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UNITED STATES SECURITIES AND EXCHANGE COMMISSION  FORM 10-K [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2003 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 0-11779 S/M REAL ESTATE FUND VII, LTD. Exact name of registrant as specified in its charter
 Texas
    
    75-1845682(State or other jurisdiction of incorporation of organization)
    
    (I.R.S. Employer Identification No.)
 5520 LBJ Freeway, Suite 500, Dallas, Texas
    
    75240(Address of principal executive offices)
    
    (zip code)
 Registrants telephone number, including area code: (972) 404-7100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS 
 (Title of Class)
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  [X]  No  [   ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.    [X] Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  State aggregate market value of the voting stock held by non-affiliates of the
registrant: Not applicable Documents Incorporated by Reference: Prospectus dated June 10, 1983, contained
in Amendment No. 3 to Registrants Registration Statement on Form S-11 filed
with the Securities and Exchange Commission on June 10, 1983. (Parts I, II,
III & IV). Page 1




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TABLE OF CONTENTS PagePART IItem 1.
    
    Business
    
    
    3Item 2.
    
    Properties
    
    
    5Item 3.
    
    Legal Proceedings
    
    
    5Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    5PART IIItem 5.
    
    Market for the Partnership's Limited PartnershipInterests and Related Security Holder Matters
    
    
    6Item 6.
    
    Selected Financial Data
    
    
    6Item 7.
    
    Management's Discussion and Analysis of FinancialCondition and Results of Operations
    
    
    7Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    9Item 8.
    
    Financial Statements and Supplementary Data
    
    
    10Item 9.
    
    Changes in and Disagreements with AccountantsOn Accounting and Financial Disclosure
    
    
    10Item 9A.
    
    Controls and Procedures
    
    
    10PART IIIItem 10.
    
    Directors and Executive Officers of the Partnership
    
    
    11Item 11.
    
    Executive Compensation
    
    
    12Item 12
    
    Security Ownership of Certain Beneficial Ownersand Management and Related Security Holder Matters
    
    
    12Item 13.
    
    Certain Relationships and Related Transactions
    
    
    13Item 14.
    
    Principal Accountant Fees and Services
    
    
    13PART IVItem 15.
    
    Exhibits, Financial Statement Schedules, andReports on Form 8-K
    
    
    14Signatures
    
    
    
    
    16Index to Exhibits
    
    
    20Section 302 Certification of CEOSection 302 Certification of CFOCertification of Chief Executive OfficerCertification of Chief Financial Officer
  Page 2




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PART I 
 Item 1. Business S/M Real Estate Fund VII, Ltd. (the Partnership), formerly Shearson-Murray
Real Estate Fund VII, Ltd., was formed November 4, 1982 to acquire existing
garden apartment complexes. The general partners of the Partnership are SM7
Apartment Investors Inc., a Texas corporation (formerly known as Shearson
Apartment Investors XIV, Inc.) (SM7), Murray Realty Investors VII, Inc., a
Texas corporation (Murray), and Crozier Partners VII, Ltd., a Texas limited
partnership (Crozier). SM7, Murray and Crozier are hereinafter referred to
collectively as the General Partners. See Item 10. Directors and Executive
Officers of the Partnership. The Partnership offered, on June 10, 1983, a minimum of 6,250 and a maximum of
14,000 limited partnership interests (the Interests) in the Partnership at
$1,000 per Interest with a minimum required purchase of two Interests for
purchases made on behalf of Individual Retirement Accounts and five Interests
for all other purchasers. Additionally, the General Partners were given the
right to sell an additional 10,000 Interests in connection with the offering.
The offering of Interests was terminated on April 30, 1984, and the Partnership
accepted subscriptions for 11,080 Interests, for aggregate offering proceeds of
$11,080,000. On July 29, 1983, the Partnership acquired Fifth Avenue Apartments (Fifth
Avenue), a 198-unit apartment complex located in San Antonio, Texas, for a
purchase price of $8,474,925. On August 31, 1983, the Partnership acquired
Rockcreek Apartments (Rockcreek), a 314-unit apartment complex located in
Austin, Texas, for a purchase price of $10,948,228. The two properties are
referred to collectively herein as the Properties. The San Antonio and Austin apartment markets deteriorated in the mid-1980s due
to overbuilding and the general economic decline of the Southwest economy.
Rental concessions and a decline in the Properties operating results led to
the depletion of the Partnerships working capital reserve. In July 1986, the
General Partners suspended mortgage payments on the Partnerships two
Properties and commenced negotiations with the lenders in an effort to
restructure the terms of their respective mortgage loan agreements.
Subsequently, in November 1986 and March 1987, the Partnership executed letters
of intent with the holders of the Rockcreek and Fifth Avenue notes,
respectively, to modify certain conditions and terms of the mortgage
obligations. The Partnership resumed payments to both lenders in March 1987 in
accordance with the proposed modifications. Adverse market conditions continued to hamper the ability of the Properties to
generate sufficient cash flow to meet debt service payments and operating
expenses. Given the diminishing balance of the Partnerships cash and the
capital improvement requirements at Rockcreek, in April 1989, the General
Partners commenced renegotiations and suspended debt service payments on the
mortgages secured by both Rockcreek and Fifth Avenue. The objective of these
negotiations was to reduce the debt service payments required under the
mortgage notes to a level that could be paid out of cash flow generated by the
Properties. Under the terms of these loan agreements, non-payment of debt
service represented an event of default. In May 1989, two of the lenders for Rockcreek posted that property for
foreclosure on June 7, 1989. As the Partnership was unable to reach an
agreement with one of these lenders to forbear prior to foreclosure date, the
Partnership commenced a voluntary case under Chapter 11 of the Federal
Bankruptcy Code on June 6, 1989, in an attempt to protect its Limited Partners
from the effects of foreclosure and to reorganize the Partnerships finances. On October 4, 1989, the Partnership filed a plan of reorganization (The Plan)
together with a disclosure statement with the Bankruptcy Court. The Plan was
not approved, and the Partnership filed its modified plan of reorganization
(the Modified Plan) and disclosure statement, which was confirmed on February
20, 1990, and became effective on March 1, 1990. The Modified Plan
restructured the liabilities of the Partnership in a manner which was intended
to permit such liabilities to be serviced by the Partnerships anticipated cash
flow. Additionally, the Modified Plan required the Partnership to issue
reorganization notes to holders of mortgage notes payable. The first mortgage note secured by Phase I of the Rockcreek Apartments and the
wraparound mortgage note secured by a third mortgage on Rockcreek were
scheduled to mature on December 31, 1993. The General Partners had attempted
to either restructure the debt or sell the property (both Phases I and II) for
an amount greater than the outstanding debt. As a result of the General
Partners efforts to sell the property, the General Partners secured an offer
to purchase the property in the amount of $8,521,055. Such offer was accepted
and the property was sold on December 17, 1993. Concurrently with their sales
efforts, the General Partners successfully negotiated an agreement with the
holder of the wraparound mortgage on Rockcreek, whereby the Partnership
received a release of all the mortgage liens on the property by paying a
discounted amount of the total outstanding debt of $8,082,311. Page 3




