LIMITED PARTNER UPDATE!!


                                  May 23, 2003


TO THE LIMITED PARTNERS OF
DSI REALTY INCOME FUND VII  (the "Partnership")

         Re:      COURT RULES AGAINST THE GENERAL PARTNER'S PROPOSAL

Dear Limited Partner:

     The  California   Superior  Court  has  just  issued  a  restraining  order
prohibiting the general partners of the Partnership from completing an amendment
to the  Partnership  Agreement  that  is  very  damaging  to all of our  limited
partnership interests.  The Court's decision is based on claims that the general
partners have breached their fiduciary duty and also violated federal securities
laws by attempting to provide  themselves  with a right of first refusal that is
detrimental to the limited partners;  and by soliciting limited partner approval
with misleading materials.

     However,  we  should  not wait  for a final  decision  by the  court in our
lawsuit.  We should stop the general  partners  ourselves,  now.  Therefore,  we
recommend  strongly  that you VOTE  AGAINST THE  PROPOSAL  by the  Partnership's
general partner, for the following reasons:

     o    The  value of our  Partnership  units  will  decrease  if the  general
          partner's  Proposal is approved,  because they will become harder,  or
          impossible, to sell to anyone but the general partner.

     o    If the  Proposal is  approved,  we believe you will no longer have the
          option to sell your  Partnership  units on secondary  market services.
          One such  service has advised us it will cease to effect  transfers if
          the Proposal passes.

     o    If the Proposal is approved, you will be giving the general partner an
          effective monopoly on buying your units if you try to sell them.

     o    The general partner is trying to give itself a valuable right of first
          refusal it would not be entitled to under  California  securities  law
          guidelines for new offerings.

     o    The Proposal  effectively  removes all ways for you to get out of this
          investment other than selling out to the general partner,  probably at
          low prices.


     If you have already voted for the  proposal,  change your vote before it is
too late.  We would be pleased to answer  any  questions  you may have about our
recommendation  or to assist you in changing your vote.  Please call and ask for
Stacey McClain or David Lesser, at (800) 611-4613.

                                     Very truly yours,
                                     MILLENIUM INVESTORS 2, LLC
                                     EVEREST INVESTORS 3, LLC
                                     KM INVESTMENTS, LLC

P.S.  Do not be misled by the  general  partner  into  voting  against  your own
interests!