UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

                  |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, 2004
                                       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 94108-2733
                    (Address of principal executive offices)

        Registrant's telephone number, including area code (415) 989-8800
        Securities registered pursuant to section 12(b) of the Act: None

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

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

The number of Limited  Partnership Units outstanding as of December 31, 2004 was
14,995,550.

                       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 (AFS). Prior to converting to a limited liability Partnership structure, AFS
was formerly known as ATEL Financial Corporation.

The  Partnership  conducted  a public  offering of  15,000,000  Units of Limited
Partnership Interest (Units) at a price of $10 per Unit. On January 7, 1997, 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,  2004,  14,995,550  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 ("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 AFS 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, 2004, 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 AFS, 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 AFS,  would not  satisfy the
general  credit  rating  criteria  for the  portfolio.  In  excess of 75% of the
equipment  acquired  with the net  proceeds of the  offering  (based on original
purchase cost) has been leased to lessees with an aggregate credit rating of Baa
or better or to such hospitals or municipalities as described in (ii) above.

During 2004, one lessee generated 16% the Partnership's  lease revenues.  During
2003, no single lessee generated 10% of the Partnership's lease revenues. During
2002, one lessee generated 11% the Partnership's lease revenues.

Lessee                              Type of Equipment     2004   2003   2002

Transamerica Leasing International  Containers             16%    *      *
General Motors Corporation          Materials Handling      *     *     11%

*  Less than 10%.

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



                                       2
<PAGE>

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

AFS 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

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, 2004 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                  $ 135,842,930                       44.87%
Manufacturing                      45,709,520                       15.10%
Mining                             30,756,101                       10.16%
Marine vessels                     22,335,250                        7.38%
Materials handling                 16,318,944                        5.39%
Office automation                  11,449,934                        3.78%
Medical                             9,133,951                        3.02%
Aircraft                            6,310,979                        2.08%
Other *                            24,893,437                        8.22%
                             -----------------            -----------------
                                $ 302,751,046                      100.00%
                             =================            =================

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

                          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.

Through December 31, 2004, the Partnership has disposed of certain leased assets
as set forth below:

                                                              Excess of
                      Original                                Rents Over
Asset Types         Equipment Cost       Sale Price           Expenses *

Mining                 $38,745,966        $ 11,086,865         $ 35,092,518
Transportation          27,172,154          10,877,022           17,864,099
Marine vessels          16,459,061           3,056,241           17,057,837
Office automation       15,535,652           1,502,508           16,797,085
Medical                 12,809,895           8,416,248            6,772,818
Aircraft                10,982,354           3,757,240           10,798,091
Other                    4,876,844             560,000            4,140,528
Manufacturing            4,759,285           2,352,872            4,020,720
Materials handling       4,708,142           4,954,738            2,576,835
                   ----------------    ----------------    -----------------
                      $136,049,353        $ 46,563,734         $115,120,531
                   ================    ================    =================

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



                                       3
<PAGE>

For further information regarding the Partnership's equipment lease portfolio as
of December 31, 2004,  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.


Item 2.  PROPERTIES

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


Item 3.  LEGAL PROCEEDINGS

In the ordinary  course of  conducting  business,  there may be certain  claims,
suits,  and  complaints  filed  against  the  Partnership.  In  the  opinion  of
management, the outcome of such matters, if any, will not have a material impact
on the Partnership's  consolidated  financial position or results of operations.
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.

Martin Marietta Magnesia Specialties Inc.:

The Partnership had filed a suit against Martin  Marietta  Magnesia  Specialties
Inc. for failure to maintain  equipment in accordance  with the lease  contract.
The Partnership had made a claim for recovery of $179,679 in damages. During the
year ended December 31, 2004, the Partnership  settled this lawsuit and received
$90,000.

Cargill Inc. / GWI Leasing Corporation:

Cargill Inc. is a lessee of the  Partnership.  GWI Leasing  Corporation  ("GWI")
manages the equipment under the Cargill lease on behalf of the Partnership.  The
Partnership was seeking  unspecified damages from Cargill for failure to perform
certain  responsibilities  relating to the equipment under the lease  agreement.
The  Partnership  was also  seeking  damages from GWI for failure to enforce the
terms of the lease contract.  At December 31, 2004, the Partnership settled this
matter with respect to Cargill and is pursuing a settlement with GWI.

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

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

Holders

As of December 31, 2004,  a total of 5,523  investors  were holders of record of
Units in the Partnership.

ERISA Valuation

In order to permit  ERISA  fiduciaries  who hold Units to satisfy  their  annual
reporting  requirements,  AFS estimated the value per Unit of the  Partnership's
assets as of September  30,  2004.  AFS  calculated  the  estimated  liquidation
proceeds  that  would  be  realized  by the  Partnership,  assuming  an  orderly
disposition  of all of the  Partnership's  assets as of  January  1,  2005.  The
estimates  were based on the amount of  remaining  lease  payments  on  existing
Partnership  leases,  and the estimated residual values of the equipment held by
the Partnership  upon the termination of those leases.  This valuation was based
solely on AFS's perception of market conditions and the types and amounts of the
Partnership's assets. No independent valuation was sought.



                                       4
<PAGE>

After  calculating  the  aggregate  estimated  disposition  proceeds,  AFS  then
calculated  the  portion of the  aggregate  estimated  value of the  Partnership
assets  that  would  be  distributed  to  Unit  holders  on  liquidation  of the
Partnership, and divided the total so distributable by the number of outstanding
Units.  As of  September  30,  2004,  the  value  of the  Partnership's  assets,
calculated  on this  basis,  was  approximately  $4.05 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.

AFS has sole  discretion in determining the amount of  distributions;  provided,
however, that AFS 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 ended December 31, 2004.
Distributions  for the year ended in December 31, 2004 were reduced to $0.50 per
Unit as determined by AFS.

The rate for monthly  distributions  from 2004  operations was $0.0416 per Unit.
The  distributions  were paid in  February  2004  through  December  2004 and in
January 2005. For each quarterly  distribution  (paid in April, July and October
2004 and in January 2005) the rate was $0.125 per Unit.  Distributions were from
2004 cash flows from operations.

The rate for monthly  distributions  from 2003  operations was $0.0833 per Unit.
The  distributions  were paid in  February  2003  through  December  2003 and in
January 2004. For each quarterly  distribution  (paid in April, July and October
2003 and in January 2004) the rate was $0.25 per Unit.  Distributions  were from
2003 cash flows from operations.

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 following table presents summarized  information regarding  distributions to
Limited Partners:

<TABLE>
<CAPTION>
                                                 2004              2003             2002              2001              2000
Net income (loss) per Unit, based on
<S>                                                 <C>               <C>              <C>                <C>               <C>
   weighted average Units outstanding               $ (0.16)          $ (0.37)         $ (0.20)           $ 0.01            $ 0.53
Return of investment                                   0.71              1.37             1.20              0.99              0.48
                                            ---------------- ----------------- ---------------- ----------------- -----------------
Distributions per Unit, based on
   weighted average Units outstanding                  0.55              1.00             1.00              1.00              1.01
Differences due to timing of distributions            (0.05)                -                -                 -             (0.01)
                                            ---------------- ----------------- ---------------- ----------------- -----------------
Actual distribution rates, per Unit                  $ 0.50            $ 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, 2004, 2003, 2002, 2001 and 2000 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>
                                                 2004              2003             2002              2001              2000
<S>                                             <C>              <C>              <C>               <C>               <C>
Gross revenues                                  $15,165,578      $ 22,484,703     $ 25,942,773      $ 30,646,525      $ 41,463,919
Net income (loss)                              $ (1,678,535)     $ (4,311,400)    $ (1,772,503)      $ 2,939,818       $ 9,158,705
Weighted average Units outstanding               14,995,550        14,995,675       14,996,050        14,996,050        14,996,050
Net income (loss) allocated to
   Limited Partners                            $ (2,360,499)     $ (5,551,311)    $ (2,976,387)        $ 140,295       $ 7,938,589
Net income (loss) per Unit, based on
   weighted average Units outstanding               $ (0.16)          $ (0.37)         $ (0.20)           $ 0.01            $ 0.53
Distributions per Unit, based on
   weighted average Units outstanding                $ 0.55            $ 1.00           $ 1.00            $ 1.00            $ 1.01
Total Assets                                    $56,090,044      $ 74,812,214    $ 116,223,748     $ 135,853,619      $157,600,746
Non-recourse Debt                                 $ 467,709       $ 1,586,403      $ 4,577,308       $ 9,971,225      $ 15,452,741
Other Long-term Debt                            $ 8,997,000      $ 15,759,000     $ 33,546,000      $ 38,540,000      $ 44,877,000
Total Partners' Capital                         $31,382,533      $ 41,406,023     $ 61,218,234      $ 79,492,851      $ 94,163,608
</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  form those  projected.  In  particular,  economic
recession and changes in general economic conditions, including, fluctuations in
demand for equipment,  lease rates,  and interest rates, may result in delays in
investment and reinvestment,  delays in leasing,  re-leasing, and disposition of
equipment, and reduced returns on invested capital. The Company's performance is
subject to risks  relating to lessee  defaults and the  creditworthiness  of its
lessees.  The Fund's  performance is also subject to risks relating to the value
of  its  equipment  at the  end of its  leases,  which  may be  affected  by the
condition of the equipment,  technological  obsolescence and the markets for new
and used  equipment at the end of lease terms.  Investors  are  cautioned not to
attribute undue certainty to these forward-looking statements,  which speak only
as of the date of this Form 10-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 AFS's  success in  re-leasing or selling the equipment as
it comes off lease.