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The General Partners commenced discussions in 1995 with the lender of the
mortgage secured by Fifth Avenue as a result of the scheduled debt maturity on
December 31, 1995. Such discussions continued past the December 31, 1995
maturity date, and on May 30, 1996, the General Partners of the Partnership
executed a modification and extension agreement (the Modification Agreement)
with the lender, to modify the mortgage and extend its maturity for five years.
At the time the Modification Agreement was executed, the previous first
mortgage had an aggregate balance of $7,111,142, representing $5,830,000 in
original principal and $1,281,142 in accrued interest. The accrued interest on
the first mortgage was converted into a second mortgage which was coterminous
with the original principal of $5,830,000. In accordance with the Modification
Agreement, the first mortgage of $5,830,000 had a fixed interest rate of 9.875%
with fixed monthly payments of principal and interest and the maturity date was
June 1, 2001. In order to improve the financial condition of the Partnership and provide much
needed funds for exterior improvements on Fifth Avenue, on December 3, 1998,
the General Partners of the Partnership refinanced the mortgage note payable on
Fifth Avenue. In accordance with the terms of the Loan Agreement executed in
connection with the refinancing (the Agreement), the principal balance of
the original mortgage totaling $6,400,000 is due January 1, 2009 and bears
interest at a fixed rate of 7.16%. The previous first and second mortgages had
a combined balance of $6,259,810 at an average interest rate of 8.97%. See
more details of the Agreement in Item 7 Managements Discussion and Analysis
of Financial Condition and Results of Operations of this Form 10-K and Note 6
Mortgage Notes Payable of the Notes to the Financial Statements contained
herein. On July 3, 2003, the Partnership filed with the Securities and Exchange
Commission preliminary proxy materials regarding a proposed sale of the
Partnerships sole property and the dissolution and liquidation of the
Partnership. On September 16, 2003, definitive proxy materials were filed with
the SEC and sent to limited partners seeking their approval of these proposals.
On October 23, 2003, the Partnership held a special meeting of limited
partners to vote on two proposals described in the definitive proxy materials:
(1) the sale of the Partnerships final property, Fifth Avenue Apartments, and
amendments of the Partnerships partnership agreement to disband the Investment
Committee and to change the allocation of cash distributions from sales or
refinancings among limited partners and general partners; and (2) the
subsequent dissolution and liquidation of the Partnership. Limited partnership
interests representing a quorum were present at the special meeting. Both
proposals were approved by the requisite number of limited partnership
interests. As a result, the Partnership began marketing the Fifth Avenue
property for sale and continues to operate until such time as the property is
sold and the Partnership is dissolved and liquidated. Despite these approvals,
there can be no assurance that the Partnership will consummate any such sale
and subsequent dissolution and liquidation. In accordance with the provisions
of SFAS 144, the Fifth Avenue property is disclosed as held for sale in the
financial statements and depreciation ceased subsequent to the approval of the
sale of the Fifth Avenue property. Competition Fifth Avenue competes for tenants with other apartment complexes in San
Antonio. When evaluating a particular location to lease, a tenant may consider
many factors, including, but not limited to, space availability, rental rates,
lease terms, access, parking, quality of construction and quality of
management. While the General Partners believe that Fifth Avenue is generally
competitive in these factors, there can be no assurance that, in the view of a
prospective tenant, other properties may not be more attractive. Fifth Avenue directly competes with the following similar six apartment
complexes in San Antonio: Number of
    
    Percent Occupied atProperty
    
    Units*
    
    December 13, 2003*1
    
    
    185
    
    
    
    89
    %2
    
    
    192
    
    
    
    92
    %3
    
    
    200
    
    
    
    97
    %4
    
    
    245
    
    
    
    92
    %5
    
    
    248
    
    
    
    94
    %6
    
    
    265
    
    
    
    95
    %
  *
    
    This information has been obtained from sources believed to be reliable
by the Partnership, but the
Partnership has not verified the accuracy of such information. Employees The Partnership has no employees. Fifth Avenue is managed by Anterra
Management Corporation which provides certain administrative and management
services. See Item 13. Certain Relationships and Related Transactions. Page 4




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Item 2. Properties As of December 31, 2003, the Partnership owned Fifth Avenue Apartments, a
198-unit apartment complex located in San Antonio, Texas and situated on
approximately 8.45 acres with 169,270 square feet of net leaseable space.
Occupancy at Fifth Avenue Apartments averaged 94% for the years ended December
31, 2003 and 2002. At December 31, 2003 and 2002, Fifth Avenue Apartments was
96% and 94% occupied, respectively. 
 Item 3. Legal Proceedings There are no material pending legal proceedings to which the General Partners
or the Partnership is a party or to which Fifth Avenue is subject. 
 Item 4. Submission of Matters to a Vote of Security Holders On October 23, 2003, the Partnership held a special meeting of limited partners
to consider and approve two proposals described in the definitive proxy
materials mailed to limited partners on or about September 16, 2003:  (1)
    
    the sale of the Partnerships sole property, and amendments of the
Partnerships partnership agreement to disband the Investment Committee
and change the allocation of certain cash distributions; and(2)
    
    the subsequent dissolution and liquidation of the Partnership. With respect to proposal 1, 5,990 limited partner interests voted for the
proposal, 285 voted against and 82 were abstentions or broker non-votes. With
respect to proposal 2, 6,064 limited partner interests voted for the proposal,
211 voted against and 82 were abstentions or broker non-votes. Page 5




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PART II 
 Item 5. Market for the Partnerships Limited Partnership Interests and Related Security Holder Matters A public market for the Partnerships limited partnership Interests does not
exist and is not likely to develop. Consequently, a Limited Partner may not be
able to liquidate its investment in the event of emergency or for any other
reason, and Interests may not be readily accepted as collateral for a loan.
Furthermore, the transfer of Interests is subject to certain limitations,
including approval of the General Partners.
At December 31, 2003, there were 950 Limited Partners of record, owning an
aggregate of 11,080 Interests. There have been no cash distributions to the Limited Partners since the
inception of the Partnership. 
 Item 6. Selected Financial Data (dollars in thousands except per Interest data) For the years ended December 31,
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Gross Income
    
    $
    1,501
    
    
    $
    1,408
    
    
    $
    1,463
    
    
    $
    1,398
    
    
    $
    1,371Net Loss
    
    
    (383
    )
    
    
    (300
    )
    
    
    (206
    )
    
    
    (256
    )
    
    
    (263
    )Net Loss per Limited
Partnership Interest (1)
    
    
    (34.20
    )
    
    
    (26.83
    )
    
    
    (18.44
    )
    
    
    (22.88
    )
    
    
    (23.48
    )Total Assets
at Year-End
    
    
    1,857
    
    
    
    2,287
    
    
    
    2,646
    
    
    
    2,918
    
    
    
    3,257Total Mortgage Notes Payable
at Year-End
    
    
    6,073
    
    
    
    6,149
    
    
    
    6,219
    
    
    
    6,284
    
    
    
    6,343
  (1)
    
    Based on the number of limited partnership interests outstanding during
the year and net loss allocated to the Limited Partners. The above selected financial data should be read in conjunction with the
Financial Statements and related notes incorporated by reference to Item 8 of
this report. Page 6




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Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations Liquidity and Capital Resources In order to improve the financial condition of the Partnership and provide much
needed funds for exterior improvements on Fifth Avenue, on December 3, 1998,
the Partnership refinanced the mortgage note payable on Fifth Avenue, (the
Refinancing). In accordance with the terms of the Loan Agreement (the Loan
Agreement), the principal balance of the original mortgage totaling $6,400,000
is due January 1, 2009 and bears interest at a fixed rate of 7.16%. Under the terms of the Loan Agreement with General Electric Capital Corporation
(the Lender), the Partnership is required to make fixed monthly payments of
principal and interest in the amount of $43,269 commencing on February 1, 1999
until maturity on January 1, 2009, at which time the entire outstanding
principal balance and accrued interest is due. Under the terms of the Loan
Agreement, the Partnership is required to make monthly contributions of $3,905
which are held by the Lender pending application for the completion of certain
required repairs to the Fifth Avenue property. At December 31, 2003, the
balance in this replacement reserve account was $23,689. Cash and cash equivalents totaled $117,502 at December 31, 2003, compared to
$259,663 at December 31, 2002. The $142,161 decrease is primarily attributable
to cash used by operations, debt service payments and payments made to the
replacement reserve account and escrow account, partially offset by the release
of restricted cash (see below). Cash held in escrow increased to $108,506 at December 31, 2003, from $82,565 at
December 31, 2002. The $25,941 increase is primarily attributable to
contributions to the insurance and real estate tax escrow as required by the
Loan Agreement, offset in part by payment of annual insurance premiums. Restricted cash replacement reserve decreased to $23,689, at December 31, 2003,
from $24,156 at December 31, 2002. The $467 decrease is attributable to the
release of $47,531 of funds from the replacement reserve account offset in part
by monthly contributions to the replacements reserve account. Other assets totaled $61,407 at December 31, 2003, compared to $89,380 at
December 31, 2002. The $27,973 decrease in other assets is primarily
attributable to the expensing of a retainer for legal services that were
provided in 2003. Accounts receivable totaled $8,711 at December 31, 2003, compared to $10,133 at
December 31, 2002. The decrease is primarily attributable to the timing of
tenant rental receipts. Accounts payable totaled $75,783 at December 31, 2003, compared to $61,759 at
December 31, 2002. The increase is primarily attributable to the timing of
payments associated with repairs and maintenance for apartment preparation. Accrued expenses and other liabilities totaled $57,625 at December 31, 2003,
compared to $43,405 at December 31, 2002. The change is primarily attributable
to the timing of payments for partnership administrative costs. The Partnerships General Partners currently expect funds from operations to be
sufficient to pay all obligations for 2004, including debt service. In the
event of any cash flow deficits, it is expected that such deficits will be
funded by the Partnerships existing cash balances. However, there can be no
assurance that the Partnership will have sufficient cash to fund such deficits. Results of Operations 2003 Compared With 2002 Operations resulted in net losses of $382,750 for the year ended December 31,
2003, and $300,276 for the year ended December 31, 2002. The increased net
loss from 2003 to 2002 is primarily attributable to increases in property
operating expenses and partnership administrative costs, offset in part by an
increase in rental income and a decrease in depreciation expense. Rental income at Fifth Avenue totaled $1,496,756 for the year ended December
31, 2003, compared to $1,402,338 for the year ended December 31, 2002.
Occupancy at Fifth Avenue averaged approximately 94% during both 2003 and 2002.
The average rental income per occupied square foot at Fifth Avenue was $9.38
in 2003, compared to $8.77 in 2002. At December 31, 2003, Fifth Avenue was 96%
occupied. Total expenses for the year ended December 31, 2003 were $1,884,193 compared to
$1,708,640 for the year ended December 31, 2002. The increase is primarily
attributable to increases in property operating expenses and partnership
administrative costs, offset in part by a decrease in depreciation expense. Page 7




