DSI REALTY INCOME FUND VII
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 2O549
FORM 1O-K
(Mark One)
/ x /Annual Report Pursuant to Section 13 or 15 (d) of the Securities and
Exchange Act of 1934 [Fee required] for the fiscal year ended December 31, 2005.
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 No. 2-83291.
DSI REALTY INCOME FUND VII, a California Limited Partnership (Exact name of
registrant as specified in governing instruments)
_________California___________________________95-3871044_____
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization identification number
6700 E. Pacific Coast Hwy., Long Beach, California 9O8O3
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code-(562)493-8881
Securities registered pursuant to Section 12(b) of the Act: none.
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
(Class of Securities Registered)
Indicate by check mark, whether the registrant (l) 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 9O days. Yes_X____. No______.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) 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/
The Registrant is a limited partnership and there is no voting stock. All
units of limited partnership sold to date are owned by non-affiliates of the
registrant. All such units were sold at $5OO.OO per unit.
DOCUMENTS INCORPORATED BY REFERENCE
Item 8. Registrant's Financial Statements for its fiscal year ended December 31,
2005, incorporated by reference to Form 10-K, Part II.
Item 11. Registrant's Financial Statements for its fiscal year ended December
31, 2005, incorporated by reference to Form 10-K, Part III.
Item 12. Registration Statement on Form S-11, previously filed with the
Securities and Exchange Commission pursuant to Securities Act of 1933, as
amended, incorporated by reference to Form 10-K Part III.
Item 13. Registrant's Financial Statements for its fiscal year ended December
31, 2005, incorporated by reference to Form 10-K, Part III.
PART I
Item l. BUSINESS
Registrant, DSI Realty Income Fund VII (the "Partnership") is a
publicly-held limited partnership organized under the California Uniform Limited
Partnership Act pursuant to a Certificate and Agreement of Limited Partnership
(hereinafter referred to as "Agreement") dated August 1, 1983. The General
Partners are DSI Properties, Inc., a California corporation, Diversified
Investors Agency, a general partnership, whose current partners are Robert J.
Conway and Joseph W. Conway, brothers. The General Partners are affiliates of
Diversified Securities, Inc., a wholly-owned subsidiary of DSI Financial, Inc.
The General Partners provide similar services to other partnerships. Through its
public offering of Limited Partnership Units, Registrant sold twenty-four
thousand (24,000) units of limited partnership interests aggregating Twelve
Million Dollars ($12,000,000). The General Partners have retained a one percent
(l%) interest in all profits, losses and distributions (subject to certain
conditions) without making any capital contribution to the Partnership. The
General Partners are not required to make any capital contributions to the
Partnership in the future. Registrant is engaged in the business of investing in
and operating mini-storage facilities with the primary objectives of generating,
for its partners, cash flow, capital appreciation of its properties, and
obtaining federal income tax deductions so that during the early years of
operations, all or a portion of such distributable cash may not represent
taxable income to its partners. Funds obtained by Registrant during the public
offering period of its units were used to acquire six mini-storage facilities.
Registrant does not intend to sell additional limited partnership units. The
term of the Partnership is fifty years but it is anticipated that Registrant
will sell and/or refinance its properties prior to the termination of the
Partnership. The Partnership is intended to be self-liquidating and it is not
intended that proceeds from the sale or refinancing of its operating properties
will be reinvested. Registrant has no full time employees but shares one or more
employees with other publicly-held limited partnerships sponsored by the General
Partners. The General Partners are vested with authority as to the general
management and supervision of the business and affairs of Registrant. Limited
Partners have no right to participate in the management or conduct of such
business and affairs. An independent management company has been retained to
provide day-to-day management services with respect to all of the Partnership's
investment properties.
The average occupancy level for each of the Partnership's six properties
for the years ended December 31, 2005 and December 31, 2004 were as follows:
Location of Property Average Occupancy Average Occupancy
for the Level for the
Year Ended Year Ended
Dec. 31, 2005 Dec. 31, 2004
Chico, California 91% 84%
Fairfield, California 84% 85%
Ft. Collins, Colorado 83% 83%
LaVerne, California 91% 86%
Littleton, Colorado 81% 77%
Riverside, California 88% 87%
The business in which the Partnership is engaged is highly competitive.
Each of its mini-storage facilities is located in or near a major urban area,
and accordingly, competes with a significant number of individuals and
organizations with respect to both the purchase and sale of its properties and
for rentals. Generally, Registrant's business is not affected by the change in
seasons.
Item 1a. RISK FACTORS
Our operations are concentrated in California, and our operational and
financial performance depends on the economies in that market, changes in such
market may adversely affect our financial condition.
Our Properties are located in four cities in California. We thus do not have
a broad geographic distribution of our properties. Like other real estate
markets, these markets have experienced economic down turns in the past, as
well as broader economic slow downs in the United States. Such a down turn
can lead to lower occupancy rates and, consequently, downward pressure on
rental rates. Furthermore, such a climate might affect our ability to attract
and keep new tenants in our mini-storage facilities. A prolonged decline in
the economies of these real estate markets could adversely affect our finan-
cial position, results of operation, cash flow, and ability to make
distributions.
Some Potential Losses Are Not Covered By Insurance.
We carry comprehensive liability, fire, extended coverage and rental loss
insurance on all of our Properties. We believe the policy specifications and
insured limits of these policies are adequate and appropriate. There are,
however, types of losses, such as lease and other contract claims and acts of
war that generally are not insured. We cannot be assured that we will be able
to renew insurance coverage upon expiration of our policies in an adequate
amount or at reasonable prices. In addition, insurance companies may no longer
offer coverage against certain types of losses, such as losses due to terrorist
acts and mold or, if offered, these types of insurance may be prohibitively
expensive. Should uninsured loss or a loss in excess from insured limits
occur, we could lose all or a portion of the capital we have invested in a
Property, as well as the anticipated future revenue from the Property. In
such an event, we might nevertheless remain obligated for any mortgage debt
or other financial obligations related to the Property. We cannot be assured
that material losses in excess of insurance proceeds will not occur in the
future. If any of our Properties were to experience catastrophic loss, it
could seriously disrupt our operations, delay revenue and result in large
expenses to repair or rebuild the Property. Such events could adversely
affect our cash flow and ability to make distributions to shareholders.