                                       6
<PAGE>

The  Partnership  participates  with  AFS and  certain  of its  affiliates  in a
financing arrangement  (comprised of a term loan to AFS, an acquisition facility
and a warehouse  facility) with a group of financial  institutions that includes
certain  financial  covenants.  The financial  arrangement  is  $75,000,000  and
expires  in  June  2006.  The  availability  of  borrowings   available  to  the
Partnership  under this  financing  arrangement is reduced by the amount AFS has
outstanding  as a term  loan.  As of  December  31,  2004  borrowings  under the
facility were as follows:

<TABLE>
<CAPTION>
<S>                                                                              <C>
Total amount available under the financing arrangement                           $    75,000,000
Term loan to AFS as of December 31, 2004                                               (2,027,636)
                                                                                -----------------
Total available under the acquisition and warehouse facilities                         72,972,364

Amount borrowed by the Partnership under the acquisition  facility                    (13,500,000)
Amounts  borrowed by affiliated  partnerships  and limited  liability  companies
under the
      acquisition facility                                                           (17,000,000)
                                                                                -----------------
Total remaining available under the acquisition and warehouse facilities         $    42,472,364
                                                                                =================
</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 AFS.

The credit agreement  includes certain  financial  covenants  applicable to each
borrower.  The  Partnership  was in compliance with its covenants as of December
31, 2004.

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 AFS  and  providing  for  cash
distributions to the Limited Partners. At December 31, 2004, the Partnership had
no commitments to purchase lease assets.

As of December 31, 2004, cash balances  consisted of working capital and amounts
reserved for distributions to be paid in January 2005, generated from operations
in 2004.

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

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 AFS 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.  AFS
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 Partnership's  ability to borrow under the program expired in
February  2002.  As  of  December  31,  2004,  the  Partnership  had  $8,997,000
outstanding under the receivables funding program. 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 was 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.

AFS 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.



                                       7
<PAGE>

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

2004 vs. 2003:

Cash flows from operations  decreased from  $16,626,082 in 2003 to $9,828,946 in
2004,  a decrease  of  $6,797,136.  Rents from  operating  leases is the primary
source of  operating  cash flows.  Sales of  operating  lease  assets due to the
liquidation  phase  entered in 2004,  led to the  decrease  in  operating  lease
revenues compared to 2003.

In 2004 and  2003,  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  $15,724,456 in
2003 to $5,503,961 in 2004, a decline of $10,220,495.  The assets that were sold
in 2004 had an original cost of  approximately  $34,760,000.  The assets sold in
2003 had an original cost of approximately $33,950,000. A significant portion of
the assets sold in 2003 were still on lease and had higher  average  values than
those  sold in 2004.  As a  result,  sales  proceeds  were  higher  in 2003 when
compared to 2004. 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 $43,331 (from $2,021,859 in 2003 to $1,978,528 in 2004) as a result
of sales of lease assets in 2003 and 2004.

In 2004, the main financing source of cash comprised of a $21,500,000  borrowing
under the line of  credit.  In 2003,  financing  sources  of cash  consisted  of
proceeds of a new non-recourse  note payable of $1,489,905 and borrowings on the
line of credit.  Borrowings on the line of credit were used to manage short term
cash requirements.  In 2004 and 2003, financing uses of cash involved repayments
of borrowings  under the line of credit,  other long-term debt, and non-recourse
debt, as well as distributions made to Limited Partners and the General Partner.
In 2004, repayments of $21,500,000,  $6,762,000,  and $1,118,694 were applied to
the line of credit, other long-term debt and non-recourse debt, respectively.

2003 vs. 2002:

Cash flows from operations  decreased from $19,521,121 in 2002 to $16,626,082 in
2003,  a decrease  of  $2,895,039.  Rents from  operating  leases is the primary
source of operating cash flows. Sales of operating lease assets in 2002 and 2003
led to the decrease in operating lease revenues compared to 2002.

In 2003 and  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  increased  from  $2,229,481 in
2002 to  $15,724,456 in 2003, an increase of  $13,494,975.  The assets that were
sold in 2002 had an original costs of approximately $14,826,000. The assets sold
in 2003 had an original cost of approximately $33,950,000. A significant portion
of the assets  sold in 2003 were still on lease and had  higher  average  values
than those sold in 2002.  As a result,  sales  proceeds were higher in 2003 when
compared to 2002. 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  $1,010,239  (from  $3,032,098  in 2002 to $2,021,859 in 2003) as a
result of sales of lease assets in 2002 and 2003.

In 2003,  financing  sources of cash consisted of proceeds of a new non-recourse
note payable of $1,489,905 and  borrowings on the line of credit.  Borrowings on
the line of credit were used to manage  short term cash  requirements.  In 2002,
financing  sources of cash  consisted  of proceeds of other  long-term  debt and
borrowings on the line of credit.  In 2002, the proceeds of other long-term debt
were used to make  payments  on the line of credit.  In 2002,  proceeds of other
long-term debt were used as long-term financing on the acquisition of assets. In
2002,  borrowings  on the line of credit  were used to  manage  short  term cash
requirements.

Cash was used to repay  $17,787,000  of  other  long-term  debt in 2003.  Of the
amount  paid,  $11,524,000  was due to payments  that had been  scheduled  as of
December 31, 2002 and  $6,263,000  represented  early  repayments  made in 2003.
Repayments of non-recourse debt were the result of scheduled payments.



                                       8
<PAGE>

Results of Operations

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

As of December 31, 2004 and 2003, 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:

                                                  2004             2003
         Transportation, rail                     30%               22%
         Transportation, other                    26%               21%
         Manufacturing                            14%               21%
         Municipalities                           13%               14%

2004 vs. 2003:

Operations  resulted in a net loss of  $1,678,535 in 2004 compared to $4,311,400
in 2003.  The  primary  reason for the  decreased  loss is due to the absence of
large  impairment  losses such as the  $5,290,639  recognized in 2003, a drop of
$4,835,273 compared to 2004.

Revenues from operating leases decreased from $20,083,732 in 2003 to $14,801,309
in 2004, a decrease of  $5,282,423.  The declines  resulted  from asset sales in
2003 and in 2004. In 2003, the Partnership  recorded gains on sales of assets of
$1,449,492  compared to losses of $674,254 in 2004, a difference of  $2,123,746.
Such gains and  losses  are not  expected  to be  consistent  from one period to
another.

Depreciation expense decreased from $15,220,612 in 2003 to $10,416,101 in 2004 (
a decrease of $4,804,511) as a result of sales of depreciable assets in 2003 and
2004.