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Property operating expenses consist primarily of on-site personnel expenses,
utility costs, repair and maintenance costs, property management fees,
advertising costs, insurance and real estate taxes. Property operating
expenses for the year ended December 31, 2003 were $856,794, compared to
$754,234 for the year ended December 31, 2002. The increase in property
operating expenses is primarily attributable to increases in repairs and
maintenance for apartment preparation, leasing and promotional costs, property
office administrative costs and property insurance costs. General and administrative expenses for the year ended December 31, 2003 were
$244,567 as compared to $75,073 for the year ended December 31, 2002. The
increase in general and administrative expenses is primarily due to higher
legal and other professional expenses associated with the filing and
distribution of the definitive proxy materials as discussed above. Depreciation expense for the year ended December 31, 2003 was $339,045 and
$430,279 for the year ended December 31, 2002. The decrease in depreciation
expense is primarily due to the fact that depreciation ceased subsequent to the
approval of the sale of the Fifth Avenue property as discussed below. 2002 Compared With 2001 Operations resulted in net losses of $300,276 for the year ended December 31,
2002, and $206,394 for the year ended December 31, 2001. The increased net
loss from 2001 to 2002 is primarily attributable to a decrease in rental income
and an increase in property operating expenses. Rental income at Fifth Avenue totaled $1,402,338 for the year ended December
31, 2002, compared to $1,448,295 for the year ended December 31, 2001.
Occupancy at Fifth Avenue averaged approximately 94% during 2002 and 95% during
2001. The average rental income per occupied square foot at Fifth Avenue was
$8.77 in 2002, compared to $9.00 in 2001. At December 31, 2002, Fifth Avenue
was 94% occupied. The decrease in the average rental income per occupied
square foot in 2002 is primarily attributable to increases in vacancy and
rental concessions being offered. Total expenses for the year ended December 31, 2002 were $1,708,640 compared to
$1,669,167 for the year ended December 31, 2001. The increase is primarily
attributable to an increase in property operating expenses. Property operating expenses consist primarily of on-site personnel expenses,
utility costs, repair and maintenance costs, property management fees,
advertising costs, insurance and real estate taxes. Property operating
expenses for the year ended December 31, 2002 were $754,234, compared to
$707,917 for the year ended December 31, 2001. The increase in property
operating expenses is primarily attributable to increases in repairs and
maintenance for apartment preparation, utility costs, and property insurance
costs. General The effect of inflation on the results of operations for the years ended
December 31, 2003, 2002 and 2001 was not significant. Over the past several years the real estate market has gotten stronger and this
improvement has resulted in an increase in the number of potential buyers as
well as the number of parties interested in purchasing limited partnership
units on the secondary market. Some of these groups have solicited the
Partnerships Limited Partners directly with offers to buy their units. The
General Partners are constantly analyzing market conditions, comparable sales,
and economic trends in order to evaluate their impact on the value of the
Partnerships property, and began marketing the Fifth Avenue property in the
fourth quarter of 2003. Words or phrases when used in this Form 10-K or other filings with the
Securities and Exchange Commission, such as does not believe and believes,
or similar expressions are intended to identify forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Page 8




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Critical Accounting Policies The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements. It is our
opinion that we fully disclose our significant accounting policies in the Notes
to the Financial Statements. Consistent with our disclosure policies we
include the following discussion related to what we believe to be our most
critical accounting policies that require our most difficult, subjective or
complex judgment: Revenue Recognition  Rental income is the primary source of income for the
Partnership. Rental income is recorded over the term of the lease as the
income is earned. Valuation of Real Estate  Real estate investments have been accounted for
under the provisions of Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for Impairment or Disposal of Long-Lived Assets. The
Partnership property is classified as held for sale at December 31, 2003 and
was classified as held for use at December 31, 2002. In accordance with SFAS
No. 144, as the property is being held for sale, the property is being reported
at the lower of the carrying amount or fair value lessd costs to sell, and is
no longer being depreciated. Management reviews for impairment whenever events
or circumstances indicate that the carrying value of the real estate investment
may not be fully recoverable. The review of recoverability is based on the
discounted cash flows, excluding interest charges, that are expected to result
from the real estate investments use and eventual disposition. Impairment is
determined if the expected future cash flows do not recover the value of the
real estate. In such an instance, an impairment loss is recorded to the extent
that the carrying value of the real estate investment exceeds the estimated
fair value. 
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Partnerships primary market risk exposure relates to changes in interest
rates related to its long-term debt. To limit the impact of interest rate
changes, the Partnership has entered into fixed rate debt of 7.16% that expires
in 2009. As a result, the Partnerships only interest rate risk is the
opportunity loss should interest rates decline which did occur during 2002 and
2003. The following table summarizes the expected maturities of the
Partnerships long-term debt. Based on the borrowing rates currently available
to the Partnership for mortgage loans with similar terms and average
maturities, the fair value of long-term debt is $6,339,000 at December 31,
2003. Year ending December 31,2004
    
    $
    81,1072005
    
    
    87,1952006
    
    
    93,7402007
    
    
    100,7762008
    
    
    108,340Thereafter
    
    
    5,601,902$
    6,073,060
 The fair value of the Partnerships remaining financial instruments, consisting
of cash and cash equivalents, cash held in escrow, restricted cash replacement
reserves, accounts receivable and accounts payable, approximate fair value due
to the short-term nature of these instruments and are relatively unaffected by
interest rate changes or other market risks. Page 9




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Item 8. Financial Statements and Supplementary Data The following financial statements are filed as part of this report: PageNumberIndependent Auditors Report
    
    
    F-1Balance
Sheets - At December 31, 2003 and 2002
    
    
    F-2Statements
of Partners Deficit - For the years ended December 31, 2003, 2002 and 2001
    
    
    F-2Statements
of Operations - For the years ended December 31, 2003, 2002 and 2001
    
    
    F-3Statements
of Cash Flows - For the years ended December 31, 2003, 2002 and 2001
    
    
    F-4Notes to the Financial Statements
    
    
    F-5Schedule III - Real Estate and Accumulated Depreciation
    
    
    F-10
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None 
 Item 9A. Controls and Procedures As of December 31, 2003, we carried out an evaluation, under the supervision
and with the participation of the chief executive officer and chief financial
officer of our general partner, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(c) under the Securities and Exchange Act of 1934.) Based on this
evaluation, the chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were effective as of December 31,
2003 to provide reasonable assurance that information required to be disclosed
by us in our periodic SEC Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified by the SECs rules
and forms, and to provide reasonable assurance that information required to be
disclosed by us is accumulated and communicated to our management, including
the chief executive officer and chief financial officer of our general
partners, as appropriate to allow timely decisions regarding required
disclosure. There were no changes in our internal controls over financial reporting (as
such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred
during the year or quarter ended December 31, 2003, that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting. Page 10