Because real estate is illiquid, we may not be able to sell Properties when
appropriate.
Real estate investments generally, mini-storage facilities like those that we
own, in particular, often cannot be sold quickly. Consequently, we may not be
able to sell Properties when appropriate. This could adversely affect our cash
flow and ability to make distributions.
Our operating costs might rise, which might reduce our profitability and have
an adverse affect on our cash flow and our ability to make distributions to
shareholders.
We might face higher operating expenses as a result of rising costs generally,
and in particular as a result of increased costs following a terrorist attack
or other catastrophic event. For example, it might cost more in the future
for security, property/casualty and liability insurance, and property mainten-
ance. As noted above, when our insurance policies expire, the cost of premiums
for comparable coverage might be significantly higher after such an event when
it is time to renew our coverage, which could then increase our operating
expenses and reduce or profitability and our cash flow. Because of rising
costs in general, we might experience increases in our property maintenance
costs, such as for cleaning and electricity. If operating expenses increase
dramatically, the availability of other comparable mini-storage facilities in
our specific geographic markets might limit our ability to increase rents,
which could reduce our profitability (if operating expenses increase without a
corresponding increase in revenues) and limit our ability to make distributions.
We face significant competition.
We compete with numerous other owners of mini-storage facilities for tenants.
Some of these competitors have significantly greater financial resources than
we do. Such competition may reduce our ability to attract and keep and retain
tenants, and may increase vacancies, which increases may lower rental rates.
In addition, some of our competitors may be willing, because their properties
may have vacancy rates higher than those for our properties, to make space
available at lower prices than the space in our properties. We cannot be
assured that this competition will not adversely affect our cash flow and
ability to make distributions.
Our ability to make distributions is subject to various risks.
We have been paying quarterly distributions since inception. Our ability to
make distributions in the future will depend upon:
- Financial performance of our Property;
- The absence of significant expenditures relating to environmental
and regulator matters; and
- Our ability to attract and maintain tenants.
Certain of these matters are beyond our control and any significant difference
between our expectations and actual results could have a material adverse
affect on our cash flow and our ability to make distributions.
Changes in the law may adversely affect our cash flow.
The Properties are subject to various regulatory requirements, such as those
relating to the environment, fire and safety. Our failure to comply with
these requirements could result in the imposition of fines and damage awards.
Additionally, the cost to comply with any new or different regulation could
adversely affect our cash flow and our ability to make distributions. While
we believe that the Properties are currently in material compliance with all
such requirements, we cannot be assured that these requirements will not change
our that newly imposed requirements will not require significant unanticipated
expenditures.
Should we incur long-term indebtedness, it will subject us to additional risks.
Like other real estate companies, should we incur indebtedness on our proper-
ties, we will be subject to risks normally associated with debt financing,
such as the insufficiency of cash flow to meet required debt service payment
obligations and the inability to refinance existing indebtedness. If such
debt cannot be paid, refinanced or extended at maturity, in addition to our
failure to repay our debt, we may not be able to make distributions at expected
levels or at all. Furthermore, an increase in interest expense could adversely
affect our cash flow and ability to make distributions to Limited Partners.
If we should not meet our debt service obligations, any Properties securing
such indebtedness could be foreclosed on, which would have a material adverse
affect on our cash flow and ability to make distributions and, depending on
the number of Properties foreclosed on, could threaten our continued viability.
Our organizational documents do not contain any limitation on our ability to
incur debt secured by our Properties. Accordingly, we could place financing
on our Properties almost without restriction. If we were to take such action,
the debt service could adversely affect our cash flow and ability to make dis-
tributions and would include the risk of default on such indebtedness. There
are no plans to incur any long-term indebtedness on any of the Partnership's
Properties.
Environmental problems at the Properties are possible and may be costly.
Federal, state and local laws, ordinances and regulations may require a current
or previous owner or operator of real estate to investigate and clean up hazard-
ous or toxic substances or releases at such property. The owner or operator
may be forced to pay for property damage and for investigation and clean up
costs incurred by others in connection with environmental contamination. Such
laws typically impose clean-up responsibility and liability without regard to
whether the owner or operator knew of or caused the presence of contaminates.
Even if more than one person may have been responsible for the contamination,
each person covered by the environmental laws may be held responsible for all
the clean-up costs incurred. In addition, third parties may sue the owner or
operator of a site for damages and costs resulting from environmental contamin-
ation emanating from that site. These costs may be substantial and the presence
of such substances may adversely affect the owner's ability to sell or rent
such property or to borrow using such property as collateral.
Environmental laws that govern the presence, maintenance and removal of asbestos
require that owners or operators of buildings containing asbestos properly
manage and maintain the asbestos, notifying and train those who may come into
contact with asbestos and undertake special precautions, including removal or
other abatement, if asbestos would be disturbed during renovation or demolition
of a building. Such laws may impose fines and penalties on building owners or
operators who fail to comply with these requirements and may allow third parties
to seek recovery from owners or operators for personal injury associated with
exposure to asbestos fibers.
To the best of our knowledge, asbestos was not used in the construction of any
of the Properties. Tenants of the Partnership's mini-storage facilities are
prohibited from storing hazardous or toxic substances or from even bringing
hazardous or toxic substances onto the property. To the best knowledge of the
General Partners, there are no instances of storage or release of hazardous or
toxic substances at any of the Partnership's Properties. However, there can
be no guaranty that one or more tenants did not actually store such materials
or cause releases at any of the Partnership's Properties. If these conditions
should occur, we may need to undertake a target remediation program which could
become costly and could necessitate the temporary location of some or all of
the Properties' tenants or require rehabilitation of the affected property.
Americans With Disabilities Act compliance can be costly.