Interest  expense  declined  as a result  of  scheduled  payments.  Total  debt,
including the line of credit, decreased from $30,845,403 at December 31, 2003 to
$22,964,709 at December 31, 2004.

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 certain  refuse  vehicles  and other  transportation  related
assets on lease to one  particular  lessee 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 $455,366 for the year ended December 31, 2004. In 2003, impairment
losses were  $5,290,639.  See  additional  discussion of the  impairment  losses
recorded in Note 14 in the  financial  statements  included in Part I, Item 8 of
this report.

2003 vs. 2002:

Operations  resulted in a net loss of  $4,311,400 in 2003 compared to $1,772,503
in  2002.  The  primary  reason  for the  increased  loss  is due to  additional
impairment  losses of $5,290,639 in 2003, an increase of $3,179,046  compared to
2002.

Revenues from operating leases decreased from $25,631,019 in 2002 to $20,083,732
in 2003, a decrease of $5,547,287.  Decreases  resulted from asset sales in 2002
and in 2003.  In 2003,  the  Partnership  recorded  gains on sales of  assets of
$1,449,492 compared to losses of $1,270,985 in 2002, a difference of $2,720,477.
Such gains and  losses  are not  expected  to be  consistent  from one period to
another.

Depreciation expense decreased from $18,424,332 in 2002 to $15,220,612 in 2003 (
a decrease of $3,203,720) as a result of sales of depreciable assets in 2002 and
2003.

Interest  expense  declined as a result of  scheduled  and early debt  payments.
Total debt, including the line of credit, decreased from $51,423,308 at December
31, 2002 to $30,845,403 at December 31, 2003.



                                       9
<PAGE>

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 certain  mining  equipment and fleets of jumbo covered hopper
cars,  petroleum rail tank cars, off shore supply vessels,  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
$5,290,639 for the year ended December 31, 2003. In 2002, impairment losses were
$2,111,593.  See additional discussion of the impairment losses recorded in Note
14 in the financial statements included in Part I, Item 8 of this report.

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, by SFAS No. 138,  issued in June 2000 and by
SFAS No. 149, issued in June 2003.

SFAS No. 133, as amended,  requires the Partnership to recognize all derivatives
as  either  assets  or  liabilities  in the  balance  sheet  and  measure  those
instruments  at  fair  value.  It  further  provides   criteria  for  derivative
instruments  to be  designated  as fair value,  cash flow,  or foreign  currency
hedges, and establishes  accounting  standards for reporting changes in the fair
value of the derivative instruments.

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 Pronouncements

On October 13, 2004, the FASB concluded that SFAS No. 123R,  Share-Based Payment
("SFAS 123R"), which requires all companies to measure compensation cost for all
share-based payments (including stock options and employee stock purchase plans)
at fair value,  will be  effective  for public  companies  for interim or annual
periods beginning after June 15, 2005.  Nonpublic  companies will be required to
adopt the new statement at the  beginning of the first annual  period  beginning
after  December 15, 2005. The  Partnership  does not expect the adoption of SFAS
123R to have a material impact on its financial statements.

In  January   2003,   the  FASB  issued   Interpretation   No.  46  ("FIN  46"),
"Consolidation of Variable Interest Entities,  an interpretation of ARB 51." The
primary  objectives  of  this  interpretation  are to  provide  guidance  on the
identification  of entities for which  control is achieved  through  means other
than through voting rights ("variable  interest  entities") and how to determine
when  and  which  business   enterprise  (the  "primary   beneficiary")   should
consolidate  the  variable  interest  entity.  This new model for  consolidation
applies to an entity in which  either (i) the equity  investors  (if any) do not
have a controlling  financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's  activities  without receiving  additional
subordinated  financial support from other parties. In addition, FIN 46 requires
that  the  primary  beneficiary,  as  well  as  all  other  enterprises  with  a
significant  variable  interest in a variable  interest entity,  make additional
disclosures.  Certain  disclosure  requirements  of FIN 46  were  effective  for
financial statements issued after January 31, 2003.

In  December  2003,  the  FASB  issued  FIN  No.  46  (revised  December  2003),
"Consolidation  of Variable  Interest  Entities" ("FIN 46-R") to address certain
FIN 46 implementation  issues.  The effective dates and impact of FIN 46 and FIN
46-R are as follows:

(i) Special  purpose  entities  ("SPEs")  created prior to February 1, 2003. The
company must apply either the provisions of FIN 46 or early adopt the provisions
of FIN 46-R at the end of the first  interim or annual  reporting  period ending
after December 15, 2003.

(ii)  Non-SPEs  created  prior to February  1, 2003.  The company is required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004.

(iii) All entities, regardless of whether a SPE, that were created subsequent to
January  31,  2003.  The  provisions  of FIN 46  were  applicable  for  variable
interests in entities obtained after January 31, 2003.

The Partnership  adopted FIN 46-R as of March 31, 2004. The adoption of FIN 46-R
did not have a material impact on the Partnership's financial position,  results
of operations, or liquidity.



                                       10
<PAGE>

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.

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 on a straight line basis 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.

Allowances for losses on direct financing leases are typically established based
on historical charge offs and collections  experience and are usually determined
by specifically identified lessees and billed and unbilled receivables.

Direct  financing  leases  are  placed  in  a  non-accrual  status  (no  revenue
recognized)  based on  specifically  identified  lessees.  Such  leases are only
returned  to an accrual  status  based on a case by case  review by AFS.  Direct
financing leases are charged off on specific identification by AFS.

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 Partnership'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.



                                       11
<PAGE>

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, 2004, there was an outstanding  balance of $13,500,000 on the
floating rate line of credit and the effective  interest rate of the  borrowings
ranged from 4.18% to 5.25%.

Also, as described in Item 7 in the caption  "Capital  Resources and Liquidity,"
the  Partnership  entered into a  receivables  funding  facility in 1998.  Since
interest on the outstanding  balances under the facility varies, the Partnership
is exposed to market risks associated with changing interest rates. To hedge its
interest rate risk,  the  Partnership  enters into  interest  rate swaps,  which
effectively convert the underlying interest  characteristic on the facility from
floating to fixed.

Under the swap agreements,  the Partnership  makes or receives variable interest
payments to or from the counterparty  based on a notional  principal amount. The
net  differential  paid or  received  by the  Partnership  is  recognized  as an
adjustment to interest expense related to the facility balances. The amount paid
or received  represents the difference  between the payments  required under the
variable  interest  rate  facility and the amounts due under the facility at the
fixed  (hedged)  interest  rate.  As of December  31,  2004,  borrowings  on the
facility were  $8,997,000 and the associated  variable  interest rate was 2.860%
and the average fixed interest rate achieved with the swap agreements was 6.153%
at December 31, 2004.

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, 2004, a hypothetical  1.00% increase or decrease in market interest
rates would  increase or  decrease  the  Partnership's  2004  variable  interest
expense by approximately $64,680.

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  Registered  Public  Accounting  Firm,  Financial
Statements and Notes to Financial Statements attached hereto at pages 13 through
34.



                                       12
<PAGE>

   REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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,  2004 and 2003,  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,  2004.  These  financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  We were not engaged to perform an
audit of the Partnership's internal control over financial reporting.  Our audit
included  consideration of internal control over financial  reporting as a basis
for designing audit  procedures that are appropriate in the  circumstances,  but
not for the  purpose  of  expressing  an  opinion  on the  effectiveness  of the
Partnership's internal control over financial reporting. Accordingly, we express
no such opinion.  An audit also includes  examining,  on a test basis,  evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
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, 2004 and 2003,  and the results of its  operations and
its cash flows for each of the three  years in the  period  ended  December  31,
2004, in conformity with U.S. generally accepted accounting principles.

