leases consist of the following:

<TABLE>
<CAPTION>
                                                                             Depreciation
                                                                              Expense or         Reclass-
                                         December 31,                        Amortization     ifications or    December 31,
                                              2000           Additions         of Leases       Dispositions          2001
                                              ----           ---------         ---------       ------------          ----
<S>                                         <C>                <C>            <C>                <C>               <C>
Net investment in operating leases          $131,717,168       $ 1,950,111    $ (19,829,145)     $(12,771,545)     $101,066,589
Net investment in direct financing
   leases                                     17,087,466         4,344,293       (2,261,062)         (238,776)       18,931,921
Reserve for losses and impairments              (504,227)                -                -                 -          (504,227)
Assets held for sale or lease                  1,233,078                 -                -         8,034,536         9,267,614
Initial direct costs, net of
   accumulated amortization of
   $726,703 in 2001 and $532,599 in 2000         433,522            48,560         (194,104)                -           287,978
                                         ---------------- ----------------- ---------------- ----------------- -----------------
                                            $149,967,007       $ 6,342,964    $ (22,284,311)     $ (4,975,785)     $129,049,875
                                         ================ ================= ================ ================= =================
</TABLE>

Operating leases:

Property on operating lease consists of the following:

<TABLE>
<CAPTION>
                                                                      Reclass-
                               December 31,                        ifications or    December 31,
                                     2000           Additions       Dispositions          2001
                                     ----           ---------       ------------          ----
<S>                               <C>              <C>                <C>               <C>
Transportation                    $ 101,664,857              $ -      $(20,876,173)     $ 80,788,684
Marine vessels / barges              27,276,479                -          (246,343)       27,030,136
Construction                         23,002,563                -          (170,600)       22,831,963
Manufacturing                        11,801,318                -        (2,098,517)        9,702,801
Mining                                8,536,249          476,716                 -         9,012,965
Other                                 5,108,831        1,473,395          (768,493)        5,813,733
Office automation                     9,880,540                -        (4,582,908)        5,297,632
Materials handling                    5,559,474                -          (293,820)        5,265,654
Communications                        4,387,819                -                 -         4,387,819
                               ----------------- ---------------- ----------------- -----------------
                                    197,218,130        1,950,111       (29,036,854)      170,131,387
Less accumulated depreciation       (65,500,962)     (19,829,145)       16,265,309       (69,064,798)
                               ----------------- ---------------- ----------------- -----------------
                                  $ 131,717,168    $ (17,879,034)     $(12,771,545)     $101,066,589
                               ================= ================ ================= =================
</TABLE>



                                       23
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


3.  Investments in equipment and leases (continued):

Direct financing leases:

As of December  31,  2001,  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, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                 2001              2000
                                                                 ----              ----
<S>                                                            <C>               <C>
Total minimum lease payments receivable                        $ 15,374,654      $ 14,005,112
Estimated residual values of leased equipment (unguaranteed)      8,678,613         8,443,602
                                                            ---------------- -----------------
Investment in direct financing leases                            24,053,267        22,448,714
Less unearned income                                             (5,121,346)       (5,361,248)
                                                            ---------------- -----------------
Net investment in direct financing leases                      $ 18,931,921      $ 17,087,466
                                                            ================ =================
</TABLE>

All of the property on leases was acquired in the years 1997 through 2001.

At December 31, 2001,  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
       ------------        ------            ------            -----
                2002       $23,011,324       $ 3,627,497     $ 26,638,821
                2003        14,472,424         3,234,832       17,707,256
                2004         9,652,671         3,144,239       12,796,910
                2005         6,430,498         3,083,206        9,513,704
                2006         1,509,428         1,528,750        3,038,178
          Thereafter           769,350           756,130        1,525,480
                       ---------------- ----------------- ----------------
                           $55,845,695      $ 15,374,654     $ 71,220,349
                       ================ ================= ================




                                       24
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


3.  Investments in equipment and leases (continued):

Reserves for losses and impairments and allowance for doubtful accounts:

