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, 2002
                                                                     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.)

        600 California Street, 6th Floor, San Francisco, California 94108
        -----------------------------------------------------------------
                    (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 |_|

     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|

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|


     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.





                                       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,  2002,  14,996,050  Units  were  issued  and
outstanding.

     The  Partnership's  principal  objectives  are to invest  in a  diversified
portfolio  of  equipment  that  will  (i)  preserve,   protect  and  return  the
Partnership's  invested  capital;  (ii) generate  regular  distributions  to the
partners of cash from  operations and cash from sales or  refinancing,  with any
balance  remaining  after certain minimum  distributions  to be used to purchase
additional  equipment during the reinvestment  period,  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,  whereby "Operating" leases are defined as being leases in which
the minimum lease payments during the initial lease term do not recover the full
cost of the  equipment  and "High  Payout"  leases  recover at least 90% of such
cost.  It 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, 2002,  the  Partnership  had purchased  equipment with a
total acquisition price of $302,751,046.

     The  Partnership's  objective is to lease a minimum of 75% of the equipment
acquired  with the net  proceeds  of the  offering  to lessees  that (i) have an
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.

     As set forth below, during 2002, one lessee generated 11% the Partnership's
lease revenues. During 2001and 2000, no single lessee generated more than 10% of
the Partnership's lease revenues.

Lessee                      Type of Equipment      2002   2001   2000
------                      -----------------      ----   ----   ----
General Motors Corporation  Materials Handling      11%    *      *
*  Less than 10%.

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

     The   equipment   leasing   industry  is  highly   competitive.   Equipment
manufacturers,  corporations, partnerships and others offer users an alternative
to the purchase of most types of equipment  with payment  terms that vary widely
depending  on  the  lease  term  and  type  of  equipment.  The  ability  of the
Partnership to keep the equipment  leased and/or  operating and the terms of the
acquisitions,  leases and  dispositions of equipment  depends on various factors
(many  of  which  are  not  in  the  control  of  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.



                                       2
<PAGE>

     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, 2002, 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               $20,322,974         $ 6,609,943        $ 13,332,058
Transportation               22,358,502           8,222,796          17,790,923
Office automation            10,942,274           1,226,848          11,102,974
Aircraft                      4,708,142           4,954,738           2,576,835
Other                         2,763,000             410,702           1,879,147
Food processing               2,182,333           1,329,201           1,980,738
Furniture and fixtures        1,378,013             769,570           1,095,675
Mining                        1,405,029           1,057,869             793,098
Materials handling            1,278,498             164,477           1,385,570
                        ----------------    ----------------   -----------------
                        ----------------    ----------------   -----------------
                            $67,338,766        $ 24,746,144        $ 51,937,018
                        ================    ================   =================
                        ================    ================   =================

* 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,  2002  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.

                                   Purchase Price Excluding Percentage of Total
Asset Types                            Acquisition Fees         Acquisitions
-----------                            ----------------         ------------
Transportation, rail cars                 $ 64,328,409                   21.24%
Manufacturing                               45,709,520                   15.10%
Mining                                      30,756,101                   10.16%
Transportation, other                       26,723,940                    8.83%
Transportation, intermodal
   containers                               26,631,519                    8.80%
Marine vessels                              22,335,250                    7.38%
Materials handling                          16,318,944                    5.39%
Motor Vehicles                              13,148,102                    4.34%
Office automation                           11,449,934                    3.78%
Medical                                      9,133,951                    3.02%
Aircraft                                     6,310,979                    2.08%
Railroad locomotives                         5,010,960                    1.66%
Other *                                     24,893,437                    8.22%
                                      -----------------        -----------------
                                         $ 302,751,046                  100.00%
                                      =================        =================

                                   Purchase Price Excluding Percentage of Total
Industry of Lessee                     Acquisition Fees         Acquisitions
------------------                     ----------------         ------------
Transportation, rail                      $ 73,779,368                   24.36%
Municipalities                              45,050,058                   14.88%
Transportation, other                       43,079,361                   14.23%
Manufacturing, other                        41,295,886                   13.64%
Electronics                                 26,062,302                    8.61%
Mining                                      17,670,967                    5.84%
Business services                           15,093,493                    4.99%
Primary metals                              13,251,254                    4.38%
Other *                                     27,468,357                    9.07%
                                      -----------------        -----------------
                                         $ 302,751,046                  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,  2002,  see Note 3 to the  financial  statements,
Investments in equipment and leases,  as set forth in Part II, Item 8, Financial
Statements and Supplementary Data.




                                       3
<PAGE>

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  (the Debtor)  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.

     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 its 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.

     On February 13, 2002, the reorganized Debtor filed a notice of objection to
the Partnership's  claim due to duplication and an improper  liquidated  damages
provision. The Partnership disputed this and, as of July 26, 2002, agreement has
been  reached  between  the  Partnership  and  Debtor  as to the  amount  of the
Partnership's  claim, and the Debtor's objection to the Partnership's  claim was
withdrawn.

     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  continued  to use and  pay  for  the  equipment  under  the  lease  on a
month-to-month  basis.  A letter  agreement  has been  executed by the debtor to
formalize an understanding for debtor's continued use of the equipment under the
terms of the Lease on a month-to-month  basis until the cars were returned.  The
debtor has also objected to the Partnership's  claim,  which objection was being
disputed by the Partnership and is likely to be resolved via an amended Proof of
Claim. At this point, all equipment has been returned to the Partnership, and is
in the process of being  re-leased  and/or sold. 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 that 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. As a result,  there is no currently  ascertainable market
value for the Units.



                                       4
<PAGE>

Holders

     As of December 31, 2002, a total of 5,589  investors were record holders of
Units in the Partnership.

ERISA Valuation

     In order to permit ERISA fiduciaries who hold Units to satisfy their annual
reporting requirements,  the General Partner estimated the value per Unit of the
Partnership's  assets as of September 30, 2002. The General  Partner  calculated
the estimated  liquidation  proceeds that would be realized by the  Partnership,
assuming an orderly disposition of all of the Partnership's assets as of January
1, 2003. The estimates  were based on the amount of remaining  lease payments on
existing  Partnership leases, and the estimated residual values of the equipment
held by the Partnership upon the termination of those leases. This valuation was
based solely on the General  Partner's  perception of market  conditions and the
types and amounts of the  Partnership's  assets.  No  independent  valuation was
sought.