                                                          /s/ ERNST & YOUNG LLP

San Francisco, California
March 9, 2005





                                       13
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                                 BALANCE SHEETS

                           DECEMBER 31, 2004 AND 2003


                                     ASSETS

                                                   2004              2003
Cash and cash equivalents                         $ 1,222,623         $ 835,628

Accounts receivable, net of allowance for
   doubtful accounts of $540,880 in 2004
   and $524,880 in 2003                             1,380,733         2,149,089

Other assets                                          626,784                 -

Investments in equipment and leases                52,859,904        71,827,497
                                             ----------------- -----------------
Total assets                                     $ 56,090,044      $ 74,812,214
                                             ================= =================



                        LIABILITIES AND PARTNERS' CAPITAL


Non-recourse debt                                   $ 467,709       $ 1,586,403

Other long-term debt                                8,997,000        15,759,000

Line of credit                                     13,500,000        13,500,000

Accounts payable and accruals:
   General Partner                                    458,460           481,818
   Other                                              531,037           650,573

Accrued interest payable                               61,723            36,929

Interest rate swap contracts                          292,886           886,207

Unearned operating lease income                       398,696           505,261
                                             ----------------- -----------------
Total liabilities                                  24,707,511        33,406,191

Partners' capital:
   Accumulated other comprehensive loss              (287,766)         (886,207)
   Partners' capital                               31,670,299        42,292,230
                                             ----------------- -----------------
Total Partners' capital                            31,382,533        41,406,023
                                             ----------------- -----------------
Total liabilities and Partners' capital          $ 56,090,044      $ 74,812,214
                                             ================= =================

                             See accompanying notes.


                                       14
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


<TABLE>
<CAPTION>
Revenues:                                                       2004              2003             2002
Leasing activities:
<S>                                                           <C>               <C>               <C>
   Operating leases                                           $ 14,801,309      $ 20,083,732      $ 25,631,019
   Direct financing leases                                         618,823           728,449         1,378,498
   Gain (loss) on sale of assets                                  (674,254)        1,449,492        (1,270,985)
Interest income                                                      5,047             4,563            14,000
Other                                                              414,653           392,261           190,241
                                                           ---------------- ----------------- -----------------
                                                                15,165,578        22,658,497        25,942,773
Expenses:
Depreciation of operating lease assets                          10,416,101        15,220,612        18,424,332
Interest                                                         1,371,978         1,916,785         3,206,557
Cost reimbursements to General Partner                             801,634           849,984           859,415
Railcar maintenance                                                689,450           773,875           712,235
Equipment and incentive management fees to General Partner         634,486           889,571           947,568
Impairment losses                                                  455,366         5,290,639         2,111,593
Professional fees                                                  346,085           176,812           199,993
Marine vessel maintenance                                          323,993                 -                 -
Provision for doubtful accounts                                    313,892           516,794           285,000
Insurance                                                          210,607           141,513                 -
Equipment storage                                                  150,705           215,749                 -
Taxes on income and franchise fees                                  94,267           128,178            23,124
Amortization of initial direct costs                                39,733           107,916           184,171
Other                                                              995,816           741,469           761,288
                                                           ---------------- ----------------- -----------------
                                                                16,844,113        26,969,897        27,715,276
                                                           ---------------- ----------------- -----------------
Net loss                                                      $ (1,678,535)     $ (4,311,400)     $ (1,772,503)
                                                           ================ ================= =================

Net income (loss):
   General Partner                                               $ 681,964       $ 1,239,911       $ 1,203,884
   Limited Partners                                             (2,360,499)       (5,551,311)       (2,976,387)
                                                           ---------------- ----------------- -----------------
                                                              $ (1,678,535)     $ (4,311,400)     $ (1,772,503)
                                                           ================ ================= =================

Net loss per Limited Partnership unit                              $ (0.16)          $ (0.37)          $ (0.20)
                                                           ================ ================= =================

Weighted average number of units outstanding                    14,995,550        14,995,675        14,996,050
</TABLE>








                             See accompanying notes.


                                       15
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


<TABLE>
<CAPTION>
                                                                                                  Accumulated
                                                                                                     Other
                                                             Limited Partners      General        Comprehensive
                                                 Units            Amount           Partner            Loss             Total
<S>                                              <C>             <C>                       <C>      <C>               <C>
Balance December 31, 2001                        14,996,050      $ 80,818,857              $ -      $ (1,326,006)     $ 79,492,851

Unrealized change in value of
   interest rate swap contracts                                             -                -          (298,354)         (298,354)
Distributions to Limited Partners
   ($1.00 per Unit)                                               (14,999,876)               -                 -       (14,999,876)
Distributions to General Partner                                            -       (1,203,884)                -        (1,203,884)
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

Distributions to Limited Partners
   ($1.00 per Unit)                                               (14,997,209)               -                 -       (14,997,209)
Distributions to General Partner                                            -       (1,239,911)                -        (1,239,911)
Limited partnership units
   repurchased                                         (500)           (1,844)                                              (1,844)
Unrealized change in value of
   interest rate swap contracts                                             -                -           738,153           738,153
Net income (loss)                                                  (5,551,311)       1,239,911                 -        (4,311,400)
                                            ---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 2003                        14,995,550        42,292,230                -          (886,207)       41,406,023

Distributions to Limited Partners
   ($0.55 per Unit)                                                (8,261,432)               -                 -        (8,261,432)
Distributions to General Partner                                            -         (681,964)                -          (681,964)
Reclassification adjustment for portion
  of swap liability charged to net income                                   -                -             5,120             5,120
Unrealized change in value of
   interest rate swap contracts                                             -                -           593,321           593,321
Net income (loss)                                                  (2,360,499)         681,964                 -        (1,678,535)
                                            ---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 2004                        14,995,550      $ 31,670,299              $ -        $ (287,766)     $ 31,382,533
                                            ================ ================= ================ ================= =================
</TABLE>



                             See accompanying notes.


                                       16
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                                    2004              2003              2002
Operating activities:
<S>                                                                               <C>               <C>               <C>
Net loss                                                                          $ (1,678,535)     $ (4,311,400)     $ (1,772,503)
Adjustment to reconcile net loss to net cash provided by
   operating activities:
     Depreciation of operating lease assets                                         10,416,101        15,220,612        18,424,332
     Amortization of initial direct costs                                               39,733           107,916           184,171
     Impairment losses                                                                 455,366         5,290,639         2,111,593
     Provision for doubtful accounts                                                   313,892           516,794           285,000
     (Gain) loss on sales of assets                                                    674,254        (1,449,492)        1,270,985
      Recognized portion of unrealized loss on interest rate swaps                       5,120                 -                 -
     Changes in operating assets and liabilities:
         Accounts receivable                                                           454,464         1,161,897          (568,946)
         Due from General Partner                                                            -           253,543          (253,543)
         Other assets                                                                 (626,784)           10,019            97,996
         Accounts payable, General Partner                                             (23,358)          481,818          (580,916)
         Accounts payable, other                                                      (119,536)         (101,886)          241,861
         Accrued interest payable                                                       24,794           (46,655)           44,672
         Unearned operating lease income                                              (106,565)         (507,723)           36,419
                                                                               ---------------- ----------------- -----------------
Net cash provided by operating activities                                            9,828,946        16,626,082        19,521,121
                                                                               ---------------- ----------------- -----------------

Investing activities:
Proceeds from sales of assets                                                        5,503,961        15,724,456         2,229,481
Reduction of net investment in direct financing leases                               1,878,178         2,021,859         3,032,098
Purchases of equipment on direct financing leases                                            -                -         (3,052,582)
Initial direct lease costs                                                                   -                -           (107,962)
Purchases of equipment on operating leases                                                   -                -         (3,959,522)
                                                                               ---------------- ----------------- -----------------
Net cash provided by/(used in) investing activities                                  7,382,139        17,746,315        (1,858,487)
                                                                               ---------------- ----------------- -----------------

Financing activities:
Borrowings under line of credit                                                     21,500,000        21,500,000        19,500,000
Repayments of borrowings under line of credit                                      (21,500,000)      (21,300,000)      (10,300,000)
Repayments of other long-term debt                                                  (6,762,000)      (17,787,000)      (15,094,000)
Distributions to Limited Partners                                                   (8,261,432)      (14,997,209)      (14,999,876)
Repayments of non-recourse debt                                                     (1,118,694)       (3,394,879)       (4,406,894)
Distributions to General Partner                                                      (681,964)       (1,239,911)       (1,203,884)
Proceeds of non-recourse debt                                                                -         1,489,905                 -
Repurchase of limited partnership units                                                      -            (1,844)                -
Proceeds of other long-term debt                                                             -                 -        10,100,000
                                                                               ---------------- ----------------- -----------------
Net cash used in financing activities                                              (16,824,090)      (35,730,938)      (16,404,654)
                                                                               ---------------- ----------------- -----------------
Net (decrease) increase in cash and cash equivalents                                   386,995        (1,358,541)        1,257,980
Cash and cash equivalents at beginning of year                                         835,628         2,194,169           936,189
                                                                               ---------------- ----------------- -----------------
Cash and cash equivalents at end of year                                           $ 1,222,623         $ 835,628       $ 2,194,169
                                                                               ================ ================= =================
</TABLE>
                             See accompanying notes.


