<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                             ----------------------
                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                       -----------------------------------

                   For the Fiscal Year Ended DECEMBER 31, 2000

                             Commission File Number
                                     0-13810
                                     -------

                       REAL ESTATE ASSOCIATES LIMITED VII

                        A CALIFORNIA LIMITED PARTNERSHIP

                  I.R.S. Employer Identification No. 95-3290316

         9090 WILSHIRE BLVD., SUITE 201, BEVERLY HILLS, CALIFORNIA 90211

        Registrant's Telephone Number, Including Area Code (310) 278-2191

      Securities Registered Pursuant to Section 12(b) or 12(g) of the Act:

                                      NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed with the Commission by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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]


<PAGE>   2

PART I.

ITEM 1. BUSINESS

Real Estate Associates Limited VII ("REAL VII" or the "Partnership") is a
limited partnership which was formed under the laws of the State of California
on May 24, 1983. On February 1, 1984, the Partnership offered 2,600 units
consisting of 10,400 limited partnership interests and warrants to purchase a
maximum of 5,200 additional limited partnership interests through a public
offering managed by E.F. Hutton Inc.

The general partners of the Partnership are National Partnership Investments
Corp. ("NAPICO"), a California Corporation (the "Corporate General Partner"),
and National Partnership Investments Associates II ("NAPIA II"). NAPIA II is a
limited partnership formed under the California Limited Partnership Act and
consists of Mr. Charles H. Boxenbaum and two unrelated individuals as limited
partners. The business of the Partnership is conducted primarily by NAPICO.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc., a real
estate investment trust organized by Alan I. Casden, purchased a 95.25% economic
interest in NAPICO. The current members of NAPICO's Board of Directors are
Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden.

The Partnership holds limited partnership interests in 21 local limited
partnerships as of December 31, 2000. The Partnership also holds a general
partner interest in Real Estate Associates IV ("REA IV") which, in turn, holds
limited partnership interests in 15 additional local limited partnerships;
therefore, the Partnership holds interests, either directly or indirectly
through REA IV, in 36 local limited partnerships. The other general partner of
REA IV is NAPICO. In December 1998, the Partnership sold its interest in 11
local limited partnerships to the Operating Partnership. Each of the local
partnerships owns a low income housing project which is subsidized and/or has a
mortgage note payable to or is insured by agencies of the federal or local
government.

In order to stimulate private investment in low income housing, the federal
government and certain state and local agencies have provided significant
ownership incentives, including among others, interest subsidies, rent
supplements, and mortgage insurance, with the intent of reducing certain market
risks and providing investors with certain tax benefits, plus limited cash
distributions and the possibility of long-term capital gains. There remain,
however, significant risks. The long-term nature of investments in government
assisted housing limits the ability of the Partnership to vary its portfolio in
response to changing economic, financial, and investment conditions. Such
investments are also subject to changes in local economic circumstances and
housing patterns, as well as rising operating costs, vacancies, rent collection
difficulties, energy shortages, and other factors which have an impact on real
estate values. These projects also require greater management expertise and may
have higher operating expenses than conventional housing projects.

Under recently adopted law and policy, the United States Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which was
adopted in October 1997, provides for the restructuring of mortgage loans
insured by the FHA with respect to properties subject to the Section 8 program.
Under


<PAGE>   3

MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage
loan which will be amortized on a current basis and a low interest second
mortgage loan payable to FHA which will only be payable on maturity of the first
mortgage loan. This restructuring results in a reduction in annual debt service
payable by the owner of the FHA-insured mortgage loan and is expected to result
in an insurance payment from FHA to the holder of the FHA-insured loan due to
the reduction in the principal amount. MAHRAA also phases out project-based
subsidies on selected properties serving families not located in rental markets
with limited supply, converting such subsidies to a tenant-based subsidy.

When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.

The partnerships in which the Partnership has invested are principally existing
local limited partnerships. The Partnership became the limited partner in these
local limited partnerships pursuant to arm's-length negotiations with the local
partnership's general partners who are often the original project developers. In
certain other cases, the Partnership invested in newly formed local partnerships
which, in turn, acquired the projects. As a limited partner, the Partnership's
liability for obligations of the local limited partnership is limited to its
investment. The local general partner of the local limited partnership retains
the responsibility of maintaining, operating and managing the project. Under
certain circumstances of default, the Partnership has the right to replace the
general partner of the local limited partnerships, but otherwise does not have
control of sale, refinancing, etc.

Although each of the partnerships in which the Partnership has invested will
generally own a project which must compete in the market place for tenants,
interest subsidies and rent supplements from governmental agencies make it
possible to offer these dwelling units to eligible "low income" tenants at a
cost significantly below the market rate for comparable conventionally financed
dwelling units in the area.


<PAGE>   4

During 2000, all of the projects in which the Partnership had invested were
substantially rented. The following is a schedule of the status, as of December
31, 2000, of the projects owned by local partnerships in which the Partnership,
either directly or indirectly through REA IV, has invested.


            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS AN INVESTMENT
                                DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                   Units Authorized
                                      For Rental
                                   Assistance Under
                                    Section 8 or
                                     Other Rent               Percentage of
                          No. of      Supplement      Units    Total Units
Name and Location          Units       Program       Occupied   Occupied
-----------------         ------   ----------------  -------- -------------
<S>                       <C>      <C>               <C>      <C>
Aristocrat Manor            114         114/0          53          46%
  Hot Springs, AR

Arkansas City Apts           16          0/12           9          56%
  Arkansas City, AR

Bellair Manor Apts           68          68/7          68         100%
  Niles, OH

Birch Manor Apts. I          60          60/0          55          92%
  Medina, OH

Birch Manor Apts II          60          60/0          58          97%
  Medina, OH

Bluewater Apts              116          None         110          95%
  Port Huron, MI

Clarkwood Apts. I            72          28/0          67          93%
  Elyria, OH

Clarkwood Apts. II          120         120/0         114          95%
  Elyria, OH

Cleveland Apts. I            50          50/0          50         100%
  Hayti, MO

Cleveland Apts. II           50          50/0          50         100%
  Hayti, MO

Cleveland Apts. III          21          21/0          21         100%
  Hayti, MO
</TABLE>


<PAGE>   5

            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS AN INVESTMENT
                                DECEMBER 31, 2000
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                       Units Authorized
                                         For Rental
                                       Assistance Under
                                         Section 8 or
                                          Other Rent              Percentage of
                              No. of      Supplement     Units     Total Units
Name and Location              Units       Program      Occupied    Occupied
-----------------             ------   ---------------- --------  -------------
<S>                           <C>      <C>              <C>       <C>
Danbury Park Manor              151          86/0         144          95%
  Superior Township, MI

Desoto Apts                      42          42/0          42         100%
  Desoto, MO

