-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Se+SpH2c9UFbjMEiL8AB7c0pDWrIOyq8mCUgF3vAFNpRxh+M0yBXesZrNu89kLk+ WcfTK242ghkEkmhe2fiSqw== 0000318835-99-000007.txt : 19990403 0000318835-99-000007.hdr.sgml : 19990403 ACCESSION NUMBER: 0000318835-99-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DSI REALTY INCOME FUND VII CENTRAL INDEX KEY: 0000719581 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953871044 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-83291 FILM NUMBER: 99585239 BUSINESS ADDRESS: STREET 1: 3701 LONG BEACH BLVD CITY: LONG BEACH STATE: CA ZIP: 90807 BUSINESS PHONE: 3105957711 MAIL ADDRESS: STREET 1: 3701 LONG BEACH BLVD CITY: LONG BEACH STATE: CA ZIP: 90807 10-K 1 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, 1998. 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, 1998, incorporated by reference to Form 10-K, Part II. Item 11. Registrant's Financial Statements for its fiscal year ended December 31, 1998, 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, 1998, 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, 1998 and December 31, 1997 were as follows: Location of Property Average Occupancy Average Occupancy Level for the Level for the Year Ended Year Ended Dec. 31, 1998 Dec. 31, 1997 Chico, California 89% 86% Fairfield, California 91% 92% Ft. Collins, Colorado 81% 84% LaVerne, California 88% 89% Littleton, Colorado 87% 81% Riverside, California 82% 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 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, 1998 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 906 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 $12.59 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 1998 and $10.08 per Limited Partnership Unit were paid each quarter for the year ended 1997 and $10.00 per Limited Partnership Unit were paid each quarter for the year ended 1996. Item 6. SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995, and 1994 -------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- REVENUES $2,158,172 $1,963,464 $1,868,678 $1,857,684 $1,845,486 COSTS AND EXPENSES 1,483,535 1,430,018 1,416,685 1,397,768 1,359,766 ---------- ---------- ---------- ---------- ---------- NET INCOME $ 674,637 $ 533,446 $ 451,993 $ 459,916 $ 485,720 ========== ========== ========== ========== ========== TOTAL ASSETS $3,175,348 $3,719,366 $4,187,690 $4,697,315 $5,219,802 ========== ========== ========== ========== ========== NET CASH PROVIDED BY OPERATING ACTIVITIES $1,179,538 $1,013,207 $ 980,482 $ 970,822 $ 992,128 ========== ========== ========== ========== ========== CASH DISTRIBUTIONS PER $500 LIMITED PARTNERSHIP UNIT $ 50.36 $ 40.35 $ 40.00 $ 40.00 $ 36.25 ========== ========== ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 27.83 $ 22.00 $ 18.64 $ 18.97 $ 20.03 ========== ========== ========== ========== ========== Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS 1998 COMPARED TO 1997 Total revenues increased from $1,963,464 in 1997 to $2,158,172 in 1998, while total expenses increased from $1,430,018 to $1,483,535 resulting in an increase in net income from $533,446 to $674,637. The approximate $191,500 (9.8%) increase in rental revenues can be attributed to unit higher rental rates. Occupancy levels for the Partnership's six mini-storage units averaged 86.3% for the year ended December 31, 1998 and 86.5% for the year ended December 31, 1997. The Partnership is continuing its advertising campaign to attract and keep new tenants in its various mini-storage facilities. The approximate $33,400 (5.8%) increase in operating expenses was due primarily to an increase in maintenance and repair, salaries and wages and real estate tax expenses. General and administrative expenses decreased slightly as a result of relatively insignificant fluctuations in various expense accounts. Property management fees, which are based on revenue, increased as a result of the increase in rental revenue. General Partners' incentive management fee, which is based on cash available for distribution, increased as a result of the increase in net income. 1997 COMPARED TO 1996 Total revenues increased from $1,868,678 in 1996 to $1,963,464 in 1997, while total expenses increased from $1,416,685 to $1,430,018 resulting in an increase in net income from $451,993 to $533,446. The approximate $96,100 (5.2%) increase in rental revenues can be attributed to higher average occupancy and unit rental rates. Occupancy levels for the Partnership's six mini-storage units averaged 86.5% for the year ended December 31, 1997 and 85.0% for the year ended December 31, 1996. The Partnership is continuing its advertising campaign to attract and keep new tenants in its various mini- storage facilities. The approximately $12,700 (2.2%) increase in operating expenses was due primarily to an increase in yellow pages advertising costs, maintenance and repair and salaries and wages partially offset by a decrease in real estate tax expenses. General and administrative expenses increased approximately $14,600 (10.1%) primarily as a result of increases in postage, legal and office expenses. Property management fees, which are based on revenue, increased as a result of the increase in rental revenue. General Partners' incentive management fees decreased slightly. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities increased by approximately $166,300 (16.4%) in 1998 compared to 1997 primarily due to the increase in the net income. Net cash provided by operating activities increased by approximately $32,700 (3.3%) in 1997 compared to 1996 primarily due to the increase in net income partially offset by decreases in customer deposits and other liabilities, incentive management fees payable to general partners, other assets and depreciation. Cash used in financing activities, as set forth in the statements of cash flows, has consisted solely of cash distributions to partners. A special distribution of 2% was declared and paid on December 15, 1998. This action was the result of the Partnership's increased cash flow from the operations of its properties. Cash used in investing activities, as set forth in the statements of cash flows, has consisted solely of acquisitions of equipment for the Partnership's mini-storage facilities. The Partnership has no material commitments for capital expenditures. 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's financial resources appear to be adequate to meet its needs for the next twelve months. The Year 2000 issue refers to the inability of certain computer systems to recognize a date using "00" as the Year 2000. The Partnership has implemented a Year 2000 program, which has three phases: (1) identification; (2) remediation; and (3) testing and verification. The Partnership, as well as the property management company and the Partnership's warehouse facilities have completed those phases. Computer programs have been upgraded and tested to function properly with respect to the dates in the Year 2000 and thereafter. Year 2000 compliance costs are nominal and have been expensed in the regular course of business. The Partnership provides no assurance that third-party suppliers and customers will be compliant. Nevertheless, the Partnership does not believe that the Year 2000 issue will have a material adverse effect on its financial condition or results of operations. The General Partners are not aware of any environmental problems which could have an adverse material effect upon the financial position of the Partnership. 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. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 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, 1998, 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 65 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 69 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 75 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, 1998, 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, 1998, 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, 1998, attached hereto as Exhibit l and incorporated herein by this reference. PART IV Item 14 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, 1998, 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, 1998. (b) No reports on Form 8K were filed during the fiscal year ended December 31, 1998. 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, 1999 ROBERT J. CONWAY, President (Chief Executive Officer, Chief Financial Officer, and Director) By____________________________ Dated: March 31, 1999 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, 1999 ROBERT J. CONWAY, President, Chief Executive Officer, Chief Financial Officer, and Director By___________________________ Dated: March 31, 1999 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, 1998, 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, 1998 - -------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 REVENUES $2,158,172 $1,963,464 $1,868,678 $1,857,684 $1,845,486 COSTS AND EXPENSES 1,483,535 1,430,018 1,416,685 1,397,768 1,359,766 ---------- ---------- ---------- ---------- ---------- NET INCOME $ 674,637 $ 533,446 $ 451,993 $ 459,916 $ 485,720 ========== ========== ========== ========== ========== TOTAL ASSETS $3,175,348 $3,719,366 $4,187,690 $4,697,315 $5,219,802 ========== ========== ========== ========== ========== NET CASH PROVIDED BY OPERATING ACTIVITIES $1,179,538 $1,013,207 $ 980,482 $ 970,822 992,128 ========== ========== ========== ========== ========== CASH DISTRIBUTIONS PER $500 LIMITED PARTNERSHIP UNIT $ 50.36 $ 40.35 $ 40.00 $ 40.00 $ 36.25 ========== ========== ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 27.83 $ 22.00 $ 18.64 $ 18.97 $ 20.03 ========== ========== ========== ========== ========== 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, 1998. Operating Partners' Results Equity Per financial statements $ 674,637 $ 2,629,127 Excess financial statements depreciation 59,154 563,104 Accrued property taxes (13,055) (89,055) Deferred rental revenues 67,065 Accrued incentive management fees (4,911) 216,206 Fixed asset adjustments 218,274 Accrued distributions to partners 242,415 State taxes (8,611) ----------- ----------- Per Partnership income tax return $ 707,214 $ 3,847,136 =========== =========== Net taxable income per $500 limited partnership unit $ 29.48 =========== DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE Page FINANCIAL STATEMENTS: Independent Auditors' Report F-1 Balance Sheets at December 31, 1998 and 1997 F-2 Statements of Income for the Three Years Ended December 31, 1998 F-3 Statements of Changes in Partners' Equity for the Three Years Ended December 31, 1998 