     After calculating the aggregate estimated disposition proceeds, the General
Partner then  calculated  the portion of the  aggregate  estimated  value of the
Partnership  assets that would be  distributed to Unit holders on liquidation of
the  Partnership,  and  divided  the  total so  distributable  by the  number of
outstanding  Units.  As of September  30, 2002,  the value of the  Partnership's
assets,  calculated  on this  basis,  was  approximately  $6.17  per  Unit.  The
foregoing valuation was performed solely for the ERISA purposes described above.
There  is no  market  for the  Units,  and,  accordingly,  this  value  does not
represent  an estimate of the amount a Unit holder  would  receive if he were to
seek to sell his Units. Furthermore,  there can be no assurance as to the amount
the  Partnership  may  actually  receive if and when it seeks to  liquidate  its
assets,  or the amount of lease payments and equipment  disposition  proceeds it
will actually receive over the remaining term of the Partnership.

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 2002  operations  was $0.0833 per
Unit. The distributions  were paid in February 2002 through December 2002 and in
January 2003. For each quarterly  distribution  (paid in April, July and October
2002 and in January 2003) the rate was $0.25 per Unit.  Distributions  were from
2002 cash flows from operations.

     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 following table presents summarized information regarding distributions
to Limited Partners:

<TABLE>
<CAPTION>
                                                  2002              2001             2000              1999              1998
                                                  ----              ----             ----              ----              ----
<S>                                                  <C>                <C>              <C>              <C>                <C>
Distributions of net income (loss)                   $ (0.20)           $ 0.01           $ 0.53           $ (0.17)           $ 0.46
Return of investment                                    1.20              0.99             0.48              1.17              0.45
                                             ---------------- ----------------- ---------------- ----------------- -----------------
Distributions per Unit                                  1.00              1.00             1.01              1.00              0.91
Differences due to timing of distributions                 -                 -            (0.01)                -              0.09
                                             ---------------- ----------------- ---------------- ----------------- -----------------
Nominal distribution rates from above                 $ 1.00            $ 1.00           $ 1.00            $ 1.00            $ 1.00
                                             ================ ================= ================ ================= =================
</TABLE>




                                       5
<PAGE>

Item 6.  SELECTED FINANCIAL DATA

     The following table presents selected  financial data of the Partnership at
December 31, 2002, 2001, 2000, 1999 and 1998 and for the years then ended.  This
financial data should be read in conjunction  with the financial  statements and
related notes included under Part II, Item 8.


<TABLE>
<CAPTION>
                                                  2002              2001             2000              1999              1998
                                                  ----              ----             ----              ----              ----
<S>                                              <C>              <C>              <C>               <C>               <C>
Gross revenues                                   $25,942,773      $ 30,646,525     $ 41,463,919      $ 39,634,771      $ 37,195,090

Net income (loss)                               $ (1,772,503)      $ 2,939,818      $ 9,158,705      $ (2,159,370)      $ 5,279,496

Weighted average Units outstanding                14,996,050        14,996,050       14,996,050        14,996,050        10,729,510

Net income (loss) allocated to
   Limited Partners                             $ (2,976,387)        $ 140,295      $ 7,938,589      $ (2,622,996)      $ 4,883,534

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

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

Total Assets                                    $116,223,748     $ 135,853,619    $ 157,600,746     $ 191,424,300      $212,456,902

Non-recourse Debt                                $ 4,577,308       $ 9,971,225     $ 15,452,741      $ 21,780,420      $ 16,599,347

Other Long-term Debt                             $33,546,000      $ 38,540,000     $ 44,877,000      $ 53,181,000      $ 61,553,000

Total Partners' Capital                          $61,218,234      $ 79,492,851     $ 94,163,608     $ 101,313,784      $119,711,246
</TABLE>


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

     Statements contained in this Item 7, "Management's  Discussion and Analysis
of Financial  Condition and Results of  Operations,"  and elsewhere in this Form
10-K, which are not historical facts, may be  forward-looking  statements.  Such
statements  are  subject  to risks and  uncertainties  that could  cause  actual
results to differ  materially from those projected.  Investors are cautioned not
to attribute undue certainty to these  forward-looking  statements,  which speak
only as of the date of this Form 10-K.  We undertake no  obligation  to publicly
release any revisions to these  forward-looking  statements to reflect events or
circumstances  after the date of this Form 10-K or to reflect the  occurrence of
unanticipated events, other than as required by law.

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.

     The  Partnership  participates  with the General Partner and certain of its
affiliates  in  a  $55,645,837   revolving  line  of  credit  (comprised  of  an
acquisition facility and a warehouse facility) with a financial institution that
includes  certain  financial  covenants.  The line of credit expires on June 28,
2004. As of December 31, 2002, borrowings under the facility were as follows:

<TABLE>
<CAPTION>
<S>                                                                                                <C>
Amount borrowed by the Partnership under the acquisition facility                                  $    13,300,000
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
   facility                                                                                             15,700,000
                                                                                                  -----------------
Total borrowings under the acquisition facility                                                          29,000,000
Amounts borrowed by the General Partner and its sister corporation under the warehouse facility                  -
                                                                                                  -----------------
Total outstanding balance                                                                          $    29,000,000
                                                                                                  =================

Total available under the line of credit                                                           $    55,645,837
Total outstanding balance                                                                              (29,000,000)
                                                                                                  -----------------
Remaining availability                                                                             $    26,645,837
                                                                                                  =================
</TABLE>



                                       6
<PAGE>

     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  fees to the General Partner and providing
for cash  distributions  to the Limited  Partners.  At December  31,  2002,  the
Partnership had no commitments to purchase lease assets.

     As of December 31, 2002,  cash  balances  consisted of working  capital and
amounts reserved for  distributions  to be paid in January 2003,  generated from
operations in 2002.

     The  Partnership  currently  has  available  adequate  reserves to meet its
immediate  cash  requirements  and those of the next twelve  months,  but in the
event those reserves were found to be inadequate,  the Partnership  would likely
be  in a  position  to  borrow  against  its  current  portfolio  to  meet  such
requirements.  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.

     See Item 7a and Note 5 to the financial  statements,  Other long-term debt,
as set forth in Part II, Item 8, Financial  Statements and  Supplementary  Data,
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,  Non-recourse debt, as set forth in
Part II, Item 8,  Financial  Statements and  Supplementary  Data, 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

2002 vs. 2001:

     Cash  flows  from  operations   decreased  from   $23,869,682  in  2001  to
$20,508,144  in 2002, a decrease of $3,361,538.  Rents from operating  leases is
the primary  source of operating  cash flows.  Lease  terminations  and sales of
operating  lease assets in 2001 and 2002 led to the decrease in operating  lease
revenues compared to 2001.