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

                                          Allowance for     Allowance for
                                           reserves and       doubtful
                                           impairments        accounts
       Balance December 31, 1998                $ 131,232              $ -
       Provision                                6,054,134          724,906
       Charge offs                                      -         (724,906)
                                         ----------------- ----------------
       Balance December 31, 1999                6,185,366                -
       Charge offs                             (5,681,139)               -
                                         ----------------- ----------------
       Balance December 31, 2000                  504,227                -
       Provision                                        -          118,067
                                         ----------------- ----------------
       Balance December 31, 2001                $ 504,227        $ 118,067
                                         ================= ================

At December 31, 2001, the  Partnership  had commitments to purchase lease assets
totaling approximately $1,764,000.


4.  Non-recourse debt:

At December 31, 2001,  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 fixed rates from 7.0% to 16.6%. The notes
are secured by assignments of lease payments and pledges of assets.  At December
31, 2001,  the carrying value of the pledged  assets is  $24,132,681.  The notes
mature from 2002 through 2008.

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

       Year ending
       December 31,       Principal         Interest           Total
                2002       $ 5,757,071         $ 799,843      $ 6,556,914
                2003         3,261,508           288,853        3,550,361
                2004           298,403            67,364          365,767
                2005           322,838            42,927          365,765
                2006           216,850            20,179          237,029
          Thereafter           114,555             5,418          119,973
                       ---------------- ----------------- ----------------
                           $ 9,971,225       $ 1,224,584     $ 11,195,809
                       ================ ================= ================






                                       25
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


5.  Other long-term debt:

In 1998, the Partnership  entered into a $65 million receivables funding program
(the Program) with a receivables  financing company that issues commercial paper
rated A1 by Standard and Poors and P1 by Moody's  Investor  Services.  Under the
Program,  the receivables  financing company receives a general lien against all
of the otherwise  unencumbered  assets of the Partnership.  The Program provides
for borrowing at a variable interest rate (2.0624% at December 31, 2001),  based
on an index of A1 commercial paper.

The Program requires the General Partner on behalf of the Partnership,  to enter
into various interest rate swaps with a financial institution (also rated A1/P1)
to manage interest rate exposure associated with variable rate obligations under
the Program by effectively  converting the variable rate debt to fixed rates. As
of December 31, 2001,  the  Partnership  receives or pays interest on a notional
principal of $38,540,000,  based on the difference between nominal rates ranging
from 4.36% to 7.58% and the variable rate under the Program. No actual borrowing
or lending is involved. The termination of the swaps coincides with the maturity
of the debt.  The  differential  to be paid or  received  is accrued as interest
rates change and is recognized  currently as an  adjustment to interest  expense
related to the debt.

 Borrowings under the Program are as follows:

                           Original          Balance       Payment Rate on
                            Amount         December 31,     Interest Swap
        Date Borrowed      Borrowed            2001           Agreement
        -------------      --------            ----           ---------
          4/1/1998          $21,770,000       $ 4,900,000      6.220%
          7/1/1998           25,000,000         5,628,000      6.155%
         10/1/1998           20,000,000         9,076,000      5.550%
         4/16/1999            9,000,000         3,122,000      5.890%
         1/26/2000           11,700,000         8,427,000      7.580%
         5/25/2001            2,000,000         1,785,000      5.790%
         9/28/2001            6,000,000         5,602,000      4.360%
                        ---------------- -----------------
                            $95,470,000      $ 38,540,000
                        ================ =================

The long-term  debt  borrowings  mature from 2002 through 2009.  Future  minimum
principal payments of long-term debt and annual swap notional  reductions are as
follows:

                Swap Notional /                                     Rates on
Year ending          Debt                                        Interest Swap
December 31,       Principal       Interest         Total         Agreements*
                   ---------       --------         -----         -----------
          2002      $12,860,000     $ 1,954,451   $ 14,814,451   6.067% - 6.084%
          2003        8,903,000       1,310,600     10,213,600   6.072% - 6.114%
          2004        7,186,000         830,105      8,016,105   6.104% - 6.163%
          2005        5,766,000         438,770      6,204,770   6.193% - 6.589%
          2006        1,946,000         193,789      2,139,789   6.785% - 7.009%
          2007          903,000         103,979      1,006,979   7.007% - 7.211%
          2008          635,000          46,443        681,443   7.245% - 7.580%
          2009          341,000          12,229        353,229       7.58%
                ---------------- --------------- --------------
                    $38,540,000     $ 4,890,366   $ 43,430,366
                ================ =============== ==============