                                       17
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


<TABLE>
<CAPTION>
                                                                                    2004              2003              2002

Supplemental disclosures of cash flow information:
<S>                                                                                <C>               <C>               <C>
Cash paid during the year for interest                                             $ 1,347,184       $ 1,963,440       $ 3,161,885
                                                                               ================ ================= =================

Schedule of non-cash transactions:

Change in fair value of interest rate swaps contracts                                $ 593,321         $ 738,153        $ (298,354)
                                                                               ================ ================= =================

Offset of accounts receivable and debt service per lease and debt agreement:
Accrued interest payable                                                                   $ -        $ (108,819)       $ (207,727)
Non-recourse debt                                                                            -        (1,085,931)         (987,023)
                                                                               ---------------- ----------------- -----------------
                                                                                           $ -      $ (1,194,750)     $ (1,194,750)
                                                                               ================ ================= =================

Accounts receivable                                                                        $ -       $ 1,194,750       $ 1,194,750
                                                                               ================ ================= =================
</TABLE>


                             See accompanying notes.


                                       18
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


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. The Partnership may continue until December 31, 2017.

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 ("AFS").
Prior to converting to a limited liability company  structure,  AFS was formerly
known as ATEL Financial Corporation.

The Partnership's business consists of leasing various types of equipment. As of
December 31, 2004,  the original  terms of the leases  ranged from six months to
ten years.

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

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,  ended  December  31,  2004 and (iii)  provide
additional  distributions  following  the  Reinvestment  Period  and  until  all
equipment has been sold. The Partnership is governed by its Limited  Partnership
Agreement.

2. Summary of significant accounting policies:

Cash and cash equivalents:

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

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.

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 on a straight line basis over the terms of the
related leases.



                                       19
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


2. Summary of significant accounting policies (continued):

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.

Allowances for losses on direct financing leases are typically established based
on historical charge offs and collections  experience and are usually determined
by specifically identified lessees and billed and unbilled receivables.

Direct  financing  leases  are  placed  in  a  non-accrual  status  (no  revenue
recognized)  based on  specifically  identified  lessees.  Such  leases are only
returned  to an accrual  status  based on a case by case  review of AFS.  Direct
financing leases are charged off on specific identification by AFS.

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.

Income taxes:

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

The tax basis of the  Partnership's  net assets and liabilities  varies from the
amounts presented in these financial statements at December 31 :

                                                2004              2003
Financial statement basis of net assets       $ 31,382,533      $ 41,406,023
Tax basis of net assets (unaudited)            (33,380,850)      (34,616,905)
                                           ---------------- -----------------
Difference                                    $ 64,763,383      $ 76,022,928
                                           ================ =================

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 (loss)  income  reported in these  financial
statements to the income (loss) reported on the Partnership's federal tax return
(unaudited) for each of the years ended December 31:

<TABLE>
<CAPTION>
                                                          2004              2003              2002
<S>                                                     <C>               <C>               <C>
Net income (loss) per financial statements              $ (1,678,535)     $ (4,311,400)     $ (1,772,503)
Adjustment to depreciation expense                         5,592,580         3,927,717        (9,817,508)
Adjustments to lease revenues                              5,810,609           (60,586)        1,442,714
Provision for doubtful accounts                              300,455           516,794           285,000
Provision for losses                                        (731,865)        5,290,639         2,111,593
                                                     ---------------- ----------------- -----------------
Net income (loss) per federal tax return                 $ 9,293,244       $ 5,363,164      $ (7,750,704)
                                                     ================ ================= =================
</TABLE>



                                       20
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


2. Summary of significant accounting policies (continued):

Per unit data:

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

Asset valuation:

Recorded values of the Partnership'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.

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.

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, 2004 and 2003.

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, by SFAS No.
138, issued in June 2000 and by SFAS No. 149, issued in June 2003.

SFAS No. 133, as amended,  requires the Partnership to recognize all derivatives
as  either  assets  or  liabilities  in the  balance  sheet  and 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,
designated  the interest  rate swaps as cash flow  hedges,  and  recognized  the
offsetting  gains or losses as adjustments to be reported in net income or other
comprehensive income, as appropriate.  For derivative instruments not designated
as hedging  instruments,  the gain or loss is  recognized  in  current  earnings
during  the  period of change.  Such  interest  rate swaps are linked to and are
designed  to  effectively  adjust the  interest  rate  sensitivity  of  specific
long-term debt.




                                       21
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


2. Summary of significant accounting policies (continued):

Derivative financial instruments (continued):

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

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.

Basis of presentation:

The accompanying financial statements have been prepared in accordance with U.S.
generally accepted accounting  principles.  Certain prior year amounts have been
reclassified to conform to the current year presentation.

Recent accounting pronouncements:

On October 13, 2004, the FASB concluded that SFAS No. 123R,  Share-Based Payment
("SFAS 123R"), which requires all companies to measure compensation cost for all
share-based payments (including stock options and employee stock purchase plans)
at fair value,  will be  effective  for public  companies  for interim or annual
periods beginning after June 15, 2005.  Nonpublic  companies will be required to
adopt the new statement at the  beginning of the first annual  period  beginning
after  December 15, 2005. The  Partnership  does not expect the adoption of SFAS
123R to have a material impact on its financial statements.



                                       22
<PAGE>

                     ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


2. Summary of significant accounting policies (continued):

Recent accounting pronouncements (continued):

In  January   2003,   the  FASB  issued   Interpretation   No.  46  ("FIN  46"),
"Consolidation of Variable Interest Entities,  an interpretation of ARB 51." The
primary  objectives  of  this  interpretation  are to  provide  guidance  on the
identification  of entities for which  control is achieved  through  means other
than through voting rights ("variable  interest  entities") and how to determine
when  and  which  business   enterprise  (the  "primary   beneficiary")   should
consolidate  the  variable  interest  entity.  This new model for  consolidation
applies to an entity in which  either (i) the equity  investors  (if any) do not
have a controlling  financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's  activities  without receiving  additional
subordinated  financial support from other parties. In addition, FIN 46 requires
that  the  primary  beneficiary,  as  well  as  all  other  enterprises  with  a
significant  variable  interest in a variable  interest entity,  make additional
disclosures.  Certain  disclosure  requirements  of FIN 46  were  effective  for
financial statements issued after January 31, 2003.

In  December  2003,  the  FASB  issued  FIN  No.  46  (revised  December  2003),
"Consolidation  of Variable  Interest  Entities" ("FIN 46-R") to address certain
FIN 46 implementation  issues.  The effective dates and impact of FIN 46 and FIN
46-R are as follows:

(i) Special  purpose  entities  ("SPEs")  created prior to February 1, 2003. The
company must apply either the provisions of FIN 46 or early adopt the provisions
of FIN 46-R at the end of the first  interim or annual  reporting  period ending
after December 15, 2003.

(ii)  Non-SPEs  created  prior to February  1, 2003.  The company is required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004.

(iii) All entities, regardless of whether a SPE, that were created subsequent to
January  31,  2003.  The  provisions  of FIN 46  were  applicable  for  variable
interests in entities obtained after January 31, 2003.

The Partnership  adopted FIN 46-R as of March 31, 2004. The adoption of FIN 46-R
did not have a material impact on the Partnership's financial position,  results
of operations, or liquidity.