F-4 Statements of Cash Flows for the Three Years Ended December 31, 1998 F-5 Notes to Financial Statements F-6 SUPPLEMENTAL SCHEDULE: Independent Auditors' Report F-8 Schedule XI - Real Estate and Accumulated Depreciation F-9 SCHEDULES OMITTED: 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. INDEPENDENT AUDITORS' REPORT To the Partners of DSI Realty Income Fund VII: We have audited the accompanying balance sheets of DSI Realty Income Fund VII, a California Real Estate Limited Partnership (the "Partnership") as of December 31, 1998 and 1997, 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, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of DSI Realty Income Fund VII at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. February 5, 1999 DELOITTE & TOUCHE LLP LONG BEACH, CALIFORNIA DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) BALANCE SHEETS DECEMBER 31, 1998 AND 1997 - -------------------------------------------------------------------------------- ASSETS 1998 1997 CASH AND CASH EQUIVALENTS $ 459,100 $ 500,294 PROPERTY, net (Notes 1, 2 and 3) 2,672,106 3,181,412 OTHER ASSETS 44,142 37,660 ----------- ----------- TOTAL $ 3,175,348 $3,719,366 =========== =========== LIABILITIES AND PARTNERS' EQUITY LIABILITIES: Distribution due partners (Note 4) $ 242,424 $ 242,424 Incentive management fee payable to general partners (Note 4) 216,206 214,665 Property management fees payable (Note 1) 8,527 7,991 Customer deposits and other liabilities 79,064 79,064 ----------- ----------- Total liabilities 546,221 544,144 ----------- ----------- PARTNERS' EQUITY (DEFICIT)(Notes 1 and 4): General partners (81,477) (76,015) Limited partners (24,000 limited partnership units outstanding at December 31, 1998 and 1997) 2,710,604 3,251,237 ------------ ----------- Total partners' equity 2,629,127 3,175,222 ------------ ----------- TOTAL $ 3,175,348 $ 3,719,366 ============ =========== 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, 1998 - -------------------------------------------------------------------------------- 1998 1997 1996 REVENUES: Rental revenues $2,143,909 $1,952,418 $1,856,287 Interest income 14,263 11,046 12,391 ---------- ---------- ---------- Total revenues 2,158,172 1,963,464 1,868,678 ---------- ---------- ---------- EXPENSES: Depreciation (Note 2) 509,306 509,306 520,408 Operating expenses (Note 1) 611,775 578,411 565,727 General and administrative 155,704 158,808 144,242 General partners' incentive management fee (Note 4) 99,798 86,172 93,494 Property management fee (Note 1) 106,952 97,321 92,814 ---------- ---------- ---------- Total expenses 1,483,535 1,430,018 1,416,685 ---------- ---------- ---------- NET INCOME $ 674,637 $ 533,446 $ 451,993 ========== ========== ========== AGGREGATE NET INCOME ALLOCATED TO (Note 4): Limited partners $ 667,891 $ 528,111 $ 447,473 General partners 6,746 5,335 4,520 ---------- ---------- ---------- TOTAL $ 674,637 $ 533,446 $ 451,993 ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT (Notes 2 and 4) $ 27.83 $ 22.00 $ 18.64 ========== ========== ========== See accompanying notes to financial statements. DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------- General Limited Partners Partners Total BALANCE AT JANUARY 1, 1996 ($66,391) $ 4,204,098 $ 4,137,707 Net income 4,520 447,473 451,993 Distributions (9,697) (960,001) (969,698) ------- ----------- ----------- BALANCE DECEMBER 31, 1996 $(71,568) $ 3,691,570 $ 3,620,002 Net income 5,335 528,111 533,446 Distributions (9,782) (968,444) (978,226) ------- ----------- ----------- BALANCE AT DECEMBER 31, 1997 $(76,015) $ 3,251,237 $ 3,175,222 Net income 6,746 667,891 674,637 Distributions (12,208) (1,208,524) (1,220,732) ------- ----------- ----------- BALANCE, DECEMBER 31, 1998 $(81,477) $ 2,710,604 $ 2,629,127 ========= =========== =========== 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, 1998 - -------------------------------------------------------------------------------- 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 674,637 $ 533,446 $ 451,993 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 509,306 509,306 520,408 Changes in assets and liabilities: Other assets (6,482) (6,000) Incentive management fee payable to general partners 1,541 (6,452) (9,170) Property management fees payable 536 (961) 1,119 Customer deposits and other liabilities (16,132) 16,132 ----------- ----------- ----------- Net cash provided by operating activities 1,179,538 1,013,207 980,482 CASH FLOWS FROM FINANCING ACTIVITIES - Distributions to partners (1,220,732) (978,226) (969,698) CASH FLOWS FROM INVESTING ACTIVITIES - Additions to property (15,988) ----------- ----------- ------------ NET DECREASE(INCREASE)IN CASH AND CASH EQUIVALENTS (41,194) 18,993 10,784 CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 500,294 481,301 470,517 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 459,100 $ 500,294 $ 481,301 =========== =========== ============ 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, 1998 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 that were purchased for $500 a unit. The general partners have made no capital contribution to the Partnership and are not required to make any capital contribution 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, as defined. 