Dexter Apts                      50          50/0          48          96%
  Dexter, MO

Edgewood Terrace II             258         103/0         251          97%
  Washington, DC

Goodlette Arms Apts             250         250/0         248          99%
  Naples, FL

Hampshire House                 150         150/0         146          97%
  Warren, OH

Henrico Arms                    232         232/0         232         100%
  Richmond, VA

 Ivywood Apts                   124         124/0         121          98%
   Columbus, OH

 Jasper County Prop              24          24/0          22          92%
   Heidelberg, MS

 Nantucket Apts                  60          59/0          57          95%
   Alliance, OH

 Newton Apts                     36          None          27          75%
   Newton, MS

 Oak Hill Apts                  120         120/0         117          97%
   Franklin, PA

 Oakview Apts                    32           0/7          31          97%
   Monticello, AR
</TABLE>


<PAGE>   6

            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS AN INVESTMENT
                                DECEMBER 31, 2000
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                         Units Authorized
                                           For Rental
                                         Assistance Under
                                           Section 8 or
                                            Other Rent                   Percentage of
                              No. of        Supplement        Units       Total Units
Name and Location              Units         Program        Occupied       Occupied
-----------------             ------     ----------------   --------     -------------
<S>                           <C>        <C>                <C>          <C>
Oakwood Park I Apts               50             50/0            50           100%
  Lorain, OH

Oakwood Park II Apts              78             None            78           100%
  Lorain, OH

Pachuta Apartments                16             0/16            15            94%
  Pachuta, MS

Parkway Towers Apt               104            104/0           101            97%
  E. Providence, RI

Pebbleshire Apts                 120             24/0           116            97%
  Vernon Hills, IL

Rand Grove Village               212            212/0           202            95%
  Palatine, IL

Richards Park Apts                60             24/0            57            95%
  Elyria, OH

Shubuta Properties                16             0/16            14            88%
  Shubuta, MS

South Glen Apts                  159             14/0           157            99%
  Trenton, MI

Tradewinds East                  150             30/0           144            96%
  Essexville, MI

Warren Heights Apts II            88             88/0            87            99%
  Warren, OH

Yorkview Estates                  50             50/0            49            98%
  Massillon, OH
                               -----         --------         -----
  TOTAL                        3,379         2,407/58         3,206            95%
                               =====         ========         =====
</TABLE>


<PAGE>   7

ITEM 2. PROPERTIES

The local limited and general partnerships in which REAL VII holds interests own
various multi-family rental properties. See Item 1 for information pertaining to
these properties.

ITEM 3. LEGAL PROCEEDINGS

On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the managing general partner) and two investors
holding an aggregate of five units of limited partnership interest in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the defendants
breached their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the consent
solicitation statements sent to the limited partners of such partnerships
relating to approval of the transfer of partnership interests in limited
partnerships, owning certain of the properties, to the Operating Partnership
organized by an affiliate of NAPICO. The plaintiffs seek equitable relief, as
well as compensatory damages and litigation related costs. On August 4, 1999,
one investor holding one unit of limited partnership interest in Housing
Programs Limited (another affiliated partnership in which NAPICO is the managing
general partner) commenced a virtually identical action in the United States
District Court for the Central District of California against the Partnership,
NAPICO and certain other affiliated entities. The second action has been
subsumed in the first action, which has been certified as a class action. The
managing general partner of such NAPICO managed partnerships and the other
defendants believe that the plaintiffs' claims are without merit and intend to
contest the actions vigorously.

As of December 31, 2000, the Partnership's Corporate General Partner was a
plaintiff or defendant in several lawsuits. None of these suits were related to
REAL VII.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests, held for investment by the Partnership, by a real estate
investment trust organized by an affiliate of NAPICO, together with certain
amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the proposed transaction. Prior to the
sale of the partnership interests in 1998, the consents of the limited partners
to the sale and amendments to the Partnership Agreement were obtained.

PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY
HOLDER MATTERS.

The Limited Partnership Interests are not traded on a public exchange but were
sold through a public offering managed by E.F. Hutton Inc. It is not anticipated
that any public market will develop for the purchase and sale of any partnership
interest. Limited Partnership Interests may be transferred only if certain
requirements are satisfied. At December 31, 2000, there were 3,175 registered
holders of units in the Partnership. The Partnership has invested in certain
government assisted projects under programs which in many instances restrict the
cash return available to project owners. The Partnership was not designed to
provide cash distributions to investors in circumstances other than refinancing
or disposition of its investments in limited partnerships. In March 1999, the
Partnership made a distribution of $272,250 to the limited partners and $2,750
to the general partners, using proceeds from the sale of the partnership
interests. No other distributions have been made from the inception of the
Partnership.


<PAGE>   8

ITEM 6. SELECTED FINANCIAL DATA:

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                               ----------------------------------------------------------------------------------------
                                   2000               1999               1998               1997                1996
                               ------------       ------------       ------------       ------------       ------------
<S>                            <C>                <C>                <C>                <C>                <C>
Loss From Operations           $ (2,324,547)      $ (2,402,772)      $ (3,639,747)      $ (3,472,967)      $ (3,240,566)

Gain on Sale of Limited
   Partnership Interests                 --                 --          7,132,262                 --                 --

Distributions From
   Limited Partnerships
   Recognized as Income             260,566            357,404            199,985            234,084             63,515

Equity in Loss of Limited
   Partnerships and
   Amortization of
   Acquisition Costs                 10,162           (145,660)        (9,496,388)           (61,791)          (243,392)
                               ------------       ------------       ------------       ------------       ------------
Net Loss                       $ (2,053,819)      $ (2,191,028)      $ (5,803,888)      $ (3,300,674)      $ (3,420,443)
                               ============       ============       ============       ============       ============

Net Loss per Limited
   Partnership Interest        $        (98)      $       (104)      $       (276)      $       (157)      $       (163)
                               ============       ============       ============       ============       ============

Total assets                   $    355,164       $    335,843       $    794,295       $ 17,422,816       $ 18,321,519
                               ============       ============       ============       ============       ============

Investments in Limited
   Partnerships                $    149,626       $    239,464       $    359,566       $ 16,870,487       $ 17,873,759
                               ============       ============       ============       ============       ============

Notes Payable                  $ 17,424,501       $ 17,424,501       $ 17,424,501       $ 24,869,501       $ 24,869,501
                               ============       ============       ============       ============       ============

Fees and Expenses Due to
   General Partner             $  5,506,492       $  5,006,313       $  4,506,134       $  3,762,494       $  3,213,854
                               ============       ============       ============       ============       ============
</TABLE>


<PAGE>   9

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

LIQUIDITY

The Partnership's primary sources of funds include interest income on money
market funds and certificates of deposit and distributions from local
partnerships in which the Partnership has invested. It is not expected that any
of the local partnerships in which the Partnership has invested will generate
cash flow sufficient to provide for distributions to the Partnership's limited
partners in any material amount. The Partnership made a cash distribution to
investors in March 1999, using proceeds from the disposition of its investments
in certain limited partnerships.