                                       23
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


3. Investments in equipment and leases:

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

<TABLE>
<CAPTION>
                                                                               Depreciation /
                                                                                Amortization
                                                                                 Expense or
                                                                               Amortization of     Reclassi-
                                            December 31,        Impairment     Direct Financing   fications or    December 31,
                                                 2003             Losses           Leases         Dispositions          2004
<S>                                             <C>                <C>           <C>                 <C>              <C>
Net investment in operating leases              $51,653,739        $ (455,366)   $ (10,416,101)      $ 5,891,776      $ 46,674,048
Net investment in direct financing
   leases                                         8,178,561                 -       (1,878,178)       (3,554,664)        2,745,719
Assets held for sale or lease, net of
   accumulated depreciation of
   $4,796,259 in 2004 and $18,795,631 in
   2003                                          11,891,344                 -                -        (8,515,327)        3,376,017
Initial direct costs, net of
   accumulated amortization of
   $991,134 in 2004 and $956,767 in 2003            103,853                 -          (39,733)                -            64,120
                                            ---------------- ----------------- ---------------- ----------------- -----------------
                                                $71,827,497        $ (455,366)   $ (12,334,012)     $ (6,178,215)     $ 52,859,904
                                            ================ ================= ================ ================= =================
</TABLE>

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

Management  periodically reviews the carrying values of its assets on leases and
assets held for lease or sale. As a result of the reviews, 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  values  of the  assets  were
determined based on the sum of the discounted estimated future cash flows of the
assets.  Charges to  operations  were  recorded for the declines in value of the
assets in the amounts of  $455,366,  $5,290,639,  and  $2,111,593  for the years
ended December 31, 2004, 2003, and 2002, respectively.

Impairment losses are recorded as an addition to accumulated depreciation of the
impaired assets.  Depreciation expense and impairment losses on property subject
to operating leases and property held for lease or sale consist of the following
for each of the years ended December 31:

                                2004             2003              2002

   Depreciation expense       $ 10,416,101     $ 15,220,612      $ 18,424,332
   Impairment losses               455,366        5,290,639         2,111,593
                          ----------------- ---------------- -----------------
                              $ 10,871,467     $ 20,511,251      $ 20,535,925
                          ================= ================ =================





                                       24
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


3. Investment in leases (continued):

Impairments  of  investments  in  leases  and  assets  held  for  sale or  lease
(continued):

Due to declines in the markets for certain  types of assets,  during 2004,  2003
and 2002  management  determined that the value of certain assets were impaired.
The  Partnership  recorded  impairment  losses as follows  for each of the years
ended December 31:

                                    2004            2003             2002
Locomotives                                $ -      $2,475,000         $300,000
Off shore supply vessels                     -       1,022,000                -
Mining equipment                             -         731,619                -
Covered grain hopper cars                    -         457,286        1,135,339
Petroleum rail tank cars                     -         325,462                -
Barges                                       -         279,272          676,254
Refuse trucks and other vehicles       455,366               -                -
                                --------------- --------------- ----------------
                                 $     455,366  $    5,290,639  $     2,111,593
                                ================ ============== ================

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

Operating leases:

Property subject to operating leases consists of the following:

<TABLE>
<CAPTION>
                                                                                    Reclassi-
                             December 31,        Impairment      Depreciation      fications or    December 31,
                                  2003             Losses           Expense        Dispositions          2004

<S>                              <C>                       <C>              <C>      <C>               <C>
Transportation                   $72,164,281               $ -              $ -      $ 22,810,806      $ 94,975,087
Construction                      20,168,993                 -                -       (12,214,614)        7,954,379
Marine vessels / barges           14,978,042                 -                -        (9,313,250)        5,664,792
Mining equipment                   8,410,345                 -                -        (3,710,770)        4,699,575
Manufacturing                      4,553,440                 -                -          (683,092)        3,870,348
Communications                     3,748,058                 -                -        (3,607,678)          140,380
Materials handling                 3,558,657                 -                -          (111,345)        3,447,312
Office automation                  3,521,046                 -                -                 -         3,521,046
Other                              3,347,789                 -                -           608,677         3,956,466
                             ---------------- ----------------- ---------------- ----------------- -----------------
                                 134,450,651                 -                -        (6,221,266)      128,229,385
Less accumulated depreciation    (82,796,912)         (455,366)     (10,416,101)       12,113,042       (81,555,337)
                             ---------------- ----------------- ---------------- ----------------- -----------------
                                 $51,653,739        $ (455,366)   $ (10,416,101)      $ 5,891,776      $ 46,674,048
                             ================ ================= ================ ================= =================
</TABLE>




                                       25
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


3. Investment in leases (continued):

Direct financing leases:

As of December  31,  2004,  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, 2004 and 2003:

<TABLE>
<CAPTION>
                                                                 2004              2003
<S>                                                             <C>               <C>
Total minimum lease payments receivable                         $ 2,804,615       $ 5,860,231
Estimated residual values of leased equipment (unguaranteed)      1,133,398         4,638,162
                                                            ---------------- -----------------
Investment in direct financing leases                             3,938,013        10,498,393
Less unearned income                                             (1,192,294)       (2,319,832)
                                                            ---------------- -----------------
Net investment in direct financing leases                       $ 2,745,719       $ 8,178,561
                                                            ================ =================
</TABLE>

At December 31, 2004, 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
               2005      $ 8,808,052       $ 1,389,918     $ 10,197,970
               2006        5,185,604           708,415        5,894,019
               2007        3,936,979           512,748        4,449,727
               2008        3,468,889           193,534        3,662,423
               2009        3,075,627                 -        3,075,627
         Thereafter          375,415                 -          375,415
                     ---------------- ----------------- ----------------
                         $24,850,566       $ 2,804,615     $ 27,655,181
                     ================ ================= ================


                                       26
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


4. Non-recourse debt:

At December 31, 2004,  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  ranging from 5.5% to
7.0%.  The notes are secured by  assignments  of lease  payments  and pledges of
assets.  At December  31,  2004,  the  carrying  value of the pledged  assets is
$857,414.  During 2003, an additional $1,489,905 was borrowed.  The notes mature
from 2005 through 2008.

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

        Year ending
        December 31,       Principal         Interest           Total
                  2005        $ 251,586          $ 24,182        $ 275,768
                  2006          101,568            11,462          113,030
                  2007           90,838             5,141           95,979
                  2008           23,717               277           23,994
                        ---------------- ----------------- ----------------
                              $ 467,709          $ 41,062        $ 508,771
                        ================ ================= ================


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 Poor's 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 (2.860% at December 31, 2004),  based
on an index of A1 commercial  paper. The Program expired as to new borrowings in
February 2002. As of December 31, 2004 and 2003, the  Partnership had $8,997,000
and $15,759,000 outstanding under the program, respectively.

The Program  requires AFS, 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.  The
interest rate swaps were  designated as cash flow hedges of he interest  payment
on the long term debt. As of December 31, 2004, the Partnership receives or pays
interest on a notional principal of $9,381,285,  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 were to coincides with the maturity of the debt with the last of the swaps
maturing in 2008.  Through the swap  agreements,  the  interest  rates have been
effectively  fixed.  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.

During the year,  Accumulated Other  Comprehensive  Income ("AOCI") decreased by
appproximately  $598,000  of which  approximately  $593,000  was  related to the
decrease in the fair value of the interest  rate swap and  approximately  $5,000
was related to the  reclassification  of AOCI to earnings  (included in interest
expense) due to hedge  ineffectiveness  and upon the  discontinuance of the cash
flow  hedges   because  of  debt   prepayments.   The  Company   redesignated  a
proportionate  share of the interest  rate swaps as cash flow hedges in relation
to the remaining  outstanding  long-term  debt.  The change in fair value of the
portion of interest  rate swaps not  designated  as hedges will be recognized in
earnings.