     In 2002,  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  $3,830,077 in 2001 to
$2,229,481 in 2002, a decrease of  $1,600,596.  Proceeds from the sales of lease
assets are not expected to be consistent from one period to another as the sales
of lease  assets is  subject  to  various  factors  such as the  timing of lease
terminations, the timing of market demand and the condition and uniquness of the
assets subject to sale. Rents from direct financing leases increased by $771,036
as a result of acquisitions of lease assets in 2001 and 2002.



                                       7
<PAGE>

     In 2002,  financing sources of cash consisted of proceeds of long-term debt
and  borrowings on the line of credit.  The proceeds of long-term debt were used
to repay the line of credit.

     Cash used for  distributions  to  partners  did not  change  significantly.
Non-recourse  debt payments  scheduled in 2002 were less than those scheduled in
2001. This was the cause of the decrease in debt payments.

     Cash used to repay  long-term  debt increased as a result of the additional
borrowings in 2002.

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. Proceeds from the sales of
lease assets are not expected to be consistent from one period to another. 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 a reduction in
scheduled  payments,  net of the effect of the  additional  borrowings  in 2001.
Overall,  average debt  balances  were lower in 2001 than in 2000 as a result of
making debt payments as scheduled.

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.

2002 vs. 2001:

     Operations  resulted in a loss of $1,772,503 in 2002 compared to net income
of  $2,939,818  in 2001.  The primary cause of the decrease is the provision for
losses  and  impairments  of  $2,111,593  recorded  in 2002.  There  was no such
provision in 2001.

     Revenues from leases  decreased from  $31,726,016 in 2001 to $27,009,517 in
2002, a decrease of $4,716,499. Revenue increases resulting from asset purchases
in 2001 and in 2002 were offset by the effects of income  producing asset sales.
Lower  lease  rates  realized  on lease  renewals  has also  contributed  to the
decrease in lease revenues.  Losses on sales of assets increased from $1,145,708
in 2001 to $1,270,985  in 2002,  an increase of $125,277.  Such gains and losses
are not expected to be consistent from one period to another.

Depreciation expense decreased by $1,404,812 compared to 2001 as a result of the
     sales of depreciable assets in 2001 and 2002.

     Interest  expense  declined as a result of scheduled debt  payments.  These
repayments exceeded the amounts of new borrowings in 2002. Total debt, including
the  line  of  credit,  decreased  from  $52,611,225  at  December  31,  2001 to
$51,423,308 at December 31, 2002.

     Management periodically reviews the carrying values of its assets on leases
and  assets  held for  lease or sale.  As a result  of that  review,  management
determined  that the values of fleets of jumbo  covered  hopper cars,  tidewater
barges and diesel electric  locomotives had declined in value to the extent that
the carrying values had become impaired. This decline is the result of decreased
long-term demand for these types of assets and a corresponding  reduction in the
amounts of rental payments that these assets currently  command.  Management has
recorded a provision  for the decline in value of those  assets in the amount of
$2,111,593 for the year ended December 31, 2002.

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 change of $3,527,495.  Such gains and
losses are not expected to be consistent from one period to another.



                                       8
<PAGE>

     Depreciation  expense  decreased  in 2001  compared  to 2000 as a result of
sales of depreciable assets 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.

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 changes in fair value in net
income or other comprehensive  income, in accordance with SFAS No. 133. See Note
5 to the financial  statements,  Other  long-term debt, as set forth in Part II,
Item 8, Financial Statements and Supplementary Data, for additional information.

Recent Accounting Pronouncement

     In August 2001, the FASB issued SFAS 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  adopted  SFAS  144 as of  January  1,  2002.  The  adoption  of the
Statement  did not have a  significant  impact  on the  Partnership's  financial
position or results of operations.

Internal Controls

     As of December 31, 2002, an evaluation was performed  under the supervision
and with the  participation of the Partnership's  management,  including the CEO
and CFO of the General Partner, of the effectiveness of the design and operation
of  the  Partnership's  disclosure  controls  and  procedures.   Based  on  that
evaluation,  the  Partnership's  management,  including  the  CEO and CFO of the
General  Partner,  concluded  that the  Partnership's  disclosure  controls  and
procedures  were  effective  as  of  December  31,  2002.  There  have  been  no
significant  changes in the Partnership's  internal controls or in other factors
that could  significantly  affect internal  controls  subsequent to December 31,
2002.

Critical Accounting Policies

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

Use of Estimates:

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual results could differ from those estimates.
Such estimates  primarily relate to the  determination of residual values at the
end of the  lease  term and  expected  future  cash  flows  used for  impairment
analysis purposes.



                                       9
<PAGE>

Asset Valuation:

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


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, 2002, there was an outstanding  balance of
$13,300,000 on the floating rate line of credit and the effective  interest rate
of the borrowings ranged from 3.29% to 3.31%.

     Also,  as  described  in  Item  7in  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 the facility
at the fixed (hedged) interest rate. As of December 31, 2002,  borrowings on the
facility were $33,546,000 and the associated  variable interest rate was 2.0081%
and the average fixed interest rate achieved with the swap agreements was 5.869%
at December 31, 2002.

     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 to the swap
agreement 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, 2002, a  hypothetical  1.00%  increase or decrease in
market interest rates would increase or decrease the Partnership's 2003 variable
interest expense by approximately $282,000.

     See the  Notes  to the  Financial  Statements  as set  forth  in Item 8 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 11 through 29.



                                       10
<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, 2002 and 2001, 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,  2002.  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, 2002 and 2001,  and the results of its  operations and
its cash flows for each of the three  years in the  period  ended  December  31,
2002, in conformity with accounting  principles generally accepted in the United
States.