CAPITAL RESOURCES

The Partnership received $39,000,000 in subscriptions for units of limited
partnership interests (at $5,000 per unit) during the period March 7, 1984 to
June 11, 1985, pursuant to a registration statement on Form S-11.

RESULTS OF OPERATIONS

The Partnership was formed to provide various benefits to its partners as
discussed in Item 1. It is anticipated that the local limited partnerships in
which REAL VII has invested could produce tax losses for as long as 20 years.
Tax benefits will decline over time as the advantages of accelerated
depreciation are greatest in the earlier years, as deductions for interest
expense will decrease as mortgage principal is amortized and as the Tax Reform
Act of 1986 limits the deductions available.

At December 31, 2000, the Partnership has investments in 36 limited
partnerships, all of which own housing projects that were substantially all
rented. The Partnership sold its interests in 11 local partnerships in December
1998. The Partnership, as a limited partner, is entitled to 98% to 99% of the
profits and losses of the local limited partnerships. The Partnership accounts
for its investments in the local limited partnerships on the equity method,
thereby adjusting its investment balance by its proportionate share of the
income or loss of the local limited partnerships. Equity in losses of limited
partnerships are recognized in the financial statements until the limited
partnership investment account is reduced to a zero balance. Losses incurred
after the limited partnership investment account is reduced to zero are not
recognized. Limited partners are not liable for losses beyond their contributed
capital.

Distributions received from limited partnerships are recognized as return of
capital until the investment balance has been reduced to zero or to a negative
amount equal to future capital contributions required. Subsequent distributions
received are recognized as income.

The total income (loss) from the local partnerships that were allocated to the
Partnership was $28,000, $289,000 and ($527,000) for the years ended December
31, 2000, 1999 and 1998, respectively. However, because losses incurred after
the investment account is reduced to a zero balance are not recognized, the
Partnership recognized equity in income (loss) of limited partnerships of
$10,162, $(145,660) and $61,964 for the years ended December 31, 2000, 1999 and
1998, respectively. In addition, the loss recorded by the Partnership in 1998
includes impairment losses of $9,558,352 recognized on the carrying values of
certain investments in local limited partnerships in 1998.  The cumulative
amount of the unrecognized equity in losses of certain limited partnerships was
approximately $10,427,000 and $9,741,000 as of December 31, 2000 and 1999,
respectively.


<PAGE>   10

Distributions from the local limited partnerships in which the Partnership did
not have a positive investment balance were $260,566, $357,404 and $199,985 for
the years ended December 31, 2000, 1999 and 1998, respectively. These amounts
were recognized as income on the accompanying statements of operations, in
accordance with the equity method of accounting. As a result of the impairment
losses recognized in 1998, there were more local limited partnerships with no
positive partner investment balance, which caused those types of distributions
to increase.

As of December 31, 2000, 1999 and 1998, the Partnership has cash and cash
equivalents of $205,538, $96,379 and $0, respectively. Substantially all of
these amounts are on deposit primarily with high credit quality financial
institutions, earning interest. This resulted in the Partnership earning $4,718,
$2,723 and $18,004 in interest income for the years ended December 31, 2000,
1999 and 1998, respectively. The amount of interest income varies with market
rates available on investments and with the amount of funds available for
investment. Cash equivalents can be converted to cash to meet obligations of the
Partnership as they arise. The Partnership intends to continue investing
available funds in this manner.

The Partnership is obligated on non-recourse notes payable of $17,424,501 at
December 31, 2000 and 1999, which bear interest at 9.5 percent to 10 percent per
annum and have principal maturities ranging from August 1999 to January 2002.
The notes and related interest are payable from cash flow generated from
operations of the related rental properties as defined in the notes. These
obligations are collateralized by the Partnership's investments in the limited
partnerships.  Unpaid interest is due at maturity of the notes. Because the
Partnership was relieved of certain notes at the end of 1998 in connection with
the sale of the limited partnership interests, interest expense has decreased
from $2,329,415 for 1998, to $1,652,605 for 2000 and 1999.

A recurring partnership expense is the annual management fee. The fee is payable
to the Corporate General Partner of the Partnership and is calculated at .5
percent of the Partnership's original remaining invested assets. The management
fee is paid to the Corporate General Partner for its continuing management of
partnership affairs. The fee is payable beginning with the month following the
Partnership's initial investment in a local limited partnership. Because of the
decrease in invested assets at the end of 1998 as a result of the sale of
partnership interests, management fees decreased from $743,640 for 1998, to
$500,179 for 2000 and 1999.

Under recently adopted law and policy, the United States Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which was
adopted in October 1997, provides for the restructuring of mortgage loans
insured by the FHA with respect to properties subject to the Section 8 program.
Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first
mortgage loan which will be amortized on a current basis and a low interest
second mortgage loan payable to FHA which will only be payable on maturity of
the first mortgage loan. This restructuring results in a reduction in annual
debt service payable to the owner of the FHA-insured mortgage loan and is
expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA also
phases out project-based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such subsidies to a
tenant-based subsidy.


<PAGE>   11

When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure their mortgage indebtedness under MAHRAA. In
addition, the economic impact on the Partnerships of the combination of the
reduced payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.

As a result of the foregoing, the Partnership, in 1997, undertook an extensive
review of disposition, refinancing or re-engineering alternatives for the
properties in which the limited partnerships have invested and are subject to
HUD mortgage and rental subsidy programs. The Partnership has incurred expenses
in connection with this review by various third party professionals, including
accounting, legal, valuation, structural and engineering costs, which amounted
to $50,730 and $327,951 for the years ended December 31, 1999 and 1998, and are
included in general and administrative expenses.

On December 30, 1998, the Partnership sold its limited partnership interests in
11 local limited partnerships with a total carrying value of $6,588,686 to the
Operating Partnership. The sale resulted in proceeds to the Partnership of
$400,000 and a net gain of $7,132,262, after being relieved of notes and
interest payable of $13,515,691 and incurring selling costs of $194,743. The
cash proceeds were held in escrow at December 31, 1998, and were collected in
1999. In March 1999, the Partnership made cash distributions of $272,250 to the
limited partners and $2,750 to the general partners, using proceeds from the
sale of the partnership interests.

The Operating Partnership purchased such limited partner interests for cash,
which it raised in connection with a private placement of its equity securities.
The purchase was subject to, among other things, (i) the purchase of the general
partner interests in the local limited partnerships by the Operating
Partnership; (iii) the approval of HUD and certain state housing finance
agencies; and (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by the Partnership.