Under the Americans With Disabilities Act of 1990 ("ADA"), all public accom-
modations and commercial facilities, must meet certain Federal requirements
related to access and use by disabled persons. Compliance with the ADA re-
quirements could involve removal of structural barriers from certain disabled
persons' entrances, which could adversely affect our financial condition, and
results of operations. Other Federal, state or local laws may require modifi-
cations to or restrict further renovations of our Properties with respect to
such accesses. Although we believe that our Properties are currently in
material compliance with present requirements, non-compliance with the ADA or
similar or related laws or regulations could result in the United States govern-
ment imposing fines or private litigants being awarded damages against us. In
addition, we do not know whether existing requirements will change or whether
compliance with future requirements will require significant unanticipated
expenditures. Such costs may adversely affect our cash flow and ability to
make distributions.
Partnership's status as a limited partnership is dependent on compliance with
Federal income tax requirements.
Failure of the Partnership to be treated as a limited partnership would have
serious adverse consequences to holders of our Units. If the IRS were to
successfully challenge the tax status of the Partnership for Federal income
tax purposes, the Partnership would be treatable as a corporation. In such
event, the imposition of a corporate tax on the Partnership would reduce the
amount of cash available for distribution from such Partnership to the Limited
Partners. We do not anticipate such a challenge.
We are dependent upon our key personnel.
We are dependent upon our key personnel whose continued service is not guar-
anteed. We are dependent upon our independent property manager for experience
in managing mini-storage facilities. While we believe we could find replace-
ments for these key personnel, loss of their services could adversely affect
our operations.
Item 1b. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Registrant owns a fee interest in six mini-storage facilities, none of
which are subject to long-term indebtedness. Additional information is set forth
in Registrant's letter to its Limited Partners regarding the Annual Report,
attached hereto as Exhibit 2, and incorporated by this reference. The following
table sets forth information as of December 31, 2005 regarding properties owned
by the Partnership.
Location Size of Net Rentable No. of Completion
Parcel Area Rental Units Date
Chico, CA 1.97 acres 39,580 366 9/05/84
Fairfield, CA 2.29 acres 40,668 442 8/31/84
Ft.Collins, CO 2.49 acres 57,284 603 3/27/85
LaVerne, CA 2.78 acres 50,652 523 8/21/84
Riverside, CA 2.92 acres 60,011 567 12/12/84
Littleton, CO 3.071 acres 43,380 404 11/01/85
Item 3. LEGAL PROCEEDINGS
Registrant is not a party to any material pending legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Registrant, a publicly-held limited partnership, sold 24,000 limited
partnership units during its offering and currently has 880 limited partners of
record. There is no intention to sell additional limited partnership units nor
is there a market for these units.
Average cash distributions of $12.27 per Limited Partnership Unit were
declared and paid each quarter for the year ended December 31, 2005 and $13.25
per Limited Partnership Unit were declared and paid each quarter for the year
ended December 31, 2004 and $11.35 per Limited Partnership Unit were declared
and paid each quarter for the year ended December 31, 2003.
Item 6. SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, 2003, 2002, and 2001
--------------------------------------------------------------------
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
TOTAL REVENUES
AND OTHER
INCOME $2,690,456 $2,515,273 $2,577,993 $2,614,292 $2,597,851
TOTAL
EXPENSES 1,486,893 1,266,869 1,286,265 1,320,183 1,210,651
---------- ---------- ---------- ---------- ----------
NET
INCOME $1,203,563 $1,248,404 $1,291,728 $1,294,109 $1,387,200
========== ========== ========== ========== ==========
TOTAL
ASSETS $2,965,501 $2,952,694 $2,833,436 $2,650,108 $2,696,934
========== ========== ========== ========== ==========
CASH FLOWS FROM (USED IN):
OPERATING $1,276,611 $1,260,613 $1,277,591 $1,310,542 $1,344,360
INVESTING (10,308) (23,858) - - -
FINANCING (1,227,053) (1,295,628) (1,100,643) (1,343,293) (1,282,481)
NET INCOME
PER LIMITED
PARTNERSHIP
UNIT $ 49.65 $ 51.50 $ 53.28 $ 53.38 $ 57.22
========== ========== ========== ========== ==========
CASH
DISTRIBUTIONS
PER LIMITED
PARTNERSHIP
UNIT $ 49.07 $ 52.98 $ 45.40 $ 55.41 $ 52.90
========== ========== ========== ========== ==========
====================================
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Critical Accounting Policies
Revenue recognition - Rental revenue is recognized using the accrual method
based on contractual amounts provided for in the lease agreements, which
approximates recognition on a straight-line basis. The term of the lease
agreements is usually less than one year.
RESULTS OF OPERATIONS
2005 COMPARED TO 2004
Total revenues increased from $2,514,629 in 2004 to $2,689,810 in 2005,
while total expenses increased from $1,266,869 to $1,486,893, other income
increased from $644 to $646 resulting in a decrease in net income from
$1,248,404 to $1,203,563. Rental revenues increased primarily as a result of
higher occupancy and unit rental rates. Occupancy levels for the Partnership's
six mini-storage facilities averaged 86.3% and 83.5% for the years ended
December 31, 2005 and 2004 respectively. The Partnership continued its adver-
tising campaign to attract and keep new tenants in its various mini-storage
facilities. The approximate $92,900 (11.4%) increase in operating expenses was
due primarily to increases in purchase of locks, real estate tax and salaries
and wages expenses, partially offset by a decrease in advertising expense.
General and administrative expenses increased approximately $62,300 (31.2%)
primarily as a result of increases in legal and professional fees, office
supplies and equipment and computer lease expenses. The General Partners'
incentive management fee which is based on cash available for distribution,
remained relatively constant. Property management fees, which are based on
rental revenue, increased as a result of the increase in rental revenue.
2004 COMPARED TO 2003
Total revenues decreased from $2,577,321 in 2003 to $2,514,629 in 2004,
while total expenses decreased from $1,286,265 to $1,266,869 and other income
decreased from $672 to $644 resulting in a decrease in net income from
$1,291,728 to $1,248,404. Rental revenues decreased primarily as a result of
lower occupancy rates. Occupancy levels for the Partnership's six mini-storage
facilities averaged 83.5% for the year ended December 31, 2004 and 86.3% for
the year ended December 31, 2003. The Partnership continued its advertising
campaign to attract and keep new tenants in its various mini-storage facilities.