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PART III 
 Item 10. Directors and Executive Officers of the Partnership Murray Realty Investors VII, Inc., a Texas corporation, SM7 Apartment Investors
Inc., a Texas corporation (SM7), and Crozier Partners VII, Ltd., a Texas
limited partnership, are the General Partners of the Partnership. On June 16,
1998, DA Group Holdings, Inc., a Delaware corporation and the parent company of
SM7 (DA), and Anterra Property Investors VIII, Inc., a Texas corporation
(Anterra), entered into a Stock Purchase Agreement. Pursuant to this Stock
Purchase Agreement, Anterra purchased from DA all of the issued and outstanding
shares of common stock, $1.00 par value per share, of SM7. Anterra is an
affiliate of Anterra Property Investors VII, Inc. which is the general partner
of Crozier Partners VII, Ltd. The following is a summary of certain
information concerning the directors and executive officers of Anterra Property
Investors VII, Inc., Murray Realty Investors VII, Inc. and SM7 Apartment
Investors Inc., as of December 31, 2003. Anterra Property Investors VII, Inc., general partner of Crozier Partners VII,
Ltd. Richard E. Hoffmann, 49, President, Treasurer and Director. For more than five
years prior to July 15, 1990, Mr. Hoffmann was a Vice President and Treasurer
of Murray Properties Company and various other affiliated companies. He
resigned his position with substantially all Murray Properties Company
affiliates on July 15, 1990. Mr. Hoffmann was elected Senior Vice President,
Treasurer and a Director of Anterra Realty Corporation in June of 1990, and was
elected President of Anterra Realty Corporation in July of 1994. He is
President, Treasurer and a Director of all other subsidiary corporations of
Anterra Realty Corporation, including Anterra Property Investors VII, Inc. Mr.
Hoffmann received a Master of Business Administration degree from the
University of Texas at Austin in 1979 and a B.S. from Tulane University in
1977. Lynn D. Maynard, 51, Executive Vice President and Director. For more than five
years prior to December 26, 1989, Ms. Maynard was an officer of Murray
Properties Company and various other affiliated companies. She was elected
Vice President of Murray Properties Company and Murray Realty Investors, Inc.
in December of 1986. Ms. Maynard resigned her positions with substantially all
Murray Properties Company affiliates on December 26, 1989. Ms. Maynard was
elected Senior Vice President and a Director of Anterra Realty Corporation in
November 1989, and is Executive Vice President and a Director of all other
subsidiary corporations of Anterra Realty Corporation, including Anterra
Property Investors VII, Inc. Ms. Maynard received a Bachelor of Science Degree
in Accounting from the University of Texas at Dallas. Sandy Robison,48, Vice President and Secretary.
Ms. Robison joined Anterra Realty Corporations predecessor company in
1983 and has served in all areas of the Accounting Department, including the
positions of Staff Accountant, Systems Manager and Assistant Controller. Ms.
Robison became Secretary of Anterra Realty Corporation in December 1997 and
became Vice President and Controller of Anterra Realty Corporation in December
1998. She is Vice President, Secretary and Controller of Anterra Realty
Corporation and all other subsidiary corporations of Anterra Realty
Corporation, including Anterra Property Investors VII, Inc. Ms. Robison
received a Bachelor of Science Degree in Finance from the University of Texas
at Dallas. Murray Realty Investors VII, Inc., Corporate General Partner Fulton Murray, 63, President, Chairman of the Board and Director. Mr. Murray
has been Chairman of the Board and Chief Executive Officer of Murray Properties
Company and Murray Financial Corporation for more than five years prior to the
date of this report. In addition, he is a director or officer of substantially
all affiliates of Murray Properties Company. His family, or trusts for their
benefit, own approximately 64% of the outstanding stock of Murray Financial
Corporation, which is the parent corporation of Murray Properties Company and
most of its affiliates, including Murray Realty Investors VII, Inc. He holds a
Bachelor of Business Administration degree in Finance from Southern Methodist
University. Page 11




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SM7 Apartment Investors Inc., Corporate General Partner Richard E. Hoffmann, 49, President, Treasurer and Director. For more than five
years prior to July 15, 1990, Mr. Hoffmann was a Vice President and Treasurer
of Murray Properties Company and various other affiliated companies. He
resigned his position with substantially all Murray Properties Company
affiliates on July 15, 1990. Mr. Hoffmann was elected Senior Vice President,
Treasurer and a Director of Anterra Realty Corporation in June of 1990, and was
elected President of Anterra Realty Corporation in July of 1994. He is
President, Treasurer and a Director of all other subsidiary corporations of
Anterra Realty Corporation, including SM7 Apartment Investors Inc. Mr.
Hoffmann received a Master of Business Administration degree from the
University of Texas at Austin in 1979 and a B.S. from Tulane University in
1977. Lynn D. Maynard, 51, Executive Vice President and Director. For more than five
years prior to December 26, 1989, Ms. Maynard was an officer of Murray
Properties Company and various other affiliated companies. She was elected
Vice President of Murray Properties Company and Murray Realty Investors, Inc.
in December of 1986. Ms. Maynard resigned her positions with substantially all
Murray Properties Company affiliates on December 26, 1989. Ms. Maynard was
elected Senior Vice President and a Director of Anterra Realty Corporation in
November 1989, and is Executive Vice President and a Director of all other
subsidiary corporations of Anterra Realty Corporation, including SM7 Apartment
Investors Inc. Ms. Maynard received a Bachelor of Science Degree in Accounting
from the University of Texas at Dallas. Sandy Robison,48, Vice President and Secretary. Ms. Robison joined Anterra
Realty Corporations predecessor company in 1983 and has served in all areas
of the Accounting Department, including the positions of Staff Accountant,
Systems Manager and Assistant Controller. Ms. Robison became Secretary of
Anterra Realty Corporation in December 1997 and became Vice President and
Controller of Anterra Realty Corporation in December 1998. She is Vice
President, Secretary and Controller of Anterra Realty Corporation and all other
subsidiary corporations of Anterra Realty Corporation, including SM7 Apartment
Investors Inc. Ms. Robison received a Bachelor of Science Degree in Finance
from the University of Texas at Dallas. 
 Item 11. Executive Compensation The Partnership has not paid and does not propose to pay any cash compensation,
bonuses or deferred compensation, compensation pursuant to retirement or other
plans, or other compensation to the officers, directors, or partners of the
General Partners. The General Partners and their affiliates receive various
fees and distributions. See Item 13. Certain Relationships and Related
Transactions for information on the fees and other compensation or
reimbursements paid to the General Partners or their affiliates during the year
ended December 31, 2003. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Security Holder Matters  (a)
    
    Beneficial owners of 5% or more of Registrants Securities Amount andNature ofBeneficial
    
    PercentTitle of Class
    
    Beneficial Owner
    
    Ownership
    
    of ClassLimited Partnership
    
    Naomi Ruth
    
    
    600
    
    
    
    5.4
    %Interest, $1,000
    
    Wilden Trust
    
    
    
    
    
    (owned beneficiallyper Interest
    
    221 N Central Ave, #299
    
    
    
    
    
    and of record)Medford, OR 97501-5927
  (b)
    
    No General Partner or any officer or director of a General Partner
beneficially owned or owned of record
directly or indirectly any Interests as of December 31, 2003. Page 12




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Item 13. Certain Relationships and Related Transactions  (a)
    
    During the years ended December 31, 2003, 2002 and 2001, the General
Partners or their affiliates were reimbursed for Partnership
administrative and operating expenses, excluding property management
fees, in the amounts of $10,968, $11,641 and $11,681, respectively.On January 1, 1990, Murray Management Corporation retained Anterra
Management Corporation, an affiliate of the general partners, to provide
certain administrative and management services with respect to the
Partnership and its Properties. Anterra Management Corporation is a real
estate related service company formed by former executive officers of
Murray Properties Company and its affiliates, and earned property
management fees of $58,020, $56,205 and $57,867 for the years ended
December 31, 2003, 2002 and 2001, respectively.(b)
    