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the proposed transaction. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.

Operating expenses, other than interest expense and management fees, consist of
legal and accounting fees for services rendered to the Partnership and general
and administrative expenses. Legal and accounting fees were generally consistent
and were $104,738, $118,460 and $125,129 for the years ended December 31, 2000,
1999 and 1998, respectively. General and administrative expenses were $71,743,
$134,251 and $459,567 for the years ended December 31, 2000, 1999 and 1998,
respectively. Included in administrative expenses are reimbursements to NAPICO
for certain expenses, which totaled $7,370, $16,920 and $46,979 for the years
ended December 31, 2000, 1999 and 1998, respectively. Also included in general
and administrative expenses for 2000, 1999 and 1998 is $50,730 and $327,951,
respectively, related to the aforementioned third party reviewed of the
properties owned by the local partnerships. Accounts payable at December 31,
1998 includes $33,882 of such costs.

Revenues and expenses of the local limited partnerships decreased during the
year ended December 31, 2000, as compared to prior years, as a result of the
sale of 11 partnership interests on December 30, 1998.

Total revenue for the local partnerships has decreased from $28,239,000 for the
year ended December 31, 1998, to $20,077,000 and $19,626,000 for the years ended
December 31, 2000 and 1999, respectively.


<PAGE>   12

Total expenses for the local partnerships decreased from $29,421,000 for the
year ended December 31, 1998, to $20,693,000 and $19,980,000 for the years ended
December 31, 2000 and 1999, respectively.

The total net loss for the local partnerships for 2000, 1999 and 1998 aggregated
$616,000, $354,000 and $1,182,000, respectively. The income (losses) allocated
to the Partnership were $28,000, $289,000 and ($527,000) for 2000, 1999 and
1998, respectively.

The Partnership, as a limited partner in the local partnerships in which it has
invested, is subject to the risks incident to the construction, management and
ownership of improved real estate. The Partnership investments are also subject
to adverse general economic conditions and, accordingly, the status of the
national economy, including substantial unemployment, concurrent inflation and
changing legislation, could increase vacancy levels, rental payment defaults and
operating expenses, which in turn, could substantially increase the risk of
operating losses for the projects.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership is exposed to market risk primarily due to fluctuations in
interest rates. Specifically, the Partnership is subject to market risk
resulting from fluctuations in the general level of U.S. interest rates as the
Partnership's debt of $17,424,501 is based on a weighted average fixed rate of
9.6% per annum. As a result, the Partnership will be obligated to pay
contractually agreed upon rates of interest on its fixed rate debt, unless
management refinances its existing fixed rate debt and potentially incur
substantial prepayment penalties.

The following table provides information about the Partnership's interest rate
sensitive financial instruments, including, amounts due at maturity, principal
amortization, weighted average interest rates and fair market values as of
December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                                                                   Fair Market
                                              2001            2002       2003   2004  Thereafter     Total            Value
                                              ----            ----       ----   ----  ----------     -----         -----------
<S>                                      <C>               <C>           <C>    <C>   <C>        <C>               <C>
Interest Rate Sensitive Liabilities:

    Fixed Rate Debt                      $  15,834,000     $1,590,501     00     00      00      $  17,424,501      $17,424,501
         Weighted Average
       Interest Rate                               9.6%            10%    00     00      00                9.6%              00
</TABLE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements and Supplementary Data are listed under Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.


<PAGE>   13



                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A California limited partnership)

                              FINANCIAL STATEMENTS,
                          FINANCIAL STATEMENT SCHEDULES
                   AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
                                DECEMBER 31, 2000



<PAGE>   14

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Real Estate Associates Limited VII
(A California limited partnership)

We have audited the accompanying balance sheets of Real Estate Associates
Limited VII (a California limited partnership) as of December 31, 2000 and 1999,
and the related statements of operations, partners' deficiency and cash flows
for each of the three years in the period ended December 31, 2000. Our audits
also included the financial statement schedules listed in the index in Item 14.
These financial statements and financial statement schedules are the
responsibility of the management of the Partnership. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits. We did not audit the financial statements of
certain limited partnerships, the investments in which are reflected in the
accompanying financial statements using the equity method of accounting. The
equity in loss of these limited partnerships represents 1 percent of the total
net loss of the Partnership for the year ended December 31, 1998, and these
limited partnerships represent a substantial portion of the investee information
in Note 2 and the financial statement schedules. The financial statements of
these limited partnerships were audited by other auditors. Their reports have
been furnished to us and our opinion, insofar as it relates to the amounts
included for these limited partnerships, is based solely on the reports of the
other auditors.

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 our audits and the reports of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Real Estate Associates Limited VII as of December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, based on our audits and the reports of other auditors, such
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 3 to the
financial statements, the Partnership's recurring losses from operations,
partners' deficiency and past due notes and related accrued interest payable of
$38,552,436 raise substantial doubt about the Partnership's ability to continue
as a going concern. Management's plans concerning these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



DELOITTE & TOUCHE LLP

Los Angeles, California
March 28, 2001


<PAGE>   15

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                                 BALANCE SHEETS

                           DECEMBER 31, 2000 AND 1999

                                     ASSETS

<TABLE>
<CAPTION>
                                                              2000               1999
                                                          ------------       ------------
<S>                                                       <C>                <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)              $    149,626       $    239,464

CASH                                                           205,538             96,379
                                                          ------------       ------------

          TOTAL ASSETS                                    $    355,164       $    335,843
                                                          ============       ============


                           LIABILITIES AND PARTNERS' DEFICIENCY

LIABILITIES:
     Notes payable (Note 3)                               $ 17,424,501       $ 17,424,501
     Accrued interest payable (Note 3)                      25,147,770         23,588,625
     Accrued fees and expenses
        due general partner (Note 4)                         5,506,492          5,006,313
     Accounts payable and other liabilities (Note 2)            78,272             64,456
                                                          ------------       ------------

                                                            48,157,035         46,083,895
                                                          ------------       ------------

COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)

PARTNERS' DEFICIENCY:
     General partners                                         (801,149)          (780,611)
     Limited partners                                      (47,000,722)       (44,967,441)
                                                          ------------       ------------

                                                           (47,801,871)       (45,748,052)
                                                          ------------       ------------
           TOTAL LIABILITIES AND PARTNERS'
                DEFICIENCY                                $    355,164       $    335,843
                                                          ============       ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.