The approximate $33,100 (4.2%) increase in operating expenses was due primarily
to increases in purchase of locks, real estate tax and salaries and wages
expenses, partially offset by a decrease in advertising expense. General and
administrative expenses decreased approximately $48,500 (19.6%) primarily as
a result of decreases in legal and professional fees and equipment and computer
lease expenses, partially offset by an increase in office supplies and printing
expense. The decrease in legal expense and professional expense is related to
unsuccessful legal challenges by two dissident Limited Partners to a proposed
amendment to the Partnership Agreement (see paragraph below). The General
Partners' incentive management fee which is based on cash available for dis-
tribution, decreased as a result of the decrease in net cash provided by
operating activities reduced by additions to property. Property management
fees remained relatively constant.
Operating expenses consists mainly of expenses such as yellow pages and
other advertising, utilities, repairs and maintenance, real estate taxes,
salaries and wages and their related expenses. General and administrative
expenses consist mainly of expenses such as legal and professional, office
supplies accounting services and computer expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased approximately
$16,000 (1.3%) in 2005 compared to 2004 primarily due to the increase in
customer deposits and other liabilities, partially offset by a decrease in
net income. Net cash provided by operating activities decreased approximately
$17,000 (1.3%) in 2004 compared to 2003 primarily due to the decrease in net
income, partially offset by an increase in customer deposits and other lia-
bilities.
Cash used in investing activities, as set forth in the statement of cash
flows, has consisted solely of acquisitions of equipment for the Partnership's
mini storage properties in 2005 and 2004. The Partnership has no material
commitments for capital expenditures.
Cash used in financing activities, as set forth in the statements of cash
flows, has consisted solely of cash distributions to partners in 2005,
2004 and 2003 and payments on capital lease obligations in 2005 and 2004.
Special distributions of 1.75%, 2.5%, and 1.0% of capital contributed by
Limited Partners, were declared and paid on December 15, 2005, 2004, and 2003,
respectively.
In 2003, the Limited Partners approved an amendment to the Partnership
Agreement granting the General Partners ten days to review certain types of
transfers during which the General Partners may match, exceed or approve the
proposed transfers. The Court rejected all preliminary attempts to halt the
implementation of the amendment. Subsequently, the two dissident Limited
Partners who initiated the legal proceedings decided not to pursue the matter
any further.
The General Partners plan to continue their policy of funding the
continuing improvement and maintenance of Partnership properties with cash
generated from operations. The Partnership anticipates that cash flows
generated from operations of the Partnership's rental real estate operations
will be sufficient to cover operating expenses and distributions for the next
twelve months and beyond.
The General Partners are not aware of any environmental problems which
could have an adverse material effect upon the financial position of the Part-
nership.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 2005 and
2004 was as follows:
2005 QUARTER ENDED
------------------
March 31 June 30 September 30 December 31
Total revenues $644,047 $664,740 $694,711 $686,312
Net income 297,500 294,947 329,935 281,181
Net income per
limited partnership unit $ 12.27 $ 12.17 $ 13.61 $ 11.60
Weighted average number
of limited partnership
units outstanding 24,000 24,000 24,000 24,000
2004 QUARTER ENDED
------------------
March 31 June 30 September 30 December 31
Total revenues $642,833 $633,029 $635,270 $603,497
Net income 327,568 287,364 312,327 321,145
Net income per
limited partnership unit $ 13.51 $ 11.85 $ 12.88 $ 13.26
Weighted average number
of limited partnership
units outstanding 24,000 24,000 24,000 24,000
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto as Exhibit l is the information required to be set forth as
Item 8, Part II hereof.
See the financial statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Item 9a. CONTROLS AND PROCEDURES
The Partnership evaluated the effectiveness of its disclosure controls
and procedures. This evaluation was performed by the Partnership's
Controller with the assistance of the Partnership's President and the
Chief Executive Officer. These disclosure controls and procedures are
designed to ensure that the information required to be disclosed by the
Parnership in its periodic reports filed with the Securities and Exchange
Commission (the "Commission") is recorded, processed summarized and
reported, within the time periods specified by the Commission's rules
and forms, and that the information is communicated to the certifying
officers on a timely basis. Based on this evaluation, the Partnership
concluded that its disclosure controls and procedures were effective.
There have been no significant changes in the Partnership's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of their evaluation.
Item 9b. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT'S GENERAL PARTNER
The General Partners of Registrant are the same as when the Partnership was
formed, i.e., DSI Properties, Inc., a California corporation, and Diversified
Investors Agency. As of December 31, 2005, Messrs. Robert J. Conway and Joseph
W. Conway, each of whom own approximately 48.4% of the issued and outstanding
capital stock of DSI Financial, Inc., a California corporation, together with
Mr. Joseph W. Stok, currently comprise the entire Board of Directors of DSI
Properties, Inc.
Mr. Robert J. Conway is 72 years of age and is a licensed California real
estate broker, and since 1965 has been President and a member of the Board of
Directors of Diversified Securities, Inc., and since 1973 President, Chief
Financial Officer and a member of the Board of Directors of DSI Properties, Inc.
Mr. Conway received a Bachelor of Science Degree from Marquette University with
majors in Corporate Finance and Real Estate.
Mr. Joseph W. Conway is age 77 and has been Executive Vice President,
Treasurer and a member of the Board of Directors of Diversified Securities, Inc.
since 1965 and since 1973 the Vice President, Treasurer and member of the Board
of Directors of DSI Properties, Inc. Mr. Conway received a Bachelor of Arts
Degree from Loras College with a major in Accounting.
Mr. Joseph W. Stok is age 83 and has been a member of the Board of
Directors of DSI Properties, Inc. since 1994, a Vice President of Diversified
Securities, Inc. since 1973, and an Account Executive with Diversified
Securities, Inc. since 1967.