    None.(c)
    
    No management person is indebted to the Partnership.(d)
    
    Not applicable. 
 Item 14. Principal Accountant Fees and Services As the Partnership does not have a board of directors or equivalent body nor an
audit committee or equivalent body, the terms board of directors and audit
committee mean the board of directors of the Partnerships managing general
partner. In accordance with the partnership agreement, the General Partners,
on behalf of the Partnership, have the duty, responsibility and authority to
appoint the Partnerships independent auditors and to set the auditors
remuneration. All of the services listed below were pre-approved by the board
of directors. The General Partners appointed KPMG LLP as the Partnerships
independent auditors for the years 2002 and 2003. Aggregate fees for professional services rendered for the Partnership by KPMG
LLP for the years ended December 31, 2003 and 2002 are set forth below: 2003
    
    2002Audit Fees
    
    $
    34,500
    
    
    $
    27,000Audit Related Fees
    
    
    0
    
    
    
    0Tax Fees
    
    
    10,200
    
    
    
    10,000All Other Fees
    
    
    0
    
    
    
    0Total
    
    $
    44,700
    
    
    $
    37,000
 Audit Feesfor the years ended December 31, 2003 and 2002 were for professional
services rendered for the audits of the financial statements of the Partnership
and for the quarterly limited reviews of the financial statements included in
the Partnerships Quarterly Reports on Form 10-Q. Tax Feesfor the years ended December 31, 2003 and 2002 were for professional
services rendered for the Partnerships annual federal and state income tax
returns. Page 13




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PART IV 
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K  (a)
    1.
    Financial Statements - see Index to Financial Statements in Item 8 of this Form 10-K.2.
    Financial Statement Schedule - see Index to
Financial Statements in Item 8 of this Form 10-K.All other schedules have been omitted because they are not
required or the required information is shown in the financial
statements or notes thereto.(b)
    Reports on Form 8-K filed during the last quarter of the fiscal
year:    On October 24, 2003, the Partnership filed Form 8-K reporting
under Item 5 that on October 23, 2003, the Partnership held a
special meeting of limited partners and voted to approve two
proposals described in the definitive proxy materials mailed to limited
partners on or about September 16, 2003.  (c)
    
    Exhibits:  2.1
    
    Voluntary Petition of Shearson-Murray Real Estate
Fund VII, Ltd. to commence a case under Chapter 11 of the
Federal Bankruptcy Code in the United States Bankruptcy Court
for the Western District of Texas-Austin Division, as filed on
June 6, 1989. Reference is made to Exhibit 2a to the
Partnerships Annual Report on Form 10-K filed with the
Securities and Exchange Commission on June 14, 1989.2.2
    
    Modified First Amended Plan of Reorganization of
Shearson-Murray Real Estate Fund VII, Ltd. in the United States
Bankruptcy Court for the Western District of Texas-Austin
Division Case No. 89-11662-LC filed February 20, 1990.
Reference is made to the Partnerships Annual Report on Form
10-K filed with the Securities and Exchange Commission on April
12, 1990.3
    
    Agreement of Limited Partnership of Shearson-Murray
Real Estate Fund VII, Ltd., as amended as of September 30,
1983. Reference is made to Partnerships Form 8-K filed with
the Securities and Exchange Commission on October 26, 1983.
Reference is made to Exhibit A to the Prospectus dated June 10,
1983 contained in Amendment No. 3 to Partnerships Form S-11
Registration Statement filed with the Securities and Exchange
Commission on June 10, 1983.10.1
    
    Assignment and Assumption Agreement between Murray
Management Corporation and Anterra Management Corporation for
property management and leasing services dated January 1, 1990.
Reference is made to Exhibit 10u to the Partnerships Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on May 15, 1990.10.2
    
    Loan Agreement between S/M Real Estate Fund VII, Ltd.
and General Electric Capital Corporation, dated December 3,
1998. Reference is made to Exhibit 10.1 to Partnerships Form
8-K filed with the Securities and Exchange Commission on
December 14, 1998.31.1*
    
    Section 302 Certification of Chief Executive Officer.31.2*
    
    Section 302 Certification of Chief Financial Officer.32.1*
    
    Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.   *
    
    Filed herewith. Page 14




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99.1
    
    Pages A-16 to A-18 of Exhibit A to the Prospectus
dated June 10, 1983, contained in Amendment No. 3 to
Partnerships Form S-11 Registration Statement filed with the
Securities and Exchange Commission on June 10, 1983. Reference
is made to Exhibit 28a to the Partnerships Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
May 12, 1988.99.2
    
    Pages 10-18 of the Prospectus dated June 10, 1983,
contained in Amendment No. 3 to Partnerships Form S-11
Registration Statement filed with the Securities and Exchange
Commission on June 10, 1983. Reference is made to Exhibit 28b
to the Partnerships Annual Report on Form 10-K filed with the
Securities and Exchange Commission on May 12, 1988.99.3
    
    Compromise Settlement Agreement between S/M Real
Estate Fund VII, Ltd. and Federal National Mortgage Association,
dated May 6, 1996. Reference is made to Exhibit 99.1 to the
Partnerships Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 filed with the Securities and Exchange
Commission.99.4
    
    $5,830,000 Multifamily Note and Addendum, dated May
30, 1996. Reference is made to Exhibit 99.2 to the
Partnerships Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 filed with the Securities and Exchange
Commission.99.5
    
    $681,142 Subordinate Multifamily Note and Addendum,
dated May 30, 1996. Reference is made to Exhibit 99.3 to the
Partnerships Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 filed with the Securities and Exchange
Commission.99.6
    
    $6,400,000 Promissory Note, dated December 3, 1998.
Reference is made to Exhibit 99.1 of the Partnerships Form 8-K
filed with the Securities and Exchange Commission on December
14, 1998. Page 15




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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. S/M REAL ESTATE FUND VII, LTD.BY:
    
    SM7 APARTMENT INVESTORS INC.A General Partner
 Date: March 23, 2004 BY:
    
    /s/ Richard E. HoffmannRichard E. HoffmannChief Executive Officer, Director, President and Treasurer
 Page 16




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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following members of the Board of Directors
and officers of SM7 Apartment Investors Inc., a corporate general partner of
the Registrant, on behalf of the Registrant in the capacities and on the dates
indicated. Date: March 23, 2004 BY:
    
    /s/ Richard E. HoffmannRichard E. HoffmannChief Executive Officer, President, Director and Treasurer
 Date: March 23, 2004 BY:
    
    /s/ Lynn D. MaynardLynn D. MaynardExecutive Vice President and Director
 Date: March 23, 2004 BY:
    
    /s/ Sandy RobisonSandy RobisonChief Financial Officer, Vice President,Secretary and Controller
 Page 17




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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following members of the Board of Directors
and officers of Anterra Property Investors VII, Inc., a corporate general
partner of the Registrant, on behalf of the Registrant in the capacities and on
the dates indicated. BY:
    
    CROZIER PARTNERS VII, LTD.A general partnerBY:
    
    ANTERRA PROPERTY INVESTORS VII, INC.,General Partner of Crozier Partners VII, Ltd.Date: March 23, 2004BY:
    
    /s/ Richard E. HoffmannRichard E. HoffmannPresident, Director and TreasurerDate: March 23, 2004BY:
    
    /s/ Lynn D. MaynardLynn D. MaynardExecutive Vice President and Director
 Page 18




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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following members of the Board of Directors
and officers of Murray Realty Investors VII, Inc., a corporate general partner
of the Registrant, on behalf of the Registrant in the capacities and on the
dates indicated. MURRAY REALTY INVESTORS VII, INC.A General PartnerDate: March 23, 2004BY:
    
    /s/ Fulton MurrayFulton MurrayPresident, Chairman of the Board and Director
 Page 19




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INDEX TO EXHIBITS DocumentNumber
    
    Description2.1
    
    Voluntary Petition of Shearson-Murray Real Estate Fund VII, Ltd. to
commence a case under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the Western District of Texas-Austin
Division, as filed on June 6, 1989. Reference is made to Exhibit 2a to
the Partnerships Annual Report on Form 10-K filed with the Securities
and Exchange Commission on June 14, 1989.2.2
    