<PAGE>   16

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                         2000              1999              1998
                                                     -----------       -----------       -----------
<S>                                                  <C>               <C>               <C>
REVENUE:
     Interest and other income                       $     4,718       $     2,723       $    18,004
                                                     -----------       -----------       -----------

OPERATING EXPENSES:
     Interest (Note 3)                                 1,652,605         1,652,605         2,329,415
     Management fees - general partner (Note 4)          500,179           500,179           743,640
     General and administrative (Note 4)                  71,743           134,251           459,567
     Legal and accounting                                104,738           118,460           125,129
                                                     -----------       -----------       -----------

                                                       2,329,265         2,405,495         3,657,751
                                                     -----------       -----------       -----------

LOSS FROM OPERATIONS                                  (2,324,547)       (2,402,772)       (3,639,747)

GAIN ON SALE OF LIMITED PARTNERSHIP
     INTERESTS (Note 2)                                       --                --         7,132,262

DISTRIBUTIONS FROM LIMITED
     PARTNERSHIP RECOGNIZED
     AS INCOME (Note 2)                                  260,566           357,404           199,985

EQUITY IN INCOME (LOSS) OF LIMITED
     PARTNERSHIPS AND AMORTIZATION
     OF ADDITIONAL BASIS AND
     ACQUISITION COSTS (Note 2)                           10,162          (145,660)       (9,496,388)
                                                     -----------       -----------       -----------

NET LOSS                                             $(2,053,819)      $(2,191,028)      $(5,803,888)
                                                     ===========       ===========       ===========

NET LOSS PER LIMITED PARTNERSHIP
     INTEREST                                        $       (98)      $      (104)      $      (276)
                                                     ===========       ===========       ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.




<PAGE>   17

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                       STATEMENTS OF PARTNERS' DEFICIENCY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                    General          Limited
                                    Partners         Partners             Total
                                   ---------       ------------       ------------
<S>                                <C>             <C>                <C>
DEFICIENCY, January 1, 1998         (697,912)       (36,780,224)       (37,478,136)

    Net loss for 1998                (58,039)        (5,745,849)        (5,803,888)
                                   ---------       ------------       ------------

DEFICIENCY, December 31, 1998       (755,951)       (42,526,073)       (43,282,024)

    Distributions to partners         (2,750)          (272,250)          (275,000)

    Net loss for 1999                (21,910)        (2,169,118)        (2,191,028)
                                   ---------       ------------       ------------

DEFICIENCY, December 31, 1999       (780,611)       (44,967,441)       (45,748,052)

    Net loss for 2000                (20,538)        (2,033,281)        (2,053,819)
                                   ---------       ------------       ------------

DEFICIENCY, December 31, 2000      $(801,149)      $(47,000,722)      $(47,801,871)
                                   =========       ============       ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.




<PAGE>   18

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                                              2000             1999               1998
                                                                          -----------       -----------       -----------
<S>                                                                       <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net  loss                                                            $(2,053,819)      $(2,191,028)      $(5,803,888)
     Adjustments to reconcile net loss to net cash
        used in operating activities:
           Gain on sale of limited partnership interests                           --                --        (7,132,262)
           Equity in (income) loss of limited partnerships
               and amortization of additional basis
               and acquisition costs                                          (10,162)          145,660         9,496,388
            Decrease in other assets                                               --            34,729            70,400
            Increase in accrued interest payable                            1,559,145         1,565,097         2,069,181
            Increase in accrued fees and expenses
               due general partner                                            500,179           500,179           743,640
            Increase (decrease) in accounts payable                            13,816           (57,700)            5,844
                                                                          -----------       -----------       -----------

                 Net cash provided by (used in) operating activities            9,159            (3,063)         (550,697)
                                                                          -----------       -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Costs related to sale of partnership interest                                 --                --          (194,743)
     Distributions from limited partnerships recognized
        as a return of capital                                                100,000            26,734           461,516
     Capital contributions to limited partnerships                                 --           (52,292)          (35,669)
     Proceeds from sale of limited partnership interests                           --           400,000                --
                                                                          -----------       -----------       -----------

                 Net cash provided by investing activities                    100,000           374,442           231,104
                                                                          -----------       -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payment of notes payable                                                      --                --          (127,607)
     Distributions to partners                                                     --          (275,000)               --
                                                                          -----------       -----------       -----------

                 Net cash used in financing activities                             --          (275,000)         (127,607)
                                                                          -----------       -----------       -----------

NET INCREASE (DECREASE) IN CASH                                               109,159            96,379          (447,200)

CASH, BEGINNING OF YEAR                                                        96,379                --           447,200
                                                                          -----------       -----------       -----------

CASH, END OF YEAR                                                         $   205,538       $    96,379       $        --
                                                                          ===========       ===========       ===========

SUPPLEMENTAL DISCLOSURE OF
   CASH FLOW INFORMATION
     Cash paid during the year for interest                               $    93,460       $    87,508       $   260,234
                                                                          ===========       ===========       ===========

SUPPLEMENTAL SCHEDULE OF
   NON-CASH FINANCING ACTIVITIES
     See Note 2 to financial statements regarding notes
     and interest payable
</TABLE>


   The accompanying notes are an integral part of these financial statements.




<PAGE>   19

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Organization

        Real Estate Associates Limited VII (the "Partnership") was formed under
        the California Limited Partnership Act on May 24, 1983. The Partnership
        was formed to invest primarily in other limited partnerships or joint
        ventures which own and operate primarily federal, state or local
        government-assisted housing projects. The general partners are Coast
        Housing Investments Associates, a limited partnership and National
        Partnership Investments Corp. (NAPICO), the Corporate General Partner,
        and National Partnership Investments Associates II (NAPIA II), a limited
        partnership. The business of the Partnership is conducted primarily by
        NAPICO.

        Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of
        Casden Investment Corporation ("CIC"), which is wholly owned by Alan I.
        Casden. On December 30, 1998, Casden Properties Operating Partnership,
        L.P. (the "Operating Partnership"), a majority owned subsidiary of
        Casden Properties Inc., a real estate investment trust organized by Alan
        I. Casden, purchased a 95.25% economic interest in NAPICO.

        These financial statements include the accounts of Real Estate
        Associates Limited VII and Real Estate Associates IV ("REA IV"), a
        California general partnership in which the Partnership holds a 99
        percent general partner interest. Losses in excess of the minority
        investment that would otherwise be attributed to the minority interest
        are being allocated to the Partnership.

        The Partnership issued 5,200 units of limited partnership interests
        through a public offering. Each unit was comprised of two limited
        partnership interests and two warrants granting the investor the right
        to purchase two additional limited partnership interests. An additional
        10,400 interests associated with warrants were exercised. The general
        partners have a 1 percent interest in profits and losses of the
        Partnership. The limited partners have the remaining 99 percent interest
        in proportion to their respective investments.

        The Partnership shall be dissolved only upon the expiration of 50
        complete calendar years (December 31, 2033) from the date of the
        formation of the Partnership or the occurrence of various other events
        as specified in the Partnership agreement.