                                                           /s/ ERNST & YOUNG LLP

San Francisco, California
February 7, 2003



                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                                 BALANCE SHEETS

                           DECEMBER 31, 2002 AND 2001


                                     ASSETS

                                                   2002              2001
                                                   ----              ----
Cash and cash equivalents                         $ 2,194,169         $ 936,189

Accounts receivable, net of allowance for
   doubtful accounts of $403,067 in 2002
   and $118,067 in 2001                             4,848,736          5,759,540

Due from General Partner                              253,543                  -

Other assets                                           10,019           108,015

Investments in equipment and leases               108,917,281        129,049,875
                                             ----------------- -----------------
Total assets                                    $ 116,223,748      $135,853,619
                                             ================= =================




 LIABILITIES AND PARTNERS' CAPITAL


Non-recourse debt                                 $ 4,577,308       $ 9,971,225

Other long-term debt                               33,546,000        38,540,000

Line of credit                                     13,300,000         4,100,000

Accounts payable and accruals:
   General Partner                                          -           580,916
   Other                                              752,459           510,598

Accrued interest payable                              192,403           355,458

Interest rate swap contracts                        1,624,360         1,326,006

Unearned lease income                               1,012,984           976,565
                                             ----------------- -----------------
                                                   55,005,514        56,360,768

Total partners' capital                            61,218,234        79,492,851
                                             ----------------- -----------------
Total liabilities and partners' capital         $ 116,223,748      $135,853,619
                                             ================= =================


                             See accompanying notes.


                                       11
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


<TABLE>
<CAPTION>
Revenues:                                                                            2002              2001              2000
                                                                                     ----              ----              ----
Leasing activities:
<S>                                                                                <C>               <C>               <C>
   Operating leases                                                                $ 25,631,019      $ 30,657,648      $ 37,500,588
   Direct financing leases                                                            1,378,498         1,068,368         1,153,226
   Leveraged leases                                                                           -                 -           195,693
   Gain (loss) on sale of assets                                                     (1,270,985)       (1,145,708)        2,381,787
Interest income                                                                          14,000            55,569           157,678
Other                                                                                   190,241            10,648            74,947
                                                                                ---------------- ----------------- -----------------
                                                                                     25,942,773        30,646,525        41,463,919
Expenses:
Depreciation and amortization                                                        18,608,503        20,023,249        25,306,146
Interest                                                                              3,206,557         4,029,695         5,307,064
Provision for losses and impairments                                                  2,111,593                 -                 -
Equipment and incentive management fees to affiliates                                   947,568         1,175,912         1,770,779
Cost reimbursements to General Partner                                                  859,415           851,382           917,952
Railcar maintenance                                                                     710,564           715,826           484,432
Provision for doubtful accounts                                                         285,000           118,067                 -
Professional fees                                                                       199,993           163,006            86,643
Other                                                                                   786,083           629,570           488,772
                                                                                ---------------- ----------------- -----------------
                                                                                      27,715,276       27,706,707        34,361,788
                                                                                ---------------- ----------------- -----------------
Income (loss) before extraordinary item                                              (1,772,503)        2,939,818         7,102,131
Extraordinary gain on early extinguishment of debt                                            -                 -         2,056,574
                                                                                ---------------- ----------------- -----------------
Net income (loss)                                                                  $ (1,772,503)      $ 2,939,818       $ 9,158,705
                                                                                ================ ================= =================

Net income (loss):
   General Partner                                                                  $ 1,203,884       $ 2,799,523       $ 1,220,116
   Limited Partners                                                                  (2,976,387)          140,295         7,938,589
                                                                                ---------------- ----------------- -----------------
                                                                                   $ (1,772,503)      $ 2,939,818       $ 9,158,705
                                                                                ================ ================= =================

Income (loss) before extraordinary item per Limited Partnership unit                    $ (0.20)           $ 0.01            $ 0.40
Extraordinary gain on early extinguishment of debt
   per Limited Partnership unit                                                               -                 -              0.13
                                                                                ---------------- ----------------- -----------------
Net income (loss) per Limited Partnership unit                                          $ (0.20)           $ 0.01            $ 0.53
                                                                                ================ ================= =================

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








                             See accompanying notes.


                                       12
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                                                      Other
                                                              Limited Partners                     Comprehensive
                                                              ----------------      General           Income
                                                  Units            Amount           Partner           (Loss)            Total
                                                  -----            ------           -------           ------            -----
<S>                                               <C>            <C>               <C>                        <C>      <C>
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                                                           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

Distributions to Limited Partners
   ($1.00 per Unit)                                                (14,999,876)               -                 -       (14,999,876)
Distributions to General Partner                                             -       (1,203,884)                -        (1,203,884)
Unrealized decrease in value of
   interest rate swap contracts                                              -                -          (298,354)         (298,354)
Net income (loss)                                                   (2,976,387)       1,203,884                 -        (1,772,503)
                                             ---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 2002                         14,996,050      $ 62,842,594              $ -      $ (1,624,360)     $ 61,218,234
                                             ================ ================= ================ ================= =================
</TABLE>



                             See accompanying notes.


                                       13
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                     2002              2001              2000
                                                                                     ----              ----              ----
Operating activities:
<S>                                                                                <C>                <C>               <C>
Net income (loss)                                                                  $ (1,772,503)      $ 2,939,818       $ 9,158,705
Adjustment to reconcile net income (loss) to net cash provided by
   operating activities:
     Leveraged lease income                                                                   -                 -          (195,693)
     Depreciation and amortization                                                   18,608,503        20,023,249        25,306,146
     Provision for losses and impairments                                             2,111,593                 -                 -
     Provision for doubtful accounts                                                    285,000           118,067                 -
     Loss (gain) on sales of assets                                                   1,270,985         1,145,708        (2,381,787)
     Extraordinary gain on early extinguishment of debt                                       -                 -        (2,056,574)
     Changes in operating assets and liabilities:
         Accounts receivable                                                            625,804           344,704          (596,206)
         Due from General Partner                                                      (253,543)                -                 -
         Other assets                                                                    97,996           (18,004)           39,996
         Accounts payable, General Partner                                             (580,916)          (24,768)         (829,967)
         Accounts payable, other                                                        241,861          (193,163)          277,865
         Accrued interest payable                                                      (163,055)         (178,400)         (180,839)
         Unearned lease income                                                           36,419          (287,529)         (158,758)
                                                                                ---------------- ----------------- -----------------
Net cash provided by operating activities                                            20,508,144        23,869,682        28,382,888
                                                                                ---------------- ----------------- -----------------

Investing activities:
Proceeds from sales of assets                                                         2,229,481         3,830,077        10,439,849
Reduction of net investment in direct financing leases                                3,032,098         2,261,062         2,554,664
Purchases of equipment on direct financing leases                                    (3,052,582)       (4,344,293)       (1,678,000)
Initial direct lease costs                                                             (107,962)          (48,560)          (18,370)
Purchases of equipment on operating leases                                           (3,959,522)       (1,950,111)                -
                                                                                ---------------- ----------------- -----------------
Net cash provided by (used in) investing activities                                  (1,858,487)         (251,825)       11,298,143
                                                                                ---------------- ----------------- -----------------