    Modified First Amended Plan of Reorganization of Shearson-Murray Real
Estate Fund VII, Ltd. In the United States Bankruptcy Court for the
Western District of Texas-Austin Division Case No. 89-11662-LC filed
February 20, 1990. Reference is made to the Partnerships Annual Report
on Form 10-K filed with the Securities and Exchange Commission on April
12, 1990.3
    
    Agreement of Limited Partnership of Shearson-Murray Real Estate Fund
VII, Ltd., as amended as of September 30, 1983. Reference is made to
Partnerships Form 8-K filed with the Securities and Exchange Commission
on October 26, 1983. Reference is made to Exhibit A to the Prospectus
dated June 10, 1983 contained in Amendment No. 3 to Partnerships Form
S-11 Registration Statement filed with the Securities and Exchange
Commission on June 10, 1983.10.1
    
    Assignment and Assumption Agreement between Murray Management
Corporation and Anterra Management Corporation for property management
and leasing services dated January 1, 1990. Reference is made to
Exhibit 10u to the Partnerships Annual Report on Form 10-K filed with
the Securities and Exchange Commission on May 15, 1990.10.2
    
    Loan Agreement between S/M Real Estate Fund VII, Ltd. and General
Electric Capital Corporation, dated December 3, 1998. Reference is made
to Exhibit 10.1 to the Partnerships Form 8-K filed with the Securities
and Exchange Commission on December 14, 1998.31.1*
    
    Section 302 Certification of Chief Executive Officer.31.2*
    
    Section 302 Certification of Chief Financial Officer.32.1*
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2*
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.99.1
    
    Pages A-16 to A-18 of Exhibit A to the Prospectus dated June 10,
1983, contained in Amendment No. 3 to Partnerships Form S-11
Registration Statement filed with the Securities and Exchange Commission
on June 10, 1983. Reference is made to Exhibit 28a to the Partnerships
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on May 12, 1988.99.2
    
    Pages 10-18 of the Prospectus dated June 10, 1983, contained in
Amendment No. 3 to Partnerships Form S-11 Registration Statement filed
with the Securities and Exchange Commission on June 10, 1983. Reference
is made to Exhibit 28b to the Partnerships Annual Report on Form 10-K
filed with the Securities and Exchange Commission on May 12, 1988.
   *
    
    Filed herewith. Page 20




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INDEX TO EXHIBITS (continued) DocumentNumber
    
    Description99.3
    
    Compromise Settlement Agreement between S/M Real Estate Fund VII,
Ltd. and Federal National Mortgage Association, dated May 6, 1996.
Reference is made to Exhibit 99.1 to the Partnerships Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996 filed with the
Securities and Exchange Commission.99.4
    
    $5,830,000 Multifamily Note and Addendum, dated May 30, 1996.
Reference is made to Exhibit 99.2 to the Partnerships Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996 filed with the
Securities and Exchange Commission.99.5
    
    $681,142 Subordinate Multifamily Note and Addendum, dated May 30,
1996. Reference is made to Exhibit 99.3 to the Partnerships Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 filed with the
Securities and Exchange Commission.99.6
    
    $6,400,000 Promissory Note, dated December 3, 1998. Reference is
made to Exhibit 99.1 to the Partnerships Form 8-K filed with the
Securities and Exchange Commission on December 14, 1998.
 Page 21




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INDEPENDENT AUDITORS REPORT The Partners
S/M Real Estate Fund VII, Ltd.: We have audited the financial statements of S/M Real Estate Fund VII, Ltd. (a
Texas Limited Partnership), as listed in the accompanying index at Item 8. In
connection with our audits of the financial statements, we also have audited
the financial statement schedule as listed in the accompanying index at Item 8.
These financial statements and the financial statement schedule are the
responsibility of the Partnerships management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of S/M Real Estate Fund VII, Ltd.
as of December 31, 2003 and 2002, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related 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. KPMG LLP
 Dallas, Texas
February 13, 2004 F-1




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S/M REAL ESTATE FUND VII, LTD. 
 BALANCE SHEETS At December 31,
    
    At December 31,2003
    
    2002AssetsReal estate, at costLand
    
    $
    962,216
    
    
    $
    962,216Buildings and improvements
    
    
    7,972,223
    
    
    
    7,963,8218,934,439
    
    
    
    8,926,037Less accumulated depreciation
    
    
    (7,397,171
    )
    
    
    (7,104,900
    )1,537,268
    
    
    
    1,821,137Cash and cash equivalents
    
    
    117,502
    
    
    
    259,663Cash held in escrow
    
    
    108,506
    
    
    
    82,565Restricted
cash - replacement reserve
    
    
    23,689
    
    
    
    24,156Accounts receivable
    
    
    8,711
    
    
    
    10,133Other assets, net
    
    
    61,407
    
    
    
    89,380Total Assets
    
    $
    1,857,083
    
    
    $
    2,287,034Liabilities and Partners DeficitLiabilities:First mortgage note payable
    
    $
    6,073,060
    
    
    $
    6,148,505Accounts payable:Trade
    
    
    35,118
    
    
    
    21,094Affiliates
    
    
    40,665
    
    
    
    40,665Accrued expenses and other liabilities
    
    
    57,625
    
    
    
    43,405Total Liabilities
    
    
    6,206,468
    
    
    
    6,253,669Partners Deficit:General Partners
    
    
    (130,105
    )
    
    
    (126,278
    )Limited Partners (11,080 units outstanding)
    
    
    (4,219,280
    )
    
    
    (3,840,357
    )Total Partners Deficit
    
    
    (4,349,385
    )
    
    
    (3,966,635
    )Total Liabilities and Partners Deficit
    
    $
    1,857,083
    
    
    $
    2,287,034
 
 STATEMENTS OF PARTNERS DEFICIT For the years ended December 31, 2003, 2002 and 2001
 General
    
    LimitedPartners
    
    Partners
    
    TotalBalance at December 31, 2000
    
    $
    (121,211
    )
    
    $
    (3,338,754
    )
    
    $
    (3,459,965
    )Net Loss
    
    
    (2,064
    )
    
    
    (204,330
    )
    
    
    (206,394
    )Balance at December 31, 2001
    
    $
    (123,275
    )
    
    $
    (3,543,084
    )
    
    $
    (3,666,359
    )Net Loss
    
    
    (3,003
    )
    
    
    (297,273
    )
    
    
    (300,276
    )Balance at December 31, 2002
    
    $
    (126,278
    )
    
    $
    (3,840,357
    )
    
    $
    (3,966,635
    )Net Loss
    
    
    (3,827
    )
    
    
    (378,923
    )
    
    
    (382,750
    )Balance at December 31, 2003
    
    $
    (130,105
    )
    
    $
    (4,219,280
    )
    
    $
    (4,349,385
    )
 See accompanying notes to the
financial statements. F-2




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S/M REAL ESTATE FUND VII, LTD. 
 STATEMENTS OF OPERATIONS For the years ended December 31,
 2003
    
    2002
    
    2001IncomeRental
    
    $
    1,496,756
    
    
    $
    1,402,338
    
    
    $
    1,448,295Interest and other
    
    
    4,687
    
    
    
    6,026
    
    
    
    14,478Total Income
    
    
    1,501,443
    
    
    
    1,408,364
    
    
    
    1,462,773ExpensesProperty operating
    
    
    856,794
    
    
    
    754,234
    
    
    
    707,917Interest
    
    
    443,787
    
    
    
    449,054
    
    
    
    453,954Depreciation and amortization
    
    
    339,045
    
    
    
    430,279
    
    
    
    432,138General and administrative
    
    
    244,567
    
    
    
    75,073
    
    
    
    75,158Total Expenses
    
    
    1,884,193
    
    
    
    1,708,640
    
    
    
    1,669,167Net Loss
    
    $
    (382,750
    )
    
    $
    (300,276
    )
    
    $
    (206,394
    )Net Loss Allocated:To the General Partners
    
    $
    (3,827
    )
    
    $
    (3,003
    )
    
    $
    (2,064
    )To the Limited Partners
    
    
    (378,923
    )
    