Item 11. EXECUTIVE COMPENSATION (MANAGEMENT REMUNERATION AND TRANSACTIONS)
The information required to be furnished in Item 11 of Part III is
contained in Registrant's Financial Statements for its fiscal year ended
December 31, 2005, which together with the report of its independent auditors,
Deloitte & Touche LLP, is attached hereto as Exhibit 1 and incorporated herein
by this reference. In addition to such information:
(a) No annuity, pension or retirement benefits are proposed to be paid
by Registrant to any of the General Partners or to any officer or
director of the corporate General Partner;
(b) No standard or other arrangement exists by which directors of the
Registrant are compensated;
(c) The Registrant has not granted any option to purchase any of its
securities; and
(d) The Registrant has no plan, nor does the Registrant presently propose
a plan, which will result in any remuneration being paid to any
officer or director upon termination of employment.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2005, no person of record owned more than 5% of the
limited partnership units of Registrant, nor was any person known by Registrant
to own of record and beneficially, or beneficially only, more than 5% thereof.
The balance of the information required to be furnished in Item 12 of Part III
is contained in Registrant's Registration Statement on Form S-11, previously
filed pursuant to the Securities Act of 1933, as amended, and which is
incorporated herein by this reference. The only change to the information
contained in said Registration Statement on Form S-11 is the fact that Messrs.
Benes and Blakley have retired and Messrs. Robert J. Conway and Joseph W. Conway
equity interest in DSI Financial, Inc., parent of DSI Properties, Inc., has
increased. Please see information contained in Item 10 hereinabove.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished in Item 13 of Part III is
contained in Registrant's Financial Statements for its fiscal year ended
December 31, 2005, attached hereto as Exhibit l and incorporated herein by this
reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees for professional services rendered by Deloitte & Touche
LLP for the audit of the Partnership's annual financial statements and for re-
view of the financial statements included in the Partnership's Quarterly Reports
on Form 10-Q for 2005 were $29,640 and for 2004 were $26,920.
Tax Fees
The aggregate fees for professional services rendered by Deloitte Tax
LLP for tax compliance, tax advice and tax planning for 2005 were $22,600 and
for 2004 were $20,900. Most of the fees related to preparation of the Partner-
ship's tax returns.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(l) Attached hereto and incorporated herein by this reference as Exhibit
l are Registrant's Financial Statements and Supplemental Schedule for
its fiscal year ended December 31, 2005, together with the reports of
its independent auditors, Deloitte & Touche LLP. See Index to
Financial Statements and Supplemental Schedule.
(a)(2) Attached hereto and incorporated herein by this reference as Exhibit
2 is Registrant's letter to its Limited Partners regarding its Annual
Report for its fiscal year ended December 31, 2005.
(b) No reports on Form 8K were filed during the fiscal year ended December
31, 2005.
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.
DSI REALTY INCOME FUND VII
by: DSI Properties, Inc., a
California corporation, as
General Partner
By_____________________________ Dated: March 31, 2006
ROBERT J. CONWAY, President
(Chief Executive Officer, Chief
Financial Officer, and Director)
By____________________________ Dated: March 31, 2006
JOSEPH W. CONWAY (Executive
Vice President and Director)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
DSI REALTY INCOME FUND VII
by: DSI Properties, Inc., a
California corporation, as
General Partner
By:__________________________ Dated: March 31, 2006
ROBERT J. CONWAY, President,
Chief Executive Officer, Chief
Financial Officer, and Director
By___________________________ Dated: March 31, 2006
JOSEPH W. CONWAY
(Executive Vice President
and Director)
DSI REALTY INCOME FUND VII
CROSS REFERENCE SHEET
FORM 1O-K ITEMS TO ANNUAL REPORT
PART I, Item 3. There are no legal proceedings pending or threatened.
PART I, Item 4. Not applicable.
PART II, Item 5. Not applicable.
PART II, Item 6. The information required is contained in Registrant's Financial
Statements for its fiscal year ended December 31, 2005, attached as Exhibit l to
Form 10-K.
PART II, Item 8. See Exhibit l to Form 10-K filed herewith.
PART II, Item 9. Not applicable.
EXHIBIT l
DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)
SELECTED FINANCIAL DATA
FIVE YEARS ENDED DECEMBER 31, 2005
- -----------------------------------------------------------------------------
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
TOTAL REVENUES
AND OTHER
INCOME $2,690,456 $2,515,273 $2,577,993 $2,614,292 $2,597,851
TOTAL
EXPENSES 1,486,893 1,266,869 1,286,265 1,320,183 1,210,651
---------- ---------- ---------- ---------- ----------
NET
INCOME $1,203,563 $1,248,404 $1,291,728 $1,294,109 $1,387,200
========== ========== ========== ========== ==========
TOTAL
ASSETS $2,965,501 $2,952,694 $2,833,436 $2,650,108 $2,696,934
========== ========== ========== ========== ==========
CASH FLOWS FROM (USED IN):
OPERATING $1,276,611 $1,260,613 $1,277,591 $1,310,542 $1,344,360
INVESTING (10,308) (23,858) - - -
FINANCING (1,227,053) (1,295,628) (1,100,643) (1,343,293) (1,282,481)
NET INCOME
PER LIMITED
PARTNERSHIP
UNIT $ 49.65 $ 51.50 $ 53.28 $ 53.38 $ 57.22
========== ========== ========== ========== ==========
CASH
DISTRIBUTIONS
PER LIMITED
PARTNERSHIP
UNIT $ 49.07 $ 52.98 $ 45.40 $ 55.41 $ 52.90
========== ========== ========== ========== ==========
The following are reconciliations between the operating results and partners'
equity per the financial statements and the Partnership's income tax return for
the year ended December 31, 2005.