<PAGE>   20

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        Upon total or partial liquidation of the Partnership or the disposition
        or partial disposition of a project or project interest and distribution
        of the proceeds, the general partners will be entitled to a liquidation
        fee as stipulated in the Partnership agreement. The limited partners
        will have a priority return equal to their invested capital attributable
        to the project(s) or project interest(s) sold and shall receive from the
        sale of the project(s) or project interest(s) an amount sufficient to
        pay state and federal income taxes, if any, calculated at the maximum
        rate then in effect. The general partners' fee may accrue but shall not
        be paid until the limited partners have received distributions equal to
        100 percent of their capital contributions.

        On December 30, 1998, the Partnership sold its interests in 11 local
        limited partnerships for $400,000 to the Operating Partnership.

        Basis of Presentation

        The accompanying financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of
        America.

        Uses of Estimates

        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 and disclosure of contingent assets
        and liabilities at the date of the financial statements and reported
        amounts of revenues and expenses during the reporting period. Actual
        results could differ from those estimates.

        Method of Accounting for Investments in Limited Partnerships

        The investments in limited partnerships are accounted for on the equity
        method. Acquisition, selection and other costs related to the
        acquisition of the projects have been capitalized as part of the
        investment account and are being amortized on a straight line basis over
        the estimated lives of the underlying assets, which is generally 30
        years.

        Net Loss Per Limited Partnership Interest

        Net loss per limited partnership interest was computed by dividing the
        limited partners' share of net loss by the number of limited partnership
        interests outstanding during the years. The number of limited
        partnership interests was 20,802 for all years presented.




<PAGE>   21

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        Cash and Cash Equivalents

        Cash and cash equivalents consists of cash and bank certificates of
        deposit with an original maturity date of three months or less.  The
        Partnership has its cash and cash equivalents on deposit with high
        credit quality financial institutions.  Such cash and cash equivalents
        are in excess of the FDIC insurance limit.

        Impairment of Long-Lived Assets

        The Partnership reviews long-lived assets to determine if there has been
        any permanent 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 flows is less than the carrying
        amount of the assets, the Partnership recognizes an impairment loss.
        During 1998, the Partnership recognized an impairment loss of $9,558,352
        related to certain investments in local limited partnerships, which has
        been included in equity in loss of limited partnerships.

2.      INVESTMENTS IN LIMITED PARTNERSHIPS

        The Partnership holds limited partnership interests in 21 limited
        partnerships as of December 31, 2000 and 1999, after selling its
        interests in 11 limited partnerships in 1998. In addition, the
        Partnership holds a general partner interest in REA IV. NAPICO is also
        the general partner in REA IV. REA IV, in turn, holds limited partner
        interests in 15 additional limited partnerships. In total, therefore,
        the Partnership holds interests, either directly or indirectly through
        REA IV, in 36 partnerships all of which own residential low income
        rental projects consisting of 3,379 apartment units. The mortgage loans
        of these projects are payable to or insured by various governmental
        agencies.

        The Partnership, as a limited partner, is entitled to between 98 percent
        and 99 percent of the profits and losses in the limited partnerships it
        has invested in directly. The Partnership is also entitled to 99 percent
        of the profits and losses of REA IV. REA IV holds a 99 percent interest
        in each of the limited partnerships in which it has invested.

        Equity in losses of limited partnerships is recognized in the financial
        statements until the limited partnership investment account is reduced
        to a zero balance. Losses incurred after the limited partnership
        investment account is reduced to zero are not recognized. The cumulative
        amount of the unrecognized equity in losses of certain unconsolidated
        limited partnerships was approximately $10,427,000 and $9,741,000 as of
        December 31, 2000 and 1999, respectively.

        Distributions from the limited partnerships are accounted for as a
        return of capital until the investment balance is reduced to zero.
        Subsequent distributions received are recognized as income.




<PAGE>   22

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

2.      INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

        The following is a summary of the investments in limited partnerships
        and reconciliation to the limited partnership accounts:

<TABLE>
<CAPTION>
                                                 2000            1999
                                              ---------       ---------
<S>                                           <C>             <C>
Investment balance, beginning of year         $ 239,464       $ 359,566
Cash distributions recognized as
  a return of capital                          (100,000)        (26,734)
Equity in loss of limited partnerships           16,294        (138,184)
Amortization of additional basis and
  capitalized acquisition costs and fees         (6,132)         (7,476)
Capital contributions                                --          52,292
                                              ---------       ---------
Investment balance, end of year               $ 149,626       $ 239,464
                                              =========       =========
</TABLE>

        The difference between the investment per the accompanying balance
        sheets at December 31, 2000 and 1999, and the equity per the limited
        partnerships' combined financial statements is due primarily to
        cumulative unrecognized equity in losses of certain limited
        partnerships, additional basis and costs capitalized to the investment
        account, cumulative distributions recognized as income and recognition
        of impairment losses.

        Selected financial information from the combined financial statements at
        December 31, 2000 and 1999 and for each of the three years in the period
        ended December 31, 2000, of the limited partnerships in which the
        Partnership has invested directly or indirectly, is as follows:

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                        2000          1999
                                                      --------       --------
                                                          (in thousands)
<S>                                                   <C>            <C>
Land and buildings, net                               $ 41,137       $ 42,945
                                                      ========       ========
Total assets                                          $ 56,771       $ 56,906
                                                      ========       ========
Mortgages loan payable                                $ 44,987       $ 44,661
                                                      ========       ========
Total liabilities                                     $ 60,420       $ 59,697
                                                      ========       ========
Deficiency of Real Estate Associates Limited VII      $ (3,179)      $ (2,334)
                                                      ========       ========
Deficiency of other partners                          $   (470)      $   (457)
                                                      ========       ========
</TABLE>




<PAGE>   23

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

2.      INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)

                            Statements of Operations

<TABLE>
<CAPTION>
                                          2000           1999           1998
                                        --------       --------       --------
                                                   (in thousands)
<S>                                     <C>            <C>            <C>
Total revenue                           $ 20,077       $ 19,626       $ 28,239
                                        ========       ========       ========
Interest expense                        $  1,483       $  1,526       $  3,423
                                        ========       ========       ========
Depreciation                            $  3,201       $  3,390       $  5,555
                                        ========       ========       ========
Total expenses                          $ 20,693       $ 19,980       $ 29,421
                                        ========       ========       ========
Net loss                                $   (616)      $   (354)      $ (1,182)
                                        ========       ========       ========
Net income (loss) allocable to the
   Partnership                          $   (622)      $    289       $   (527)
                                        ========       ========       ========
</TABLE>

        Land and buildings above have been adjusted for the amount by which the
        investments in the limited partnerships exceed the Partnership's share
        of the net book value of the underlying net assets of the investee which
        are recorded at historical costs. Depreciation on the adjustment is
        provided for over the estimated remaining useful lives of the
        properties.