                                       27
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


5. Other long-term debt (continued):

 Borrowings under the Program are as follows:

<TABLE>
<CAPTION>
                                                                 Notional           Swap
                              Original          Balance          Balance            Value        Payment Rate on
                               Amount        December 31,      December 31,     December 31,     Interest Swap
           Date Borrowed      Borrowed           2004              2004             2004           Agreement
<S>                          <C>                <C>               <C>               <C>              <C>
             4/1/1998         $ 21,770,000              $ -               $ -              $ -         *
             7/1/1998           25,000,000        1,811,000         1,824,322          (75,010)      6.155%
             10/1/1998          20,000,000        1,425,000         1,530,182          (17,886)      5.550%
             4/16/1999           9,000,000          995,000           998,434          (19,447)      5.890%
             1/26/2000          11,700,000        2,672,000         2,670,664         (153,984)      7.580%
             5/25/2001           2,000,000          527,000           582,705          (12,538)      5.790%
             9/28/2001           6,000,000        1,512,000         1,774,978          (14,021)      4.360%
             1/31/2002           4,400,000           55,000                 -                -         *
             2/19/2002           5,700,000                -                 -                -         *
                          ----------------- ---------------- ----------------- ----------------
                             $ 105,570,000      $ 8,997,000       $ 9,381,285       $ (292,886)
                          ================= ================ ================= ================
</TABLE>

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

The long-term  debt  borrowings  mature from 2004 through 2007.  Future  minimum
principal payments of long-term debt and annual swap notional  reductions are as
follows:

<TABLE>
<CAPTION>
                                Debt             Debt                                               Rates on
          Year ending        Principal         Principal                                         Interest Swap
          December 31,        Swapped         Not Swapped        Interest           Total         Agreements**
<S>                  <C>       <C>                 <C>              <C>            <C>          <C>    <C>
                     2005      $ 5,405,000         $ 12,000         $ 404,456      $ 5,821,456  6.146%-6.450%
                     2006        2,033,000           43,000           167,037        2,243,037  6.593%-6.897%
                     2007        1,504,000                -            16,816        1,520,816  6.872%-6.879%
                          ----------------- ---------------- ----------------- ----------------
                               $ 8,942,000         $ 55,000         $ 588,309      $ 9,585,309
                          ================= ================ ================= ================
</TABLE>

** 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 (2.860% at December 31, 2004).

In 2004,  2003 and 2002,  the net effect of the  interest  rate swaps  increased
interest expense by $609,601, $952,386, and $955,401 respectively.




                                       28
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


6. Related party transactions:

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

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

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

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

Incentive  management  fees are computed as 4.0% of  distributions  of cash from
operations,  as defined  in the  Limited  Partnership  Agreement  and  equipment
management fees are 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.

AFS  earned  fees,  commissions  and  reimbursements,  pursuant  to the  Limited
Partnership  Agreement  as follows  during each of the years ended  December 31,
2004, 2003 and 2002:

<TABLE>
<CAPTION>
                                                               2004              2003              2002
<S>                                                             <C>               <C>               <C>
Equipment and incentive management fees to General Partner      $ 634,486         $ 889,571         $ 947,568
Cost reimbursements to General Partner                            801,634           849,984           859,415
                                                          ---------------- ----------------- -----------------
                                                              $ 1,436,120       $ 1,739,555       $ 1,806,983
                                                          ================ ================= =================
</TABLE>

The General  Partner  makes  certain  payments to third parties on behalf of the
Partnership for convenience purposes.  During the years ended December 31, 2004,
2003,  and 2002, the General  Partner made such payments of $431,490,  $353,570,
and $194,447, respectively.

The Limited  Partnership  Agreement  places an annual and a cumulative limit for
cost  reimbursements  to AFS.  The  cumulative  limit  increases  annually.  Any
reimbursable  costs  incurred by AFS during the year exceeding the annual and/or
cumulative  limits  cannot be  reimbursed  in the  current  year,  though may be
reimbursable  in  future  years.  As of  December  31,  2004,  AFS had  incurred
approximately $926,000 of costs that are expected to be reimbursed to AFS by the
Partnership in 2005 and 2006.




                                       29
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


7. Partners' capital:

As of December  31,  2004,  14,995,550  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 AFS. In accordance  with the terms of
the of Limited Partnership Agreement, additional allocations of income were made
to AFS in 2004,  2003 and 2002. The amounts  allocated were  determined to bring
AFS's ending capital account balance to zero at the end of each period.

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

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

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

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

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

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



                                       30
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


8. Concentration of credit risk and major customers:

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

As of December 31, 2004 and 2003, 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:

                                                  2004             2003
         Transportation, rail                     30%               22%
         Transportation, other                    26%               21%
         Manufacturing                            14%               21%
         Municipalities                           13%               14%



During 2004,  one customer  comprised  16% of the  Partnership's  revenues  from
leases. During 2003, no customer comprised in excess of 10% of the Partnership's
revenues  from  leases.   During  2002,  one  customer   comprised  11%  of  the
Partnership's revenues from leases.


9. Line of credit:

The  Partnership  participates  with  AFS and  certain  of its  affiliates  in a
financing arrangement  (comprised of a term loan to AFS, an acquisition facility
and a warehouse  facility) with a group of financial  institutions that includes
certain  financial  covenants.  The financial  arrangement  is  $75,000,000  and
expires  in  June  2006.  The  availability  of  borrowings   available  to  the
Partnership  under this  financing  arrangement is reduced by the amount AFS has
outstanding  as a term  loan.  As of  December  31,  2004  borrowings  under the
facility were as follows:

<TABLE>
<CAPTION>
<S>                                                                              <C>
Total amount available under the financing arrangement                           $    75,000,000
Term loan to AFS as of December 31, 2004                                              (2,027,636)
                                                                                -----------------
Total available under the acquisition and warehouse facilities                        72,972,364

Amount borrowed by the Partnership under the acquisition  facility                   (13,500,000)
Amounts  borrowed by affiliated  partnerships  and limited  liability  companies
under the
      acquisition facility                                                           (17,000,000)
                                                                                -----------------
Total remaining available under the acquisition and warehouse facilities         $    42,472,364
                                                                                =================
</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 AFS.

The credit agreement  includes certain  financial  covenants  applicable to each
borrower.  The  Partnership  was in compliance with its covenants as of December
31, 2004.




                                       31
<PAGE>

                     ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


9. Line of credit (continued):

The Partnership borrowed $21,500,000, $21,500,000 and $19,500,000 under the line
of credit during 2004,  2003 and 2002,  respectively.  Repayments on the line of
credit were $21,500,000, $21,300,000 and $10,300,000 during 2004, 2003 and 2002,
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, 2004 ranged from 4.18% to 5.25%.

10. Fair value of financial instruments:

The  recorded  amounts  of the  Company's  cash and cash  equivalents,  accounts
receivable,  accounts payable and accruals at December 31, 2004 approximate fair
value because of the liquidity and short-term maturity of these instruments.

Non-recourse debt:

The  fair  value  of the  Partnership's  non-recourse  debt is  estimated  using
discounted cash flow analyses,  based on the Partnership's  current  incremental
borrowing rates for similar types of borrowing arrangements.  The estimated fair
value of the Partnership's non-recourse debt at December 31, 2004 is $461,929.

Other long-term debt:

The carrying value of the  Partnership's  other long-term debt  approximates its
fair value at December 31, 2004 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, 2004 and 2003.






                                       32
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


11. Comprehensive loss:

For the years ended  December 31, 2004,  2003 and in 2002,  other  comprehensive
loss consisted of the following:

<TABLE>
<CAPTION>
                                                                                    2004              2003              2002
<S>                                                                               <C>               <C>               <C>
Net loss                                                                          $ (1,678,535)     $ (4,311,400)     $ (1,772,503)
Other comprehensive income:
   Reclassification adjustment for portion of swap liability charged
       to net loss                                                                       5,120                 -                 -
   Change in value of interest rate swap contracts                                     593,321           738,153          (298,354)
                                                                               ---------------- ----------------- -----------------
Comprehensive net loss                                                            $ (1,080,094)     $ (3,573,247)     $ (2,070,857)
                                                                               ================ ================= =================
</TABLE>

There were no other sources of comprehensive net income (loss).