Net Partners'
Income Equity
Per financial statements $ 1,203,563 $ 2,206,478
Excess tax depreciation 1,755 (151,510)
Accrued incentive management fees 221,117
Deferred rental revenues 85,723
Accrued expenses 17,200 27,000
Accrued property taxes (73) (101,332)
Fixed asset adjustment (37,480) 169,344
Excess book distribution 242,415
Tax expense adjustment (7,755)
----------- -----------
Per Partnership income tax return $ 1,177,210 $ 2,699,235
=========== ===========
Net taxable income per
limited partnership unit $ 48.56
===========
DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Page
FINANCIAL STATEMENTS:
Report of Independent Registered Public
Accounting Firm F-1
Balance Sheets as of December 31, 2005 and 2004 F-2
Statements of Income for each of the Three
Years Ended December 31, 2005 F-3
Statements of Changes in Partners' Equity (Deficit)for each
of the Three Years Ended December 31, 2005 F-4
Statements of Cash Flows for each of the Three Years
Ended December 31, 2005 F-5
Notes to Financial Statements F-6
SUPPLEMENTAL SCHEDULE: F-10
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 2005 F-11
NOTE:
Financial statements and schedules not listed above are omitted because
of the absence of conditions under which they are required or
because the information is included in the financial statements named
above, or in the notes thereto.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Partners of
DSI Realty Income Fund VII:
We have audited the accompanying balance sheets of DSI Realty Income Fund VII, a
California limited partnership (the "Partnership") as of December 31, 2005
and 2004, and the related statements of income, changes in partners' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2005. Our audits also included the financial statement schedule
listed in the Index at Item 15. These financial statements and the financial
statement schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule 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. The Partnership is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits 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 dis-
closures in the financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evlauating the overall
financial statement presentation. We believe that our audits provide a reason-
able basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of DSI Realty Income Fund VII at December 31,
2005 and 2004, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2005, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Deloitte & Touche LLP
Los Angeles, California
March 27, 2006
DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
ASSETS 2005 2004
CASH AND CASH EQUIVALENTS $ 655,295 $ 616,045
PROPERTY, net (Note 3) 2,246,183 2,268,876
OTHER ASSETS 64,023 67,773
----------- -----------
TOTAL $ 2,965,501 $2,952,694
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Distribution due partners (Note 4) $ 242,424 $ 242,424
Incentive management fee payable to
general partners (Note 4) 250,672 250,403
Property management fees payable 14,821 13,066
Customer deposits and other liabilities 124,720 107,959
Capital lease obligations (Note 3) 126,386 146,354
----------- -----------
Total liabilities 759,023 760,206
----------- -----------
PARTNERS' EQUITY (DEFICIT)(Note 4):
General partners (85,704) (85,844)
Limited partners (24,000 limited
partnership units outstanding
at December 31, 2005 and 2004) 2,292,182 2,278,332
------------ -----------
Total partners' equity 2,206,478 2,192,488
------------ -----------
TOTAL $ 2,965,501 $ 2,952,694
============ ===========
See accompanying notes to financial statements.
DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)
STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
2005 2004 2003
REVENUES:
Rental $2,689,810 $2,514,629 $2,577,321
---------- ---------- ----------
EXPENSES:
Depreciation 50,513 2,386 -
Operating 907,840 814,977 781,921
General and administrative 261,758 199,484 248,000
Interest expense 8,770
General partners' incentive
management fee (Note 4) 123,265 120,973 127,790
Property management fee 134,747 129,049 128,554
---------- ---------- ----------
Total expenses 1,486,893 1,266,869 1,286,265
---------- ---------- ----------
OPERATING INCOME 1,202,917 1,247,760 1,291,056
OTHER INCOME-
Interest income 646 644 672
---------- ---------- ----------
NET INCOME $1,203,563 $1,248,404 $1,291,728
========== ========== ==========
NET INCOME ALLOCATED TO (Note 4):
Limited partners $1,191,527 $1,235,920 $1,278,811
General partners 12,036 12,484 12,917
---------- ---------- ----------
TOTAL $1,203,563 $1,248,404 $1,291,728
========== ========== ==========
NET INCOME ALLOCATED TO LIMITED
PARTNERS PER LIMITED PARTNERSHIP
UNIT (Notes 2 and 4) $ 49.65 $ 51.50 $ 53.28
========== ========== ==========
See accompanying notes to financial statements.
DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
THREE YEARS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
General Limited
Partners Partners Total
BALANCE, JANUARY 1, 2003 $(87,395) $ 2,124,772 $ 2,037,377
Net income 12,917 1,278,811 1,291,728
Distributions (11,006) (1,089,637) (1,100,643)
-------- ----------- -----------
BALANCE, DECEMBER 31, 2003 (85,484) 2,313,946 2,228,462
Net income 12,484 1,235,920 1,248,404
Distributions (12,844) (1,271,534) (1,284,378)
-------- ----------- -----------
BALANCE, DECEMBER 31, 2004 (85,844) 2,278,332 2,192,488
Net income 12,036 1,191,527 1,203,563
Distributions (11,896) (1,177,677) (1,189,573)
-------- ----------- -----------
BALANCE, DECEMBER 31, 2005 $(85,704) $ 2,292,182 $ 2,206,478
========= =========== ===========
See accompanying notes to financial statements.
DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)
STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2005
- --------------------------------------------------------------------------------
2005 2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,203,563 $ 1,248,404 $ 1,291,728
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 50,513 2,386
Changes in assets and liabilities:
Other assets 3,750 945 (6,380)
Incentive management fee
payable to general partners 269 (4,173) (7,932)
Property management fees payable 1,755 2,813 175
Customer deposits and
other liabilities 16,761 10,238
----------- ----------- -----------
Net cash provided by operating
activities 1,276,611 1,260,613 1,277,591
CASH FLOWS USED IN INVESTING
ACTIVITIES- Additions to property (10,308) (23,858)
CASH FLOWS USED IN FINANCING ACTIVITIES -
Distributions to partners (1,189,573) (1,284,378) (1,100,643)
Payments on capital lease obligations (37,480) (11,250)
----------- ----------- ------------
Net cash used in financing activities (1,227,053) (1,295,628) (1,100,643)
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS 39,250 (58,873) 176,948
CASH AND CASH EQUIVALENTS,
AT BEGINNING OF YEAR 616,045 674,918 497,970
----------- ----------- ------------
CASH AND CASH EQUIVALENTS,
AT END OF YEAR $ 655,295 $ 616,045 $ 674,918
=========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION - Cash paid
during the year for interest $ 8,770 - -
=========== =========== ============
NON CASH INVESTING AND
FINANCING ACTIVITIES -
Acquisition of trucks utilizing
capital leases $ 17,512 $ 157,604 $ -
=========== =========== ============
See accompanying notes to financial statements.
DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2005
1. GENERAL
DSI Realty Income Fund VII, a California Real Estate Limited Partnership
(the "Partnership"), has two general partners (DSI Properties, Inc. and
Diversified Investors Agency) and limited partners owning 24,000 limited
partnership units which were purchased for $500 a unit. The general
partners have made no capital contributions to the Partnership and are
not required to make any capital contributions in the future. The
Partnership has a maximum life of 50 years and was formed on August 1,
1983 under the California Uniform Limited Partnership Act for the
primary purpose of acquiring and operating real estate.
The Partnership has acquired six mini-storage facilities located in
Chico, Fairfield, La Verne, and Riverside, California and Ft. Collins
and Littleton, Colorado. All facilities were purchased from Dahn
Corporation ("Dahn"). Dahn is not affiliated with the Partnership. Dahn
is affiliated with other partnerships in which DSI Properties, Inc. is a
general partner. The mini-storage facilities are operated for the
Partnership by Dahn under various agreements that are subject to renewal
annually. Under the terms of the agreements, the Partnership is required
to pay Dahn a property management fee equal to 5% of gross revenue from
operations, defined as the entire amount of all receipts from the rent-
ing or leasing of storage compartments and sale of locks.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Partnership classifies its short-term
investments purchased with an original maturity of three months or less
as cash and cash equivalents.
Property and Depreciation - Property was recorded at cost and is
composed primarily of mini-storage facilities. The facilities' buildings
are fully depreciated. Building improvements are depreciated over a
five year period. Property under capital leases is amortized over the
lives of the the respective leases or the estimated useful lives of the
assets.
Income Taxes - No provision has been made for income taxes in
the accompanying financial statements. The taxable income or loss
of the Partnership is allocated to each partner in accordance with the
terms of the Agreement of Limited Partnership. Each partner's tax
status, in turn, determines the appropriate income tax for its
allocated share of the Partnership's taxable income or loss. The net
difference between the basis of the Partnership's assets and liabilities
for federal income tax purposes and as reported for financial statement
purpose for the year ended December 31, 2005 is $26,353.
Revenues - Rental revenue is recognized using the accrual method
based on contractual amounts provided for in the lease agreements,
which approximates recognition on a straight line basis. The term
of the lease agreements are usually less than one year.
Net Income per Limited Partnership Unit - Net income per limited
partnership unit is computed by dividing net income allocated to the
limited partners by the weighted average number of limited partnership
units outstanding during each year.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the Partnership's management to make estimates and assumptions
that affect the reported amounts of 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.
Impairment of Long-Lived Assets - The Partnership regularly reviews
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not
be recoverable. If the sum of the expected undiscounted future cash
flow is less than the carrying amount of the asset, the Partnership
would recognize an impairment loss to the extent the carrying value
exceeded the fair market value of the property. No impairment losses
were required in 2005, 2004 and 2003.
Fair Value of Financial Instruments - For all financial instruments,
including cash and cash equivalents, other assets, distributions due
partners, incentive management fee payable to general partners, pro-
perty management fee payable, and customer deposits and other liabil-
ities, carrying values approximate fair values because of short matur-
ity of those instruments. The carrying values of the capital lease
obligations approximates fair value because the terms of the instru-
ments are similar to terms available to the Partnership for similar
types of leasing agreements.
Concentrations of Credit Risk - Financial instruments that potentially
subject the Partnership to concentrations of credit risk consist
primarily of cash and cash equivalents and rent receivables. The
Partnership places its cash and cash equivalents with high credit
quality institutions.
Recent Accounting Pronouncement - In March 2005, the Financial Account-
ing Standards Board issued Statement of Financial Accounting Standards
Board Interpretation No. 47, Accounting for Conditional Asset Retire-
ment Obligations ("FIN 47"). FIN 47 clarifies guidance provided in
Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations ("SFAS 143"). The term asset retirement
obligation refers to a legal oblifation to perform an asset retirement
activity in which the timing and/or method of settlement are conditional
on a future event that may or may not be within the control of the
entity. Entities are required to recognize a liability for the fair
value of a conditional asset retirement obligation when incurred if
the liability's fair value can be reasonably estimated. FIN 47 was
effective for fiscal years ending after December 15, 2005. The adop-
tion of the interpretation did not have a material effect on the Part-
nership's financial statements.
In May 2005, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 154, Accounting Changes and Error
Corrections ("SFAS 154"), to replace APB Opinion No. 20, Reporting
Accounting Changes in Interim Financial Statements ("APB 20"). SFAS 154
changes the requirements for the accounting for and reporting of change
in accounting principle and requires retrospective application to prior
periods' financial statements, unless it is impracticable to determine
period specific effects or the cumulative effect of the change. SFAS 154
will be effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. The adoption of this
statement is not expected to have a material effect on the Company's
results of operations or financial condition.
Reclassification - The Partnership reclassified the change in payments
on capital lease obligations in the statements of cash flows from an
operating activity to a financing activity. This reclassification does
not affect the total net change in cash and cash equivalents and has no
impact on the Partnership's balance sheet, statements of income, and
statements of changes in partners' equity (deficit).
3. PROPERTY
The total cost of property and accumulated depreciation as of
December 31, 2005 and 2004, is as follows:
2005 2004
Land $ 2,089,800 $ 2,089,800
Buildings and improvements 7,780,448 7,770,140
Rental trucks under
capital leases 175,116 157,604
----------- -----------
Total 10,045,364 10,017,544
Less accumulated depreciation (7,799,181) (7,748,668)
----------- -----------
Property-net $ 2,246,183 $ 2,268,876
=========== ===========
The rental trucks under capital leases were not placed into service
until January 2005 and therefore no depreciation expense was recorded
during 2004. Depreciation expense of $44,710 was recorded in 2005.
The Partnership leases certain vehicles under agreements that meet the
criteria for classification as capital leases which expire in 2008.
Future minimum lease payments under these capital leases at December 31,
2005 are summarized as follows:
2006 $ 45,000
2007 45,000
2008 45,000
-------
Total future minimum payment obligations 135,000
Less interest portion 8,614
-------
Present value of net minimum lease payments $126,386
=======
4. ALLOCATION OF PROFITS AND LOSSES AND GENERAL PARTNER MANAGEMENT FEES
Under the Agreement of Limited Partnership, the general partners are
to be allocated 1% of the net profits or losses from operations
and the limited partners are to be allocated the balance of the net
profits or losses from operations in proportion to their limited
partnership interests. The general partners are also entitled to
receive a percentage, based on a predetermined formula, of any cash
distribution from the sale, other disposition, or refinancing of
a real estate project.