* Represents the range of monthly weighted average fixed interest rates paid for
amounts  maturing in the particular year. The  receive-variable  rate portion of
the swap represents commercial paper rates (2.0624% at December 31, 2001).



                                       26
<PAGE>

                     ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


5.  Other long-term debt (continued):

In 2001,  the net effect of the  interest  rate swaps was to  increase  interest
expense by $622,647.


6.  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.

The  General   Partner   and/or   affiliates   earned  fees,   commissions   and
reimbursements,  pursuant to the Limited Partnership Agreement as follows during
2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                     2001              2000              1999
                                                                                     ----              ----              ----

<S>                                                                                 <C>               <C>               <C>
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).                    $ 1,175,912       $ 1,770,779       $ 1,892,306


Administrative cost reimbursements to General Partner                                   851,382           917,952           556,577
                                                                                ---------------- ----------------- -----------------
                                                                                    $ 2,027,294       $ 2,688,731       $ 2,448,883
                                                                                ================ ================= =================
</TABLE>



                                       27
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


7.  Partners' capital:

As of  December  31,  2001,  14,996,050  Units  ($149,960,050)  were  issued and
outstanding.  The  Partnership  is authorized  to issue up to 15,000,050  Units,
including the 50 Units issued to the Initial Limited Partners.

The Partnership's Net Profits,  Net Losses,  and Tax Credits are to be allocated
92.5% to the Limited  Partners and 7.5% to the General  Partner.  In  accordance
with the terms of the of Limited Partnership Agreement, an additional allocation
of income was made to the  General  Partner in 2001.  The amount  allocated  was
determined so as to bring the General  Partner's  ending capital account balance
to zero.

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

First,  Distributions  of Cash from  Operations  are to 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, are to be distributed as follows:

First,  Distributions  of Sales or  Refinancings  are to 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.






                                       28
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


8.  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, 2001, 2000 and 1999, there were concentrations  (greater than
10%) of equipment  leased to lessees in certain  industries  (as a percentage of
total equipment cost) as follows:

                                2001             2000              1999
                                ----             ----              ----
    Municipalities              17%               16%              15%
    Transportation, other       14%               12%               *
    Transportation, rail        13%               19%              19%
    Electronics                  *                 *               12%
    *  Less than 10%

During  2001  and  2000,  no  customers  comprised  in  excess  of  10%  of  the
Partnership's  revenues from leases.  During 1999, one customer comprised 10% of
the Partnership's revenues from leases.


9.  Line of credit:

The  Partnership  participates  with the  General  Partner  and  certain  of its
affiliates  in  a  $62,000,000   revolving  line  of  credit  with  a  financial
institution  that  includes  certain  financial  covenants.  The line of  credit
expires on April 12, 2002.  The General  Partner is currently  negotiating a new
line of credit and  anticipates  that the current  line of credit will either be
replaced upon its expiration or that the current line of credit will be extended
until the new one is finalized.  As of December 31, 2001,  borrowings  under the
facility were as follows:
<TABLE>
<CAPTION>

<S>                                                                                               <C>
Amount  borrowed by the Partnership under the acquisition facility                                $      4,100,000
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
   facility                                                                                             13,500,000
                                                                                                 -----------------
Total borrowings under the acquisition facility                                                         17,600,000
Amounts borrowed by the General Partner and its sister corporation under the warehouse facility *       10,999,501
                                                                                                 -----------------
Total outstanding balance                                                                         $    28,599,501
                                                                                                 =================

Total available under the line of credit                                                          $    62,000,000
Total outstanding balance                                                                             (28,599,501)
                                                                                                 -----------------
Remaining availability                                                                            $    33,400,499
                                                                                                 =================
</TABLE>

*  (Unaudited)  The  carrying  value of the  assets  pledged as  collateral  and
financed at December 31, 2001 was $17,955,014.