12. Selected quarterly data (unaudited):

<TABLE>
<CAPTION>
                                                                March 31,         June 30,       September 30,      December 31,
Quarter ended                                                      2003             2003              2003              2003

<S>                                                               <C>              <C>               <C>               <C>
Total revenues                                                    $ 7,999,426      $ 4,607,630       $ 5,009,446       $ 4,868,201
Net income (loss)                                                   $ 650,136         $ 95,361      $ (3,776,766)     $ (1,280,131)
Net income (loss) per Limited Partnership unit                         $ 0.02          $ (0.01)          $ (0.27)          $ (0.11)
</TABLE>

<TABLE>
<CAPTION>
                                                                March 31,         June 30,       September 30,      December 31,
Quarter ended                                                      2004             2004              2004              2004

<S>                                                               <C>              <C>               <C>               <C>
Total revenues                                                    $ 4,225,576      $ 4,661,072       $ 2,959,653       $ 3,319,277
Net income (loss)                                                $ (1,593,374)       $ 638,249        $ (343,332)       $ (380,078)
Net income (loss) per Limited Partnership unit                        $ (0.12)          $ 0.03           $ (0.03)          $ (0.04)
</TABLE>


13. Commitments:

At December 31, 2004,  the  Partnership  had no  commitments  to purchase  lease
assets.




                                       33
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2004


14. Reserves, impairment losses and provision 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, 2001              $    504,227        $ 118,067
    Provision                                 2,111,593          285,000
    Charge offs                              (2,615,820)               -
                                       ----------------- ----------------
    Balance December 31, 2002                         -          403,067
    Provision                                 5,290,639          516,794
    Charge offs                              (5,290,639)        (394,981)
                                       ----------------- ----------------
    Balance December 31, 2003                         -          524,880
    Provision                                   455,366          313,892
    Charge offs                                (455,366)        (297,892)
                                       ----------------- ----------------
    Balance December 31, 2004                       $ -        $ 540,880
                                       ================= ================

In 2003 it came to the  Partnership's  attention  that the amounts  recorded for
impairments of covered rail hopper cars as of December 31, 2002 was  understated
by  $518,000.  During the three months  ended March 31,  2003,  the  Partnership
recorded additional  impairment losses of $518,000 to correct the accounting for
the  transaction.  The Partnership does not believe that this amount is material
to the period in which it should have been recorded,  nor that it is material to
the Partnership's operating results for the year ending December 31, 2003.

The impact on 2002 would be a reduction  of  members'  equity and an increase of
the net loss of $518,000 ($0.03 per Limited  Partnership unit). Net loss for the
year ended  December 31, 2003 would be decreased by $518,000  ($0.03 per Limited
Partnership unit).

15. Guarantees:

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

16. Subsequent Events:

During the year ended December 31, 2004, the Partnership settled a legal dispute
with Cargill Inc. in which the Partnership was seeking  unspecified damages from
Cargill,  Inc. for failure to perform certain  responsibilities  relating to the
equipment under the lease agreement. Subsequent to the year end, the Partnership
received a court order to receive $625,000 under this settlement.



                                       34
<PAGE>

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

None


Item 9A.  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) 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 the 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 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 AFS is held by  ATEL  Capital  Group
("ACG"), a holding company formed to control AFS and affiliated  companies.  The
outstanding  voting  capital  stock of ATEL Capital  Group is owned 100% 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 54, joined ACG 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
ACG,  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.



                                       35
<PAGE>

Paritosh  K.  Choksi,  age 51,  joined ACG 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  ACG,  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 56, joined ACG in 1986 as controller.  Prior to joining
ACG, Mr. Carpenter was an audit  supervisor with Laventhol & Horwath,  certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983,  Mr.  Carpenter  was an  audit  senior  with  Deloitte,  Haskins  & Sells,
certified public accountants,  in San Jose,  California.  From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter  received a
B.S. degree in mathematics  (magna cum laude) from California State  University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.

Vasco H. Morais,  age 46, joined ACG 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.

Audit Committee

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

Code of Ethics

ACG on  behalf  of AFS and ALC  has  adopted  a code  of  ethics  for its  Chief
Executive  Officer,  Chief Financial Officer and Chief Accounting  Officer.  The
Code of Ethics is included as Exhibit 14.1 to this report.


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 AFS and its Affiliates. The amount of such remuneration paid in 2004,
2003 and 2002 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.

Equipment Management Fees

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



                                       36
<PAGE>

Incentive Management Fees

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

See Note 6 to the  financial  statements  included  in Item 8 of this report for
amounts paid for equipment management fees and incentive management fees.

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

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

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

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

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

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

See Note 7 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,
AFS is entitled to receive an amount  equal to the lesser of (i) 3% of the sales
price of the equipment,  or (ii) one-half the normal competitive equipment sales
commission charged by unaffiliated parties for such service. Such fee is payable
only  after the  Limited  Partners  have  received  a return  of their  adjusted
invested capital (as defined in the 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,  AFS is entitled to receive
fees equal to 2% of the gross  rentals or the  comparable  competitive  rate for
such service relating to comparable  equipment,  whichever is less, derived from
the re-lease  provided that (i) AFS or their  affiliates  have and will maintain
adequate staff to render such service to the Partnership,  (ii) no such re-lease
fee is payable in connection with the re-lease of equipment to a previous lessee
or its  affiliates,  (iii)  AFS  or its  affiliates  have  rendered  substantial
re-leasing  service  in  connection  with  such  re-lease  and  (iv)  AFS or its
affiliates are compensated for rendering equipment  management service. To date,
$35,140 has been accrued and is unpaid.

General Partner's Interest in Operating Proceeds

Net income,  net loss and  investment  tax credits  are  allocated  92.5% to the
Limited  Partners and 7.5% to AFS. In  accordance  with the terms of the Limited
Partnership  Agreement,  additional  allocations  of income  were made to AFS in
2004, 2003 and 2002. The amounts  allocated were determined so as to bring AFS's
ending capital account balance to zero at the end of each period.  See financial
statements  included in Item 8, Part II of this report for amounts  allocated to
AFS in 2004, 2003 and 2002.




                                       37
<PAGE>

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT

Security Ownership of Certain Beneficial Owners

At December 31, 2004, no investor is known to hold  beneficially more than 5% of
the issued and outstanding Units.

Security Ownership of Management

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

<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                      Dean Cash                         Initial Limited Partner Units             0.0002%
                                            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.

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


Item 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.  PRINCIPAL ACCOUNTING FEES AND SERVICES

During the most recent two years, the Partnership incurred audit, audit related,
tax and other fees with its principal auditors as follows:

                                             2004             2003
    Audit fees                          $       161,017  $         58,413
    Audit related fees                                -                 -
    Tax fees                                     31,478            31,600
    Other                                             -                 -
                                       ----------------- ----------------
                                              $ 192,495         $ 90,013
                                       ================= ================

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




                                       38
<PAGE>

                                     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 Registered Public Accounting Firm

          Balance Sheets at December 31, 2004 and 2003

          Statements of Operations for the years ended  December 31, 2004,  2003
          and 2002

          Statements  of  Changes  in  Partners'  Capital  for the  years  ended
          December 31, 2004, 2003 and 2002

          Statement of Cash Flows for the years ended  December  31, 2004,  2003
          and 2002

          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 2004

   (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).

          (14.1) Code of Ethics

          (31.1) Certification of Paritosh K. Choksi

          (31.2) Certification of Dean L. Cash

          (32.1)  Certification  Pursuant to 18 U.S.C.  section  1350 of Dean L.
          Cash

          (32.2) Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K.
          Choksi



                                       39
<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:      3/29/2005

                      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)







                                       40
<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      3/29/2005
-------------------------  officer of ATEL Financial  Services, LLC
        Dean Cash



  /s/ Paritosh K. Choksi  Executive Vice President and director of     3/29/2005
-------------------------  ATEL Financial  Services, LLC, principal
    Paritosh K. Choksi     financial officer of registrant; principal
                           financial officer and director of ATEL
                           Financial Services, LLC



 /s/ Donald E. Carpenter  Principal accounting officer of registrant;  3/29/2005
-------------------------  principal accounting officer of ATEL
   Donald E. Carpenter     Financial Services, LLC






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.


                                       41
<PAGE>