        Prior to the sale of certain partnership interests on December 30, 1998,
        an affiliate of NAPICO was the general partner in 26 of the limited
        partnerships included above, and another affiliate received property
        management fees of approximately 5 to 6 percent of the revenue from
        three of these partnerships. Subsequent to the sale of certain
        partnership interests, an affiliate of NAPICO is the general partner in
        22 of the limited partnerships, and another affiliate manages one of the
        limited partnerships' properties. The affiliate received property
        management fees of $53,589, $50,700 and $115,731in 2000, 1999 and 1998,
        respectively. The following sets forth the significant data for the
        partnerships in which an affiliate of NAPICO is currently the general
        partner, reflected in the accompanying financial statements using the
        equity method of accounting:




<PAGE>   24

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

2.      INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)

<TABLE>
<CAPTION>
                                                                  2000           1999           1998
                                                                --------       --------       --------
                                                                            (in thousands)
<S>                                                             <C>            <C>            <C>
Total assets                                                    $ 30,890       $ 23,846
                                                                ========       ========
Total liabilities                                               $ 38,840       $ 34,515
                                                                ========       ========
Deficiency of Real Estate Associates Limited VII                $ (7,675)      $(10,481)
                                                                ========       ========
Deficiency of other partners                                    $   (275)      $   (188)
                                                                ========       ========
Total revenue                                                   $ 11,360       $  8,967       $ 13,019
                                                                ========       ========       ========
Net loss                                                        $   (712)      $   (757)      $ (1,217)
                                                                ========       ========       ========
</TABLE>

        Under recently adopted law and policy, the United States Department of
        Housing and Urban Development ("HUD") has determined not to renew the
        Housing Assistance Payment ("HAP") Contracts on a long term basis on the
        existing terms. In connection with renewals of the HAP Contracts under
        such new law and policy, the amount of rental assistance payments under
        renewed HAP Contracts will be based on market rentals instead of above
        market rentals, which may be the case under existing HAP Contracts. The
        payments under the renewed HAP Contracts may not be in an amount that
        would provide sufficient cash flow to permit owners of properties
        subject to HAP Contracts to meet the debt service requirements of
        existing loans insured by the Federal Housing Administration of HUD
        ("FHA") unless such mortgage loans are restructured. In order to address
        the reduction in payments under HAP Contracts as a result of this new
        policy, the Multi-family Assisted Housing Reform and Affordability Act
        of 1997 ("MAHRAA"), which was adopted in October 1997, provides for the
        restructuring of mortgage loans insured by the FHA with respect to
        properties subject to the Section 8 program. Under MAHRAA, an
        FHA-insured mortgage loan can be restructured into a first mortgage loan
        which will be amortized on a current basis and a low interest second
        mortgage loan payable to FHA which will only be payable on maturity of
        the first mortgage loan. This restructuring results in a reduction in
        annual debt service payable by the owner of the FHA-insured mortgage
        loan and is expected to result in an insurance payment from FHA to the
        holder of the FHA-insured loan due to the reduction in the principal
        amount. MAHRAA also phases out project-based subsidies on selected
        properties serving families not located in rental markets with limited
        supply, converting such subsidies to a tenant-based subsidy.




<PAGE>   25

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

2.      INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)

        When the HAP Contracts are subject to renewal, there can be no assurance
        that the local limited partnerships in which the Partnership has an
        investment will be permitted to restructure its mortgage indebtedness
        under MAHRAA. In addition, the economic impact on the Partnership of the
        combination of the reduced payments under the HAP Contracts and the
        restructuring of the existing FHA-insured mortgage loans under MAHRAA is
        uncertain.

        As a result of the foregoing, the Partnership, in 1997, commenced
        extensive review of disposition, refinancing or re-engineering
        alternatives for the properties in which the limited partnerships have
        invested and are subject to HUD mortgage and rental subsidy programs.
        The Partnership has incurred expenses in connection with this review by
        various third party professionals, including accounting, legal,
        valuation, structural and engineering costs, which amounted to $50,730
        and $327,951 for the years ended December 31, 1999 and 1998,
        respectively, and are included in general and administrative expenses.
        Accounts payable at December 31, 1998 includes $33,882 of such costs.

        On December 30, 1998, the Partnership sold its limited partnership
        interests in 11 local limited partnerships with a total carrying value
        of $6,588,686 to the Operating Partnership. The sale resulted in
        proceeds to the Partnership of $400,000 and a net gain of $7,132,262,
        after being relieved of notes and interest payable of $13,515,691and
        incurring selling costs of $194,743. The cash proceeds were held in
        escrow at December 31, 1998 and were collected in 1999. In March 1999,
        the Partnership made cash distributions of $272,250 to the limited
        partners and $2,750 to the general partners, using proceeds from the
        sale of the partnership interests.

        The Operating Partnership purchased such limited partner interests for
        cash, which it raised in connection with a private placement of its
        equity securities. The purchase was subject to, among other things, (i)
        the purchase of the general partner interests in the local limited
        partnerships by the Operating Partnership; (iii) the approval of HUD and
        certain state housing finance agencies; and (iii) the consent of the
        limited partners to the sale of the local limited partnership interests
        held for investment by the Partnership.

        In August 1998, a consent solicitation statement was sent to the limited
        partners setting forth the terms and conditions of the purchase of the
        limited partners' interests held for investment by the Partnership,
        together with certain amendments to the Partnership Agreement and other
        disclosures of various conflicts of interest in connection with the
        proposed transaction. Prior to the sale of the partnership interests,
        the consents of the limited partners to the sale and amendments to the
        Partnership Agreement were obtained.




<PAGE>   26

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

3.      NOTES PAYABLE

        Certain of the Partnership's investments involved purchases of
        partnership interests from partners who subsequently withdrew from the
        operating partnership. As of December 31, 2000, the Partnership is
        obligated on non-recourse notes payable of $17,424,501, bearing interest
        at 9.5 to 10 percent, to the sellers of the partnership interests. The
        Partnership was relieved of notes payable in the amount of $7,445,000 in
        connection with the sale of the partnership interests to the Operating
        Partnership in 1998. The notes have principal maturity dates ranging
        from August 1999 to January 2002 or upon sale or refinancing of the
        underlying partnership properties. These obligations and related
        interest are collateralized by the Partnership's investments in the
        investee limited partnerships and are payable only out of cash
        distributions from the investee partnerships, as defined in the notes.
        Unpaid interest is due at maturity of the notes.