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  affiliated
partnerships and limited  liability  companies,  the Partnership and the General
Partner.






                                       29
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


9.  Line of credit (continued):

The Partnership borrowed $12,900,000, $450,000 and $15,822,824 under the line of
credit  during  2001,  2000 and 1999,  respectively.  Repayments  on the line of
credit were $8,800,000,  $11,600,000 and $16,454,331 during 2001, 2000 and 1999,
respectively.  Interest  on the line of credit is based on either the thirty day
LIBOR rate or the bank's prime rate.  The effective  interest rate on borrowings
at December 31, 2001 was 4.75%.

The credit agreement  includes certain  financial  covenants  applicable to each
borrower.  The  Partnership  was in compliance with its covenants as of December
31, 2001.


10.  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-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,  2001  is
$10,318,479.

Other long-term debt:

The carrying value of the  Partnership's  other long-term debt its fair value at
December 31, 2001.

Line of credit:

The  carrying  amounts  of  the  Partnership's  variable  rate  line  of  credit
approximates fair value.

Interest rate swaps:

The fair value of interest  rate swaps is  estimated  by  obtaining  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 at fair value at December 31, 2001.






                                       30
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2001


11.  Extraordinary gain on extinguishment:

In January 2000, one of the Partnership's lessees filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. The Partnership determined that
the  assets  under  operating  leases  with a net book  value of  $8,048,095  at
December 31, 1999 leased to this particular  lessee were impaired as of December
31, 1999. The  Partnership  estimated that the proceeds from the future sales of
those  assets,  which  were  financed  with  non-recourse  debt,  would  not  be
sufficient to satisfy the non-recourse  lender.  The debt balance was $2,056,474
at December 31, 1999.  As a result,  the  Partnership  fully  reserved for those
assets as of December  31,  1999.  The portion of the assets not  financed  with
non-recourse debt were written down to their expected net realizable value as of
December 31, 1999.

Upon foreclosure by the lender and upon sale of the financed assets in 2000, the
Partnership  recognized an extraordinary  gain on the extinguishment of the debt
$2,056,474 during the year ended December 31, 2000.


12.  Other comprehensive income:

In  2001,  2000  and  in  1999,  other  comprehensive  income  consisted  of the
following:

<TABLE>
<CAPTION>
                                                                                     2001              2000              1999
                                                                                     ----              ----              ----
<S>                                                                                 <C>               <C>              <C>
Net income (loss)                                                                   $ 2,939,818       $ 9,158,705      $ (2,159,370)
Other comprehensive income:
Cumulative effect of change in accounting principle at January 1, 2001                  281,661
   Decrease in value of interest rate swap contracts                                 (1,607,667)                -                 -
                                                                                ---------------- ----------------- -----------------
Comprehensive net income (loss)                                                     $ 1,613,812       $ 9,158,705      $ (2,159,370)
                                                                                ================ ================= =================
</TABLE>












                                       31
<PAGE>

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

None


                                    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 Services LLC (the General
Partner) is held by ATEL Capital  Group  ("ACG"),  a holding  company  formed to
control ATEL and affiliated  companies.  The outstanding voting capital stock of
ATEL Capital Group is owned 5% by A. J. Batt and 95% by Dean Cash.

Each of ATEL Leasing Corporation  ("ALC"),  ATEL Equipment  Corporation ("AEC"),
ATEL  Investor  Services  ("AIS") and ATEL  Financial  Services LLC ("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. ATEL Securities  Corporation  ("ASC") is a wholly-owned  subsidiary of ATEL
Financial Services LLC.

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

Dean L. Cash                Chairman of the Board of Directors of ACG, AFS, ALC,
                              AEC, AIS and ASC; President and Chief Executive
                              Officer of ACG, AFS and AEC

Paritosh K. Choksi          Director, Executive Vice President, Chief Operating
                              Officer and Chief Financial Officer of ACG, AFS,
                              ALC, AEC and AIS

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

Vasco H. Morais             Senior Vice President, Secretary and General Counsel
                              for ACG, AFS, ALC, AIS and AEC

Dean L. Cash,  age 51, 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.