Financing activities:
Distributions to Limited Partners                                                   (14,999,876)      (14,999,647)      (15,088,765)
Distributions to General Partner                                                     (1,203,884)       (1,284,922)       (1,220,116)
Borrowings under line of credit                                                      19,500,000        12,900,000           450,000
Repayments of borrowings under line of credit                                       (10,300,000)       (8,800,000)      (11,600,000)
Proceeds of other long-term debt                                                     10,100,000         8,000,000        11,700,000
Repayments of other long-term debt                                                  (15,094,000)      (14,337,000)      (17,947,426)
Repayments of non-recourse debt                                                      (5,393,917)       (5,481,516)       (6,912,082)
Proceeds of non-recourse debt                                                                 -                 -           584,403
                                                                                ---------------- ----------------- -----------------
Net cash used in financing activities                                               (17,391,677)      (24,003,085)      (40,033,986)
                                                                                ---------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents                                  1,257,980          (385,228)         (352,955)
Cash and cash equivalents at beginning of year                                          936,189         1,321,417         1,674,372
                                                                                ---------------- ----------------- -----------------
Cash and cash equivalents at end of year                                            $ 2,194,169         $ 936,189       $ 1,321,417
                                                                                ================ ================= =================
</TABLE>


                                       14
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


<TABLE>
<CAPTION>
                                                                                     2002              2001              2000
                                                                                     ----              ----              ----

<S>                                                                                <C>                <C>               <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest                                              $ 3,369,612       $ 4,208,095       $ 5,487,903
                                                                                ================ ================= =================

Schedule of non-cash transactions:

Extraordinary gain on early extinguishment of debt                                          $ -               $ -       $ 2,056,574
                                                                                ================ ================= =================

Change in fair value of interest rate swaps contracts                                $ (298,354)     $ (1,607,667)              $ -
                                                                                ================ ================= =================
</TABLE>


                             See accompanying notes.


                                       15
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

December 31, 2002


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,  primarily in the
United States.

     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, 2002,  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  (See 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  subject to operating  leases is stated at cost.  Depreciation is
being recognized on a straight-line  method over the terms of the related leases
to the equipment's estimated residual values at the end of the leases.

     Revenues from operating leases are recognized  evenly over the terms 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  that  are  financed  principally  with  non-recourse  debt at lease
inception  and that 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.



                                       16
<PAGE>

                     ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               December 31, 2002


2.  Summary of significant accounting policies (continued):

Accounts receivable:

     Accounts receivable  represent the amounts billed under lease contracts and
currently due to the Partnership. Allowances for doubtful accounts are typically
established  based on historical  charge offs and collection  experience and are
usually determined by specifically identified lessees and invoiced amounts.

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 Company's net assets and  liabilities  varies from the
amounts presented in these financial statements (unaudited):

                                                  2002              2001
                                                  ----              ----
   Financial statement basis of net assets      $ 61,218,234      $ 79,492,851
   Tax basis of net assets                       (22,854,898)       (1,474,318)
                                             ---------------- -----------------
   Difference                                   $ 84,073,132      $ 80,967,169
                                             ================ =================

     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>
                                                              2002              2001              2000
                                                              ----              ----              ----
<S>                                                         <C>                <C>               <C>
     Net income (loss) per financial statements             $ (1,772,503)      $ 2,939,818       $ 9,158,705
     Adjustment to depreciation expense                       (9,817,508)      (18,455,212)      (20,229,067)
     Adjustments to lease revenues                             1,442,714         2,145,833           573,208
     Provision for losses                                      2,396,593           118,067                 -
                                                         ---------------- ----------------- -----------------
     Net loss per federal tax return                        $ (7,750,704)     $(13,251,494)     $(10,497,154)
                                                         ================ ================= =================
</TABLE>

Per unit data:

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




                                       17
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

December 31, 2002


2.  Summary of significant accounting policies (continued):

Credit risk:

     Financial   instruments  that   potentially   subject  the  Partnership  to
concentrations of credit risk include cash and cash equivalents,  direct finance
lease  receivables  and accounts  receivable.  The  Partnership  places its cash
deposits  and  temporary  cash  investments  with  creditworthy,   high  quality
financial  institutions.  The  concentration of such deposits and temporary cash
investments  is not  deemed to  create a  significant  risk to the  Partnership.
Accounts  receivable  represent amounts due from lessees in various  industries,
related to equipment on operating and direct financing leases.  See Note 8 for a
description of lessees by industry as of December 31, 2002, 2001 and 2000.

Basis of presentation:

     The accompanying  financial statements as of December 31, 2002 and 2001 and
for the three years ended  December  31, 2002 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 and  expected  future  cash  flows  used for  impairment
analysis purposes.

Asset valuation:

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

Derivative financial instruments:

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
No. 133,  Accounting for Derivative  Instruments and Hedging  Activities,  which
established new accounting and reporting  standards for derivative  instruments.
SFAS No. 133 has been amended by SFAS No. 137,  issued in June 1999, and by SFAS
No. 138, issued in June 2000.



                                       18
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               December 31, 2002


2.  Summary of significant accounting policies (continued):

SFAS No. 133, as amended, requires the Partnership to recognize all derivatives
as either assets or liabilities in the balance sheet and to carry 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.

The Partnership utilizes cash flow hedges comprised of interest rate swaps. Such
     interest  rate swaps are linked to and are designed to  effectively  adjust
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  equity  as  a  component  of  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 FASB issued SFAS 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  adopted  SFAS  144 as of  January  1,  2002.  The  adoption  of the
Statement  did not have a  significant  impact  on the  Partnership's  financial
position or results of operations.

Initial direct costs:

     The  Partnership  capitalizes  initial  direct  costs  associated  with the
acquisition  of lease assets.  The costs are  amortized  over a five year period
using a straight line method.