    
    (297,273
    )
    
    
    (204,330
    )$
    (382,750
    )
    
    $
    (300,276
    )
    
    $
    (206,394
    )Net Loss Per Limited Partnership Unit(11,080 units outstanding)
    
    $
    (34.20
    )
    
    $
    (26.83
    )
    
    $
    (18.44
    )
 See accompanying notes to the
financial statements. F-3




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S/M REAL ESTATE FUND VII, LTD. 
 STATEMENTS OF CASH FLOWS For the years ended December 31,
 2003
    
    2002
    
    2001Cash Flows From Operating Activities:Net Loss
    
    $
    (382,750
    )
    
    $
    (300,276
    )
    
    $
    (206,394
    )Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    339,045
    
    
    
    430,279
    
    
    
    432,138Increase (decrease) in cash arising from changes
in operating assets and liabilities:Cash held in escrow
    
    
    (25,941
    )
    
    
    (29,516
    )
    
    
    7,821Accounts receivable
    
    
    1,422
    
    
    
    (6,287
    )
    
    
    1,605Other assets
    
    
    21,860
    
    
    
    (37,634
    )
    
    
    (2,151
    )Accounts payable
    
    
    14,024
    
    
    
    7,624
    
    
    
    6,570Accrued expenses and other liabilities
    
    
    14,220
    
    
    
    3,414
    
    
    
    (6,626
    )Net cash (used in) provided by operating activities
    
    
    (18,120
    )
    
    
    67,604
    
    
    
    232,963Cash Flows From Investing Activities:Decrease
(increase) in restricted cash - replacement reserve
    
    
    467
    
    
    
    82,215
    
    
    
    (50,750
    )Additions to real estate
    
    
    (49,063
    )
    
    
    (36,213
    )
    
    
    (37,308
    )Net cash (used in) provided by investing activities
    
    
    (48,596
    )
    
    
    46,002
    
    
    
    (88,058
    )Cash Flows From Financing Activities -
Payments ofprincipal on first mortgage note payable
    
    
    (75,445
    )
    
    
    (70,177
    )
    
    
    (65,277
    )Net (decrease) increase in cash and cash equivalents
    
    
    (142,161
    )
    
    
    43,429
    
    
    
    79,628Cash and cash equivalents, beginning of year
    
    
    259,663
    
    
    
    216,234
    
    
    
    136,606Cash and cash equivalents, end of year
    
    $
    117,502
    
    
    $
    259,663
    
    
    $
    216,234Supplemental Disclosure of Cash Flow Information:Cash paid during the year for interest
    
    $
    443,787
    
    
    $
    449,054
    
    
    $
    453,954
 See accompanying notes to the
financial statements. F-4




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##### Table of Contents



S/M REAL ESTATE FUND VII, LTD. 
 NOTES TO THE FINANCIAL STATEMENTS December 31, 2003, 2002, and 2001
 1. Organization S/M Real Estate Fund VII, Ltd. (the Partnership) (see below) was organized on
November 4, 1982 pursuant to the filing of a Certificate of Limited Partnership
with the Secretary of State of the State of Texas. The Partnership was formed
for the purpose of acquiring existing garden style apartment complexes. The
general partners of the Partnership are SM7 Apartment Investors Inc. (see
below), a Texas corporation, Murray Realty Investors VII, Inc., a Texas
corporation (Murray), and Crozier Partners VII, Ltd., a Texas limited
partnership (collectively referred to as the General Partners). The
Partnership will continue until January 31, 2012, unless sooner terminated in
accordance with the terms of the Partnership Agreement. On June 16, 1998, DA Group Holdings, Inc., a Delaware corporation (DA), and
Anterra Property Investors VIII, Inc., a Texas corporation (Anterra), entered
into a Stock Purchase Agreement (the Stock Agreement). Pursuant to the Stock
Agreement, Anterra purchased from DA all of the issued and outstanding shares
of common stock, $1.00 par value per share, of SM7 Apartment Investors, Inc.
Anterra is an affiliate of Anterra Property Investors VII, Inc., which is a
general partner of Crozier Partners VII, Ltd. On October 23, 2003, the Partnership held a special meeting of limited partners
which approved (1) the sale of the Partnerships final property, Fifth Avenue
Apartments, and amendments of the Partnerships partnership agreement to
disband the Investment Committee and to change the allocation of cash
distributions from sales or refinancings among limited partners and general
partners; and (2) the subsequent dissolution and liquidation of the
Partnership. 2. Liquidity The General Partners currently expect funds from operations to pay all
obligations for 2004, including debt service. In the event of any cash flow
deficits, it is expected that such deficits will be funded by the Partnerships
existing cash balances. However, there can be no assurance that the
Partnership will have sufficient cash to fund such deficits. 3. Significant Accounting Policies Basis of AccountingThe accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America. Income is recognized as
earned and expenses are recorded as obligations are incurred. Real Estate InvestmentThe real estate investment, which consists of land,
apartment buildings, building improvements and furniture, fixtures and
equipment, is recorded at cost less accumulated depreciation. Cost includes the
initial purchase price of the property plus acquisition costs. Depreciation is
computed using the straight-line method based on estimated useful lives of the
related assets ranging from three to twenty-one years. In accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets, the Partnership
property is classified as held for sale at December 31, 2003 and was classified
as held for use at December 31, 2002. In accordance with SFAS No. 144, assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated. Therefore, the
Partnership ceased depreciation of the asset as of October 23, 2003, the date
the asset was determined to be held for sale. Impairment of Long-Lived AssetsThe Partnership property is classified as held
for sale at December 31, 2003 and was classified as held for use at December
31, 2002. In accordance with SFAS No. 144, at December 31, 2003, as the
property is being held for sale, the property is being reported at the lower of
the carrying amount or fair value less costs to sell, and is no longer being
depreciated. At December 31, 2002, the Partnership assessed its real estate
investment for impairment whenever events or changes in circumstances indicated
that the carrying amount of the real estate would not be recoverable.
Recoverability of real estate to be held and used was measured by a comparison
of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate was considered to be impaired, the impairment to be
recognized was measured by the amount by which the carrying amount of the real
estate exceeded the fair value of the real estate. No impairment was
recognized during 2003 or 2002. F-5




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##### Table of Contents



S/M REAL
ESTATE FUND VII, LTD. Lease RevenueThe Partnership has determined that all leases associated with
the rental of space at the investment property are operating leases. Leases on
the Partnerships property typically have a term of eighteen months or less. Cash and Cash EquivalentsCash and cash equivalents consist of short-term
highly liquid investments which have maturities of three months or less from
the date of issuance. The carrying value approximates fair value because of
the short maturity of these instruments. Income TaxesThe Partnership distributes all profits, losses and other taxable
items to the individual partners. No income taxes are reflected in the
financial statements of the Partnership since such taxes are the responsibility
of the partners rather than the Partnership. Net Loss Per Limited Partnership InterestNet loss per limited partnership
interest is based upon the limited partnership interests outstanding during the
year and the net loss allocated to the limited partners (the Limited
Partners). Use of EstimatesThe preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates. Fair Value of Financial InstrumentsStatement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments(SFAS
107), requires that the Partnership disclose the estimated fair values of its
financial instruments. Fair values generally represent estimates of amounts at
which a financial instrument could be exchanged between willing parties in a
current transaction other than in forced liquidation. Fair value estimates are subjective and are dependent on a number of
significant assumptions based on managements judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, SFAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult. 4. Partnership Agreement Pursuant to the terms of the Partnership Agreement, all items of income, gain,
loss, deduction and credit are generally allocated 1% to Crozier Partners VII,
Ltd. and 99% to the Limited Partners except that: (a) first, income and net
gain shall be allocated to the General Partners and the Limited Partners pro
rata based on and to the extent of their respective deficit balances in their
capital accounts in an amount sufficient to cause the aggregate deficits in the
Partners capital accounts to not exceed the Minimum Gain (as defined), (b) net
gain shall then be allocated: (i) to the Limited Partners in an amount
sufficient to cause each Limited Partners capital account to equal its
unreturned Original Invested Capital plus any unpaid Preferred Return (as
defined); and (ii) then, to the Limited Partners and the General Partners in
the proportion between them of 85% to the Limited Partners and 15% to the
General Partners. Cash distributions from operations, as defined, will be allocated 1% to Crozier
Partners VII, Ltd. and 99% to the Limited Partners. As amended, cash
distributions from sales or refinancings of property will be allocated 93% to
the Limited Partners, 1% to Crozier Partners VII, Ltd., and 6% to SM7 Apartment
Investors, Inc. until the Limited Partners have received an amount from cash
distributions from sales or refinancings of property equal to their Original
Invested Capital plus their Preferred Return (as defined). Next, cash
distributions from the sale or refinancing of property will be allocated 1% to
Crozier Partners VII, Ltd., and 99% to the Limited Partners and the General
Partners in the proportions between them of 85% to the Limited Partners and 15%
to the General Partners. 5. Real Estate Investments On July 29, 1983, the Partnership acquired Fifth Avenue Apartments (Fifth
Avenue), a 198-unit apartment complex located in San Antonio, Texas. As of
December 31, 2003 and 2002, Fifth Avenue was 96% and 94% occupied,
respectively. F-6