                                       32
<PAGE>

Paritosh K.  Choksi,  age 48,  joined  ATEL in 1999 as a  director,  senior vice
president  and its  chief  financial  officer.  He  became  its  executive  vice
president  and 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  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.

Donald E. Carpenter, age 53, 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 43, 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.


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  its  Affiliates.  The  amount  of  such
remuneration  paid in 2001,  2000 and 1999 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 6 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.

Through  December  31,  1998,  $14,250,000  of  such  commissions  (the  maximum
allowable  amount) had been paid to the General  Partner or its  affiliates.  Of
that amount,  $12,327,297 was reallowed to other broker/dealers.  None have been
paid since 1998, nor will any additional amounts be paid in future periods.



                                       33
<PAGE>

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

See Note 6 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 is 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,
is to be distributed as follows:

First,  Distributions  of Cash from  Operations  are to 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, are to be distributed as follows:

First,  Distributions  of Sales or  Refinancings  are to 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.

See Note 6 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 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  Limited   Partnership
Agreement) plus 10% of their adjusted invested 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.



                                       34
<PAGE>

Equipment Re-lease Fee

As  compensation  for  providing  re-leasing  service,  the  General  Partner 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  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.  In accordance with the terms
of the of Limited Partnership Agreement,  an additional allocation of income was
made to the General  Partner in 2001. The amount  allocated was determined so as
to bring the General  Partner's  ending  capital  account  balance to zero.  See
financial  statements  included  in Item 8, Part I of this  report  for  amounts
allocated to the General Partner in 2001, 2000 and 1999.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

At December 31, 2001, no investor is known to hold  beneficially more than 5% of
the issued and outstanding Units.

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>                              <C>                                        <C>
Limited Partnership Units                      A. J. Batt                         Initial Limited Partner Units            0.00017%
                                                235 Pine Street, 6th Floor      25 Units ($250)
                                                  San Francisco, CA 94104       (owned by wife)

Limited Partnership Units                       Dean Cash                         Initial Limited Partner Units            0.00017%
                                                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 therefore of Limited Partners holding 10%
or more of the total outstanding Limited Partnership units.




                                       35
<PAGE>

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 6 thereof,  and Item 11 of this report  under the caption
"Executive Compensation," are hereby incorporated by reference.


                                     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, 2001 and 2000
                            Statements of Operations for the years ended
                            December 31, 2001, 2000 and 1999 Statements of
                            Changes in Partners' Capital for the years ended
                            December 31, 2001, 2000 and 1999 Statement of Cash
                            Flows for the years ended December 31, 2001, 2000
                            and 1999 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 2001
                            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).



                                       36
<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:  3/25/2002

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


       By:  ATEL Financial Services, LLC,
            General Partner of Registrant



                       By:    /s/ Dean Cash
                             --------------------------------------------
                             Dean Cash,
                             President and Chief Executive Officer of
                             ATEL Financial Services, LLC (General
                             Partner)




                       By:   /s/ Paritosh K. Choksi
                             --------------------------------------------
                             Paritosh K. Choksi,
                             Executive Vice President of ATEL
                             Financial Services, LLC (General Partner)







                                       37
<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/ Dean Cash        President, Chairman and Chief             3/25/2002
--------------------------  Executive officer of ATEL
        Dean Cash           Financial  Services, LLC



  /s/ Paritosh K. Choksi    Executive Vice President and director     3/25/2002
--------------------------  of ATEL Financial  Services, LLC,
    Paritosh K. Choksi      principal financial officer of
                            registrant; principal financial officer
                            and director of ATEL Financial Services,
                            LLC



 /s/ Donald E. Carpenter    Principal accounting officer of           3/25/2002
--------------------------  registrant; principal accounting
   Donald E. Carpenter      officer of ATEL Financial Services,
                            LLC






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.

                                       38
<PAGE>