                                       19
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2002


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,
                                                  2001           Additions         of Leases       Dispositions          2002
                                                  ----           ---------         ---------       ------------          ----
<S>                                             <C>                <C>            <C>                <C>               <C>
Net investment in operating leases              $101,066,589       $ 3,959,522    $ (18,424,332)     $ (2,574,877)     $ 84,026,902
Net investment in direct financing
   leases                                         18,931,921         3,052,582       (3,032,098)       (2,725,288)       16,227,117
Reserve for losses and impairments                  (504,227)       (2,111,593)               -           504,227        (2,111,593)
Assets held for sale or lease                      9,267,614                 -                -         1,295,472        10,563,086
Initial direct costs, net of
   accumulated amortization of
   $905,356 in 2002 and $726,703 in 2001             287,978           107,962         (184,171)                -           211,769
                                             ---------------- ----------------- ---------------- ----------------- -----------------
                                                $129,049,875       $ 5,008,473    $ (21,640,601)     $ (3,500,466)     $108,917,281
                                             ================ ================= ================ ================= =================
</TABLE>

     Management periodically reviews the carrying values of its assets on leases
and  assets  held for  lease or sale.  As a result  of that  review,  management
determined  that  the fair  values  of  fleets  of jumbo  covered  hopper  cars,
tidewater  barges and diesel  electric  locomotives had declined in value to the
extent  that the  carrying  values  had become  impaired.  The fair value of the
assets was determined  based on the sum of the discounted  estimated future cash
flows of the assets.  A charge to  operations  was  recorded  for the decline in
value of those assets in the amount of  $2,111,593  for the year ended  December
31, 2002.

Operating leases:

Property subject to operating leases consists of the following:

<TABLE>
<CAPTION>
                                                                       Reclass-
                                December 31,                        ifications or    December 31,
                                      2001           Additions       Dispositions          2002
                                      ----           ---------       ------------          ----
<S>                                 <C>                       <C>      <C>               <C>
Transportation                      $ 80,788,684              $ -      $ (5,899,676)     $ 74,889,008
Marine vessels / barges               27,030,136                -                 -        27,030,136
Construction                          22,831,963                -          (417,700)       22,414,263
Manufacturing                          9,702,801                -          (335,413)        9,367,388
Mining                                 9,012,965                -                 -         9,012,965
Other                                  5,813,733                -           220,653         6,034,386
Office automation                      5,297,632                -        (1,692,944)        3,604,688
Materials handling                     5,265,654        3,959,522          (216,081)        9,009,095
Communications                         4,387,819                -           (77,934)        4,309,885
                                ----------------- ---------------- ----------------- -----------------
                                     170,131,387        3,959,522        (8,419,095)      165,671,814
Less accumulated depreciation        (69,064,798)     (18,424,332)        5,844,218       (81,644,912)
                                ----------------- ---------------- ----------------- -----------------
                                   $ 101,066,589    $ (14,464,810)     $ (2,574,877)     $ 84,026,902
                                ================= ================ ================= =================
</TABLE>



                                       20
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

December 31, 2002


3.  Investments in equipment and leases (continued):

Direct financing leases:

     As of December 31, 2002,  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, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                 2002              2001
                                                                 ----              ----
<S>                                                            <C>               <C>
Total minimum lease payments receivable                        $ 14,018,775      $ 15,374,654
Estimated residual values of leased equipment (unguaranteed)      6,286,069         8,678,613
                                                            ---------------- -----------------
Investment in direct financing leases                            20,304,844        24,053,267
Less unearned income                                             (4,077,727)       (5,121,346)
                                                            ---------------- -----------------
Net investment in direct financing leases                      $ 16,227,117      $ 18,931,921
                                                            ================ =================
</TABLE>

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

     At  December  31,  2002,  the  aggregate  amounts of future  minimum  lease
payments to be  received  under  operating  and direct  financing  leases are as
follows:

                                             Direct
       Year ending        Operating        Financing
       December 31,        Leases            Leases            Total
       ------------        ------            ------            -----
                2003       $15,666,811       $ 3,935,864     $ 19,602,675
                2004         9,975,468         3,850,612       13,826,080
                2005         6,682,211         3,779,344       10,461,555
                2006         1,567,028         1,706,695        3,273,723
                2007           459,000           542,007        1,001,007
          Thereafter           463,950           204,253          668,203
                       ---------------- ----------------- ----------------
                           $34,814,468      $ 14,018,775     $ 48,833,243
                       ================ ================= ================




                                       21
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

December 31, 2002


3.  Investments in equipment and leases (continued):

Reserve 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:

                                            Reserve for      Allowance for
                                             losses and        doubtful
                                            impairments        accounts
        Balance December 31, 1999              $ 6,185,366        $       -
        Provision                                        -                -
        Charge offs                             (5,681,139)               -
                                          ----------------- ----------------
        Balance December 31, 2000                  504,227                -
        Provision                                        -          118,067
        Charge offs                                      -                -
                                          ----------------- ----------------
        Balance December 31, 2001                  504,227          118,067
        Provision                                2,111,593          285,000
        Charge offs                               (504,227)               -
                                          ----------------- ----------------
        Balance December 31, 2002              $ 2,111,593        $ 403,067
                                          ================= ================

     At December 31, 2002, the  Partnership had no commitments to purchase lease
assets.


4.  Non-recourse debt:

     At December  31,  2002,  non-recourse  debt  consists  of notes  payable to
financial  institutions.  The  notes  are  due in  varying  monthly,  quarterly,
semi-annual  and annual  payments.  Interest on the notes is at fixed rates from
7.4% to 16.6%.  The notes are  secured  by  assignments  of lease  payments  and
pledges of assets.  At December  31,  2002,  the  carrying  value of the pledged
assets is $16,937,114. The notes mature from 2003 through 2008.

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

          Year ending
          December 31,       Principal         Interest           Total
                   2003       $ 3,624,662         $ 288,831      $ 3,913,493
                   2004           298,403            67,364          365,767
                   2005           322,838            42,927          365,765
                   2006           216,850            20,179          237,029
                   2007            90,838             5,141           95,979
             Thereafter            23,717               277           23,994
                          ---------------- ----------------- ----------------
                              $ 4,577,308         $ 424,719      $ 5,002,027
                          ================ ================= ================






                                       22
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

December 31, 2002


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
(2.0081% at December 31, 2002), 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,  2002,  the  Partnership  receives or pays
interest on a notional principal of $25,680,000, 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            2002           Agreement
       -------------      --------            ----           ---------
          4/1/98           $21,770,000       $ 1,332,000      6.220%
          7/1/98            25,000,000         3,469,000      6.155%
         10/1/98            20,000,000         6,087,000      5.550%
         4/16/99             9,000,000         2,435,000      5.890%
         1/26/00            11,700,000         6,699,000      7.580%
         5/25/01             2,000,000         1,402,000      5.790%
         9/28/01             6,000,000         4,256,000      4.360%
         1/31/02             4,400,000         3,455,000         *
         2/19/02             5,700,000         4,411,000         *
                       ---------------- -----------------
                          $105,570,000      $ 33,546,000
                       ================ =================