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##### Table of Contents



S/M REAL ESTATE FUND
VII, LTD. 6. Mortgage Notes Payable Under the terms of the Partnerships loan agreement with General Electric
Capital Corporation (the Loan Agreement), the Partnership is required to make
fixed monthly payments of principal and interest in the amount of $43,269 until
maturity on January 1, 2009, at which time the entire outstanding principal
balance and accrued interest is due. Interest accrues at an annual fixed interest rate of 7.16%. Under the terms
of the Loan Agreement, the Partnership is required to make monthly
contributions of $3,905 which are held by the lender pending application for
the completion of certain required repairs to the Fifth Avenue property. At
December 31, 2003, the balance in this replacement reserve account was $23,689. The following represents principal payments required under the Loan Agreement
subsequent to December 31, 2003: Year ending December 31,2004
    
    $
    81,1072005
    
    
    87,1952006
    
    
    93,7402007
    
    
    100,7762008
    
    
    108,3402009
    
    
    5,601,902$
    6,073,060
 Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar terms and average maturities, the fair value of
long-term debt is $6,339,000 at December 31, 2003. As of December 31, 2002,
the fair value of long-term debt was $6,382,000. 7. Transactions with Related Parties During the years ended December 31, 2003, 2002 and 2001, the General Partners
or their affiliates were reimbursed for Partnership administrative and
operating expenses, excluding property management fees, in the amounts of
$10,968, $11,641 and $11,681, respectively. On January 1, 1990, Murray Management Corporation subcontracted Anterra
Management Corporation to provide certain administrative and management
services with respect to the Partnership. Anterra Management Corporation is a
real estate management company and an affiliate of the general partners, and
earned property management fees of $58,020, $56,205 and $57,867 for the years
ended December 31, 2003, 2002 and 2001, respectively. F-7




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##### Table of Contents



S/M REAL ESTATE FUND
VII, LTD. 8. Selected Quarterly Financial Data (unaudited) Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations. Selected
quarterly financial data are summarized as follows (dollars in thousands,
except per Interest data): Quarter Ended
    
    03/31
    
    06/30
    
    09/30
    
    12/312003Total Income
    
    $
    345
    
    
    $
    360
    
    
    $
    368
    
    
    $
    428Net (Loss) Income
    
    
    (125
    )
    
    
    (113
    )
    
    
    (155
    )
    
    
    10Net (Loss) Income per Limited Partnership Interest
    
    
    (11.13
    )
    
    
    (10.06
    )
    
    
    (13.84
    )
    
    
    .832002Total Income
    
    $
    357
    
    
    $
    366
    
    
    $
    342
    
    
    $
    343Net Loss
    
    
    (56
    )
    
    
    (49
    )
    
    
    (94
    )
    
    
    (101
    )Net Loss per Limited Partnership Interest
    
    
    (5.04
    )
    
    
    (4.38
    )
    
    
    (8.38
    )
    
    
    (9.02
    )
 F-8




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##### Table of Contents



S/M REAL ESTATE FUND
VII, LTD. 9. Reconciliation of Financial Statement Net Loss and Partners Deficit to
Federal
Income Tax Basis Net Income (Loss) and Partners Deficit The following is a reconciliation of the net loss for financial statement
purposes to federal income tax basis net income (loss) for the years ended
December 31, 2003, 2002 and 2001: 2003
    
    2002
    
    2001Net loss for financial statements purposes
    
    $
    (382,750
    )
    
    $
    (300,276
    )
    
    $
    (206,394
    )Financial statement depreciation over tax
basis depreciation
    
    
    269,679
    
    
    
    370,684
    
    
    
    381,787Federal income tax basis loss on retirement of assets over
financial statement loss on retirement of assets
    
    
    (36,315
    )
    
    
    (10,927
    )
    
    
    (5,311
    )Other
    
    
    15,402
    
    
    
    2,862
    
    
    
    (2,652
    )Federal income tax basis net loss under financial
statement net loss
    
    
    248,766
    
    
    
    362,619
    
    
    
    373,824Federal income tax basis net income (loss)
    
    $
    (133,984
    )
    
    $
    62,343
    
    
    $
    167,430
 Reconciliation of financial statement partners deficit to federal income tax
basis partners deficit for the years ended December 31, 2003, 2002 and 2001: 2003
    
    2002
    
    2001Financial statement basis partners deficit
    
    $
    (4,349,385
    )
    
    $
    (3,966,635
    )
    
    $
    (3,666,359
    )Current year federal income tax basis net loss
under financial statement net loss
    
    
    248,766
    
    
    
    362,619
    
    
    
    373,824Cumulative federal income tax basis net loss
over financial statement net loss
    
    
    (196,377
    )
    
    
    (558,996
    )
    
    
    (932,820
    )Federal income tax basis partners deficit
    
    $
    (4,296,996
    )
    
    $
    (4,163,012
    )
    
    $
    (4,225,355
    )
 Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities. F-9




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##### Table of Contents



S/M REAL ESTATE FUND
VII, LTD. Schedule III - Real Estate and Accumulated Depreciation December 31, 2003 Fifth AvenueApartmentsOffice Buildings:Location
    
    San Antonio, TXDate of construction
    
    
    1982Acquisition date
    
    
    1983Life on which depreciation
in latest income statements
is computed
    
    3-21 yearsEncumbrances
    
    $
    6,073,060Initial cost to Partnership (1):Land
    
    
    962,216Building and
improvements
    
    
    7,512,710Costs capitalized
subsequent to acquisition:Land, buildings
and improvements
    
    
    718,359Retirements
    
    
    (258,846
    )Gross amount at which
carried at close of period (2):Land
    
    $
    962,216Building and
improvements
    
    
    7,972,223$
    8,934,439Accumulated depreciation (3)
    
    $
    7,397,171
 (1) The initial cost to the Partnership represents the original purchase price
of the property. (2) The aggregate cost of real estate at December 31, 2003 and 2002 and 2001,
for Federal income tax purposes is $9,143,390, $9,134,988 and $9,142,503,
respectively. (3) In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets, at December 31, 2003 the property is disclosed as held for sale and
depreciation ceased subsequent to the approval of the sale of the property on
October 23, 2003. A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended
December 31, 2003, 2002, and 2001 follows: 2003
    
    2002
    
    2001Real estate investments:Beginning of year
    
    $
    8,926,037
    
    
    $
    8,933,552
    
    
    $
    8,906,367Additions
    
    
    49,063
    
    
    
    36,213
    
    
    
    37,308Retirements
    
    
    (40,661
    )
    
    
    (43,728
    )
    
    
    (10,123
    )End of year
    
    $
    8,934,439
    
    
    $
    8,926,037
    
    
    $
    8,933,552Accumulated depreciation:Beginning of year
    
    $
    7,104,900
    
    
    $
    6,724,462
    
    
    $
    6,308,560Depreciation expense
    
    
    332,932
    
    
    
    424,166
    
    
    
    426,025Retirements
    
    
    (40,661
    )
    
    
    (43,728
    )
    
    
    (10,123
    )End of year
    
    $
    7,397,171
    
    
    $
    7,104,900
    
    
    $
    6,724,462
 F-10