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 equivalents. Property and Depreciation - Property is recorded at cost and is composed primarily of mini-storage facilities. Depreciation is provided for using the straight-line method over an estimated useful life of 15 years for the facilities. Building improvements are depreciated over a five-year period. 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 taxable income or loss. The net difference between the bases of the Partnership's assets and liabilities for federal income tax purposes and as reported for financial statement purpose is $ 1,218,009. 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 is 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 (24,000 in 1998, 1997 and 1996). Estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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 future cash flow is less than the carrying amount of the asset, the Partnership recognizes an impairment loss. No impairment losses were required in 1998, 1997 and 1996. Fair Value of Financial Instruments - The Company's financial instruments consist primarily of cash, receivables, accounts payable and accrued liabilities. The carrying values of all financial instruments are representative of their fair values due to their short- term maturities. Concentrations of Credit Risk - Financial instruments that potentially subject the Partnership to concentrations of credit risk consist primarily of cash equivalents and rent receivables. The Partnership places its cash equivalents with high credit quality institutions. 3. PROPERTY At December 31, 1998 and 1997, the total cost of property and accumulated depreciation are as follows: 1998 1997 Land $ 2,089,800 $ 2,089,800 Buildings and improvements 7,717,469 7,717,469 ----------- ----------- Total 9,807,269 9,807,269 Less accumulated depreciation (7,135,163) (6,625,857) ----------- ---------- Property, net $ 2,672,106 $ 3,181,412 =========== =========== 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. 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 Partnership operates under a single segment; storage facility operartions, under which the Partnership rents its storage facilities to its customers on a need basis and charges rent on a predetermined rate. INDEPENDENT AUDITORS' REPORT To the Partners of DSI Realty Income Fund VII: We have audited the accompanying balance of DSI Realty Income Fund VII (the "Partnership") as of December 31, 1998 and 1997, 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, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statement present fairly in all material respects the financial position of DSI Realty Income Fund VII at December 31, 1998, in conformity with generally accepted accounting principles. February 5, 1999 DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) 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 $ 933,155 $ 5,888 $209,700 $ 939,043 $1,148,743 894,697 09/84 12/83 15 Yrs Fairfield, CO None 264,500 1,268,897 6,659 264,500 1,275,556 1,540,056 1,223,192 08/84 01/84 15 Yrs Fort Collins, CO None 375,100 1,389,919 15,686 375,100 1,405,605 1,780,705 1,318,774 12/84 05/84 15 Yrs Riverside, CA None 356,000 1,381,634 18,137 356,000 1,399,771 1,755,771 1,291,695 12/84 06/84 15 Yrs La Verne, CA None 453,250 1,243,972 6,127 453,250 1,250,099 1,703,349 1,144,405 03/85 08/84 15 Yrs Littleton, CO None 431,250 1,423,813 23,582 431,250 1,447,395 1,878,645 1,262,400 10/85 05/85 15 Yrs -------- ---------- ------- -------- ---------- ---------- ---------- $2,089,800 $7,641,390 $ 76,079 $2,089,800 $7,717,469 $9,807,269 $7,135,163 ========== ========== ======== ========== ========== =========== ==========
Real Estate Accumulated at Cost Depreciation Balance at January 1, 1995 9,791,281 5,596,143 Additions 520,408 ----------- ---------- Balance at December 31, 1996 9,791,281 6,116,551 Additions 15,988 509,306 ----------- ---------- Balance at December 31, 1997 $ 9,807,269 $6,625,857 Additions 509,306 ----------- ---------- Balance at December 31, 1998 $ 9,807,269 $7,135,163 =========== ========== EXHIBIT 2 March 31, 1999 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, 1998 and 1997, and the related statements of income, changes in partners' equity and cash flows for each of the three years in the period ended December 31, 1998 accompanied by an independent auditors' report. The Partnership owns six mini-storage facilities. The Partnership's properties were each purchased for all cash and funded solely from subscriptions for limited 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, 1998 and December 31, 1997 were as follows: Location of Property Average Occupancy Average Occupancy Levels for the Levels for the Year Ended Year Ended Dec. 31, 1998 Dec. 31, 1997 Chico, California 89% 86% Fairfield, California 91% 92% Ft. Collins, Colorado 81% 84% LaVerne, California 88% 89% Littleton, Colorado 87% 81% Riverside, California 82% 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, 1998 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 EX-27 2 DSI REALTY INCOME FUND VII WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 0000719581 1 U.S. Dollars YEAR DEC-31-1998 DEC-31-1998 459100 0 0 0 0 0 9807269 7135163 3175348 0 0 0 0 0 0 3175348 2143909 2158172 0 0 0 0 0 674637 0 674637 0 0 0 674637 0 0
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