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

     The long-term debt borrowings mature from 2003 through 2009. Future minimum
principal payments of long-term debt and annual swap notional  reductions are as
follows:

<TABLE>
<CAPTION>
                            Swap Notional /       Debt                                               Rates on
          Year ending            Debt           Principal                                         Interest Swap
          December 31,        Principal        Not Swapped        Interest           Total         Agreements**
                              ---------        -----------        --------           -----         ------------
<S>                    <C>     <C>               <C>               <C>             <C>            <C>    <C>
                       2003    $ 8,903,000       $ 2,621,000       $ 1,653,145     $ 13,177,145   5.858%-5.878%
                       2004      7,186,000         2,272,000         1,041,833       10,499,833   5.871%-5.910%
                       2005      5,766,000         2,109,000           539,350        8,414,350   5.927%-6.257%
                       2006      1,946,000           864,000           206,986        3,016,986   6.414%-7.009%
                       2007        903,000                 -           103,979        1,006,979   7.007%-7.211%
                       2008        635,000                 -            46,443          681,443   7.245%-7.480%
                       2009        341,000                 -            12,229          353,229       7.58%
                            ---------------  ---------------- ----------------- ----------------
                              $ 25,680,000       $ 7,866,000       $ 3,603,965     $ 37,149,965
                            ===============  ================ ================= ================
</TABLE>


                                       23
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               December 31, 2002


5.  Other long-term debt (continued):

** 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 (2.0081% at December 31, 2002).

     In 2002 and 2001, the net effect of the interest rate swaps was to increase
interest expense by $955,401 and $622,647, respectively.


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 whereby 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.

     Each  of ATEL  Leasing  Corporation  ("ALC"),  ATEL  Equipment  Corporation
("AEC"),  ATEL Investor  Services  ("AIS") and ATEL Financial  Services LLC 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
ATEL Financial Services, LLC.

     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
2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                   2002              2001              2000
                                                                   ----              ----              ----

<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).                                     $ 947,568       $ 1,175,912       $ 1,770,779


Cost reimbursements to General Partner                                859,415           851,382           917,952
                                                              ---------------- ----------------- -----------------
                                                                  $ 1,806,983       $ 2,027,294       $ 2,688,731
                                                              ================ ================= =================
</TABLE>



                                       24
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               December 31, 2002


7.  Partners' capital:

     As of December 31, 2002, 14,996,050 Units 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, as defined.

The Partnership's Net Profits, Net Losses, and Tax Credits are to be allocated
     92.5%  to the  Limited  Partners  and  7.5%  to  the  General  Partner.  In
accordance
with the terms of the of Limited Partnership Agreement, an additional
allocations of income were made to the General Partner in 2002 and 2001. The
amount allocated was determined to bring the General Partner's ending capital
account balance to zero.

     As  defined  in the  Limited  Partnership  Agreement,  available  Cash from
Operations, 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.

     As defined in the Limited Partnership Agreement,  available Cash from Sales
or Refinancing, 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.


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, 2002, 2001 and 2000, there were concentrations  (defined
as greater than 10%) of equipment leased to lessees in certain  industries (as a
percentage of total equipment cost) as follows:

                                     2002             2001              2000
                                     ----             ----              ----
    Manufacturing                    24%                *                *
    Transportation, rail             15%               13%              19%
    Transportation, other            14%               14%              12%
    Municipalities                   13%               17%              16%

*  Less than 10%

     During 2002, one customer comprised 11% of the Partnership's  revenues from
leases.  During 2001 and 2000,  no  customers  comprised in excess of 10% of the
Partnership's revenues from leases.



                                       25
<PAGE>

                     ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               December 31, 2002


9.  Line of credit:

     The  Partnership  participates  with the General Partner and certain of its
affiliates  in  a  $55,645,837   revolving  line  of  credit  (comprised  of  an
acquisition facility and a warehouse facility) with a financial institution that
includes  certain  financial  covenants.  The line of credit expires on June 28,
2004. As of December 31, 2002, borrowings under the facility were as follows:

<TABLE>
<CAPTION>
<S>                                                                                                <C>
Amount  borrowed by the Partnership under the acquisition facility                                 $    13,300,000
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
   facility                                                                                              15,700,000
                                                                                                  -----------------
Total borrowings under the acquisition facility                                                          29,000,000
Amounts borrowed by the General Partner and its sister corporation under the warehouse facility                   -
                                                                                                  -----------------
Total outstanding balance                                                                          $    29,000,000
                                                                                                  =================

Total available under the line of credit                                                           $    55,645,837
Total outstanding balance                                                                              (29,000,000)
                                                                                                  -----------------
Remaining availability                                                                             $    26,645,837
                                                                                                  =================
</TABLE>

     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  borrowed  $19,500,000,  $12,900,000 and $450,000 under the
line of credit during 2002, 2001 and 2000, respectively.  Repayments on the line
of credit were  $10,300,000,  $8,800,000 and  $11,600,000  during 2002, 2001 and
2000, 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, 2002 ranged from 3.29% to 3.31%.

     The credit agreement  includes certain  financial  covenants  applicable to
each  borrower.  The  Partnership  was in  compliance  with its  covenants as of
December 31, 2002.




                                       26
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               December 31, 2002


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 practical 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, 2002 is $4,373,028.

Other long-term debt:

     The carrying value of the  Partnership's  other long-term debt approximates
its fair value at December  31, 2002 as  borrowings  are at a variable  interest
rate that adjusts to current market interest rates.

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  management  based on
independent  valuations or discounting the fixed cash flows paid under each swap
using the rate at which the  Partnership  could  enter into new swaps of similar
maturities. Swaps are recorded at fair value at December 31, 2002 and 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
$2,056,574 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 $2,056,574 during the year ended December 31, 2000.