In addition, the general partners are entitled to receive an incentive
management fee for supervising the operations of the Partnership. The
fee is to be paid in an amount equal to 9% per annum of the cash
available for distribution on a cumulative basis, calculated as cash
generated from operations less capital expenditures.
5. BUSINESS SEGMENT INFORMATION
The following disclosure about segment reporting of the Partnership is
made in accordance with the requirements of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. The Partner-
ship operates in a single segment; storage facility operations, under
which the Partnership rents its storage facilities to its customers
on a need basis and charges rent on a predetermined rate.
DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
- --------------------------------------------------------------------------------
Costs Capitalized
Initial Cost to Subsequent to Gross Amount at Which Carried
Partnership Acquisition at Close of Period
------------------- ----------------- -----------------------------
Buildings Buildings Date
and Improve- Carrying and Accum. of Date
Description Encumbrances Land Improvements ments Costs Land Improvements Total Deprec. Const. Acq. Life
MINI-U-STORAGE
Chico, CA None $209,700 $ 932,373 $11,148 $209,700 $ 943,521 $1,153,221 940,098 09/84 12/83 15 Yrs
Fairfield, CO None 264,500 1,267,896 15,666 264,500 1,283,562 1,548,062 1,281,730 08/84 01/84 15 Yrs
Fort Collins, CO None 375,100 1,396,960 16,443 375,100 1,413,403 1,788,503 1,407,283 12/84 05/84 15 Yrs
Riverside, CA None 356,000 1,391,210 21,145 356,000 1,412,355 1,768,355 1,407,132 12/84 06/84 15 Yrs
La Verne, CA None 453,250 1,243,974 19,305 453,250 1,263,279 1,716,529 1,256,890 03/85 08/84 15 Yrs
Littleton, CO None 431,250 1,423,811 40,517 431,250 1,464,328 1,895,578 1,461,338 10/85 05/85 15 Yrs
-------- ---------- ------- -------- ---------- ---------- ----------
$2,089,800 $7,656,224 $124,224 $2,089,800 $7,780,448 $ 9,870,248 $7,754,471
========== ========== ======== ========== ========== =========== ==========
Real Estate Accumulated
at Cost Depreciation
Balance, January 1, 2003 $ 9,836,082 $7,746,282
Additions - -
----------- ----------
Balance, December 31, 2003 $ 9,836,082 $7,746,282
Additions 23,858 2,386
----------- ----------
Balance, December 31, 2004 $ 9,859,940 $7,748,668
Additions 10,308 5,803
----------- ----------
Balance, December 31, 2005 $ 9,870,248 $7,754,471
=========== ==========
EXHIBIT 2
March 27, 2006
ANNUAL REPORT TO LIMITED PARTNERS OF
DSI REALTY INCOME FUND VII
Dear Limited Partner:
This report contains the Partnership's balance sheets as of December 31,
2005 and 2004, and the related statements of income, changes in partners' equity
(deficit) and cash flows for each of the three years ended December 31, 2005
accompanied by a report of independent registered public accounting firm. The
Partnership owns six mini-storage facilities. The Partnership's properties
were each purchased for all cash and funded solely from subscriptions for limit-
ed partnership interests without the use of mortgage financing.
Your attention is directed to the section entitled Management's Discussion
and Analysis of Financial Condition and Results of Operations for the General
Partners' discussion and analysis of the financial statements and operations of
the Partnership.
Average occupancy levels for each of the Partnership's six properties for
the years ended December 31, 2005 and December 31, 2004 were as follows:
Location of Property Average Occupancy Average Occupancy
Levels for the Levels for the
Year Ended Year Ended
Dec. 31, 2005 Dec. 31, 2004
Chico, California 91% 84%
Fairfield, California 84% 85%
Ft. Collins, Colorado 83% 83%
LaVerne, California 91% 86%
Littleton, Colorado 81% 77%
Riverside, California 88% 87%
We will keep you informed of the activities of DSI Realty Income Fund VII
as they develop. If you have any questions, please contact us at your
convenience at (562) 493-3022.
If you would like a copy of the Partnership's Annual Report on Form 10-K
for the year ended December 31, 2005 which was filed with the Securities and
Exchange Commission (which report includes the enclosed Financial Statements),
we will forward a copy of the report to you upon written request.
Very truly yours,
DSI REALTY INCOME FUND VII
By: DSI Properties, Inc.
By___________________________
ROBERT J. CONWAY, President
CERTIFICATIONS
I, Robert J. Conway, certify that:
1. I have reviewed this annual report on Form 10-K of DSI Realty Income
Fund VII;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period cover-
ed by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our super-
vision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of our annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and general partners (or persons performing
the equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to re-
cord, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's in-
ternal controls over financial reporting.
Date: March 27, 2006
Robert J. Conway
Chief Executive Officer
CERTIFICATIONS
I, Richard P. Conway, certify that:
1. I have reviewed this annual report on Form 10-K of DSI Realty Income
Fund VII;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period cover-
ed by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our super-
vision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of our annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and general partners (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to re-
cord, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's in-
ternal controls over financial reporting.
Date: March 27, 2006
Richard P. Conway
Vice President
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley
Act of 2002, the undersigned of DSI Realty Income Fund VII (the "Partnership),
hereby certifies, to his knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Partnership for the
fiscal year ended December 31, 2005 (the "Report") fully complies with the
requirements of Section 13(a) or Section 15(d), as applicable of the Securities
Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Robert J. Conway
Chief Executive Officer
March 27, 2006
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley
Act of 2002, the undersigned of DSI Realty Income Fund VII (the "Partnership),
hereby certifies, to his knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Partnership for the
fiscal year ended December 31, 2005 (the "Report") fully complies with the
requirements of Section 13(a) or Section 15(d), as applicable of the Securities
Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Richard P. Conway
Vice President
March 27, 2006