                                       27
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               December 31, 2002


12.  Other comprehensive income (loss):

     For  the  years  ended  December  31,  2002,   2001  and  in  2000,   other
comprehensive income (loss) consisted of the following:

<TABLE>
<CAPTION>
                                                                                     2002              2001              2000
                                                                                     ----              ----              ----
<S>                                                                                <C>                <C>               <C>
Net income (loss)                                                                  $ (1,772,503)      $ 2,939,818       $ 9,158,705
Other comprehensive income:
Cumulative effect of change in accounting principle at January 1, 2001                        -           281,661                 -
Change in value of interest rate swap contracts                                        (298,354)       (1,607,667)                -
                                                                                ---------------- ----------------- -----------------
Comprehensive net income (loss)                                                    $ (2,070,857)      $ 1,613,812       $ 9,158,705
                                                                                ================ ================= =================
</TABLE>


13.  Selected quarterly data (unaudited):

<TABLE>
<CAPTION>
                                                                 March 31,         June 30,       September 30,      December 31,
Quarter ended                                                       2001             2001              2001              2001
                                                                    ----             ----              ----              ----

<S>                                                                <C>              <C>               <C>               <C>
Total revenues                                                     $ 8,515,731      $ 8,052,672       $ 7,865,481       $ 6,212,641
Net Income (loss)                                                    $ 810,179        $ 775,805       $ 1,313,434          $ 40,400
Net income (loss) per limited partnership unit                          $ 0.04           $ 0.03            $ 0.07           $ (0.13)

                                                                 March 31,         June 30,       September 30,      December 31,
Quarter ended                                                       2002             2002              2002              2002
                                                                    ----             ----              ----              ----

Total revenues                                                     $ 7,075,556      $ 5,277,040       $ 6,713,097       $ 6,877,080
Net Income (loss)                                                    $ 219,517     $ (1,047,882)        $ (91,256)       $ (852,882)
Net income (loss) per limited partnership unit                         $ (0.01)         $ (0.09)          $ (0.03)          $ (0.07)
</TABLE>




                                       28
<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 AFS.

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

     Paritosh K. Choksi, age 49, 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 54, 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.



                                       29
<PAGE>

     Vasco H. Morais,  age 44, 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 2002,  2001 and 2000 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.

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.



                                       30
<PAGE>

     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.

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 2002  and  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 2002, 2001 and 2000.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

     At December 31, 2002, 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%
                           600 California Street, 6th Floor   25 Units ($250)
                                San Francisco, CA 94108       (owned by wife)

Limited Partnership Units     Dean Cash                         Initial Limited Partner Units            0.00017%
                           600 California Street, 6th Floor   25 Units ($250)
                                San Francisco, CA 94108       (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.




                                       31
<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.


Item 14.  CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

     Under the supervision and with the  participation  of our management  (ATEL
Financial  Services,  LLC as General  Partner of the  registrant,  including the
chief  executive  officer and chief  financial  officer),  an  evaluation of the
effectiveness  of the  design  and  operation  of the  Partnership's  disclosure
controls and procedures [as defined in Rules  240.13a-14(c)  and 15d-14(c) under
the  Securities  Exchange Act of 1934] was  performed as of a date within ninety
days before the filing date of this annual report.  Based upon this  evaluation,
the chief executive  officer and chief financial  officer  concluded that, as of
the evaluation  date, our disclosure  controls and procedures were effective for
the  purposes  of  recording,  processing,   summarizing  and  timely  reporting
information required to be disclosed by us in the reports that we file under the
Securities  Exchange Act of 1934 and that such  information is  accumulated  and
communicated  to our  management  in order to allow timely  decisions  regarding
required disclosure.

Changes in internal controls

     There have been no significant changes in our internal controls or in other
factors that could  significantly  affect our disclosure controls and procedures
subsequent to the evaluation  date, nor were there any significant  deficiencies
or material weaknesses in our internal controls.


                                     PART IV

Item 15.  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, 2002 and 2001
          Statements of Operations for the years ended December 31, 2002, 2001
          and 2000 Statements of Changes in Partners' Capital for the years
          ended December 31, 2002, 2001 and 2000 Statement of Cash Flows for the
          years ended December 31, 2002, 2001 and 2000 Notes to Financial
          Statements

       2. Financial Statement Schedules

          All schedules 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 2002
          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).



                                       32
<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:       3/26/03

                             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)







                                       33
<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 Executive       3/26/03
-------------------------   officer of ATEL Financial  Services, LLC
        Dean Cash



  /s/ Paritosh K. Choksi   Executive Vice President and director         3/26/03
-------------------------   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               3/26/03
-------------------------   registrant; principal accounting officer
   Donald E. Carpenter      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.



                                       34
<PAGE>

                                 CERTIFICATIONS


I, Paritosh K. Choksi, certify that:

1. I have  reviewed  this annual  report on Form 10-K of ATEL Cash  Distribution
Fund VII, LP;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.



Date:          3/26/03

/s/ Paritosh K. Choksi
-------------------------------------------------------------
Paritosh K. Choksi
Principal financial officer of registrant, Executive
Vice President of General Partner


                                       35
<PAGE>

                                 CERTIFICATIONS


I, Dean L. Cash, certify that:

1. I have  reviewed  this annual  report on Form 10-K of ATEL Cash  Distribution
Fund VII, LP;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.



Date:          3/26/03

 /s/ Dean Cash
-------------------------------------------------------------
Dean L. Cash
President and Chief Executive
Officer of General Partner


                                       36
<PAGE>

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual report on Form 10K of ATEL Cash  Distribution
Fund VII,  LP, (the  "Partnership")  for the period  ended  December 31, 2002 as
filed with the  Securities  and  Exchange  Commission  on the date  hereof  (the
"Report"),  and pursuant to 18 U.S.C.  ss.1350, as adopted pursuant to ss.906 of
the Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL
Financial  Services,  LLC,  general partner of the  Partnership,  hereby certify
that:

1. The Report fully complies with the  requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934 ; and

2. The  information  contained in the Report  fairly  presents,  in all material
respects, the financial condition and results of operations of the Partnership.

Date:          3/26/03



 /s/ Dean Cash
-------------------------------------------
Dean L. Cash
President and Chief Executive
Officer of General Partner


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual report on Form 10K of ATEL Cash  Distribution
Fund VII,  LP, (the  "Partnership")  for the period  ended  December 31, 2002 as
filed with the  Securities  and  Exchange  Commission  on the date  hereof  (the
"Report"),  and pursuant to 18 U.S.C.  ss.1350, as adopted pursuant to ss.906 of
the Sarbanes-Oxley  Act of 2002, I, Paritosh K. Choksi,  Chief Financial Officer
of ATEL Financial  Services,  LLC,  general partner of the  Partnership,  hereby
certify that:

1. The Report fully complies with the  requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934 ; and

2. The  information  contained in the Report  fairly  presents,  in all material
respects, the financial condition and results of operations of the Partnership.

Date:          3/26/03



/s/ Paritosh K. Choksi
-------------------------------------------
Paritosh K. Choksi
Executive Vice President of General
Partner, Principal financial officer of registrant





                                       37
<PAGE>