        Maturity dates on the notes and related accrued interest payable are as
        follows:

<TABLE>
<CAPTION>
                                                      Accrued
Years Ending December 31,            Notes            Interest
------------------------          -----------       -----------
<S>                               <C>               <C>
          2001                    $15,834,000       $22,718,436
          2002                      1,590,501         2,429,334
                                  -----------       -----------
                                  $17,424,501       $25,147,770
                                  ===========       ===========
</TABLE>

        Notes and related accrued interest payable, aggregating $38,552,436
        became payable prior to December 31, 2000. Due to the Partnership's lack
        of cash and partners' deficiency, there is substantial doubt about its
        ability to make these payments, which would result in the possible
        foreclosure of the investments in the local limited partnerships. As a
        result, there is substantial doubt about the Partnership's ability to
        continue as a going concern.

        In February 2000, the Partnership entered into an agreement with a note
        holder related to a note in the amount $2,200,000 plus accrued interest
        of $3,143,572 as of December 31, 2000 that became payable in 1999.
        Subject to certain conditions, the note holder agreed to cancel the note
        and accrued interest and make a payment of $100,000 to the Partnership
        in exchange for the Partnership surrendering its interest in the related
        encumbered limited partnership. Upon satisfaction of all conditions, the
        Partnership will recognize a gain on this transaction of approximately
        $5,700,000 as it has a zero investment balance in this limited
        partnership.

        Management is in process of attempting to negotiate extensions of the
        maturity dates on the other past due notes payable.




<PAGE>   27

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

4.      FEES AND EXPENSES DUE GENERAL PARTNER

        Under the terms of the Restated Certificate and Agreement of Limited
        Partnership, the Partnership is obligated to NAPICO for an annual
        management fee equal to .5 percent of the original remaining invested
        assets of the remaining partnerships. Invested assets are defined as the
        costs of acquiring project interests, including the proportionate amount
        of the mortgage loans related to the Partnership's interest in the
        capital accounts of the respective partnerships.

        The Partnership reimburses NAPICO for certain expenses. The
        reimbursement to NAPICO was $7,370, $16,920 and $46,979 in 2000, 1999
        and 1998, respectively, and is included in administrative expenses.

5.      CONTINGENCIES

        On August 27, 1998, two investors holding an aggregate of eight units of
        limited partnership interests in Real Estate Associates Limited III (an
        affiliated partnership in which NAPICO is the managing general partner)
        and two investors holding an aggregate of five units of limited
        partnership interest in Real Estate Associates Limited VI (another
        affiliated partnership in which NAPICO is the managing general partner)
        commenced an action in the United States District Court for the Central
        District of California against the Partnership, NAPICO and certain other
        affiliated entities. The complaint alleges that the defendants breached
        their fiduciary duty to the limited partners of certain NAPICO managed
        partnerships and made materially false and misleading statements in the
        consent solicitation statements sent to the limited partners of such
        partnerships relating to approval of the transfer of partnership
        interests in limited partnerships, owning certain of the properties, to
        the Operating Partnership organized by an affiliate of NAPICO. The
        plaintiffs seek equitable relief, as well as compensatory damages and
        litigation related costs. On August 4, 1999, one investor holding one
        unit of limited partnership interest in Housing Programs Limited
        (another affiliated partnership in which NAPICO is the managing general
        partner) commenced a virtually identical action in the United States
        District Court for the Central District of California against the
        Partnership, NAPICO and certain other affiliated entities. The second
        action has been subsumed in the first action, which has been certified
        as a class action. The managing general partner of such NAPICO managed
        partnerships and the other defendants believe that the plaintiffs'
        claims are without merit and intend to contest the actions vigorously.

        The corporate general partner of the Partnership is a plaintiff in
        various lawsuits and has also been named a defendant in other lawsuits
        arising from transactions in the ordinary course of business. In the
        opinion of management and the corporate general partner, the claims will
        not result in any material liability to the Partnership.




<PAGE>   28

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

6.      INCOME TAXES

        No provision has been made for income taxes in the accompanying
        financial statements since such taxes, if any, are the liability of the
        individual partners. The major differences in tax and financial
        reporting result from the use of different bases and depreciation
        methods for the properties held by the limited partnerships. Differences
        in tax and financial reporting also arise as losses are not recognized
        for financial reporting purposes when the investment balance has been
        reduced to zero.

7.      FAIR VALUE OF FINANCIAL INSTRUMENTS

        Statement of Financial Accounting Standards No. 107, "Disclosure about
        Fair Value of Financial Instruments," requires disclosure of fair value
        information about financial instruments, when it is practicable to
        estimate that value. The notes payable are collateralized by the
        Partnership's investments in investee limited partnerships and are
        payable only out of cash distributions from investee partnerships. The
        operations generated by the investee limited partnerships, which account
        for the Partnership's primary source of revenues, are subject to various
        government rules, regulations and restrictions which make it
        impracticable to estimate the fair value of the notes and related
        accrued interest payable. It is impracticable to estimate the fair value
        of the amounts due to the general partner due to their related party
        nature The carrying amount of other assets and liabilities reported on
        the balance sheets that require such disclosure approximates fair value
        due to their short-term maturity.

8.      FOURTH-QUARTER ADJUSTMENT

        The Partnership's policy is to record its equity in the loss of limited
        partnerships on a quarterly basis, using estimated financial information
        furnished by the various local operating general partners. The equity in
        loss of limited partnerships reflected in the accompanying annual
        financial statements is based primarily upon audited financial
        statements of the investee limited partnerships. The increase of
        approximately $40,000 between the estimated nine-month equity in loss
        and the actual 2000 year end equity in income has been recorded in the
        fourth quarter.




<PAGE>   29

                                                                        SCHEDULE

                       REAL ESTATE ASSOCIATES LIMITED VII
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                         Year Ended December 31, 2000
                                -------------------------------------------------------------------------------
                                                                        Cash           Equity
                                 Balance                               Distri-           in            Balance
                                 January            Capital            butions         Income          December
Limited Partnerships             1, 2000         Contributions        Received         (Loss)          31, 2000
---------------------           ---------        -------------        --------        --------         --------
<S>                             <C>              <C>                  <C>             <C>              <C>
Aristocrat Manor                $                  $                  $               $                $
Arkansas City Apts
Bellair Manor Apts
Birch Manor I
Birch Manor II
Bluewater Apts
Clarkwood Apts. I
Clarkwood Apts. II
Cleveland I
Cleveland II
Cleveland III
Danbury Park Manor
Desoto Apts
Dexter Apts
Edgewood Terrace II               239,464                              (100,000)        10,162          149,626
Goodlette Arms Apts
Hampshire House Apts
Henrico Arms
Ivywood Apts
Jasper County
Nantucket Apts
Newton Apts
Oak Hill I
Oakview Apts
Oakwood Park I
Oakwood Park II
Pachuta Apts
Parkway Towers
Pebbleshire Apts
Rand Grove Village
Richards Park Apts
Shubuta Properties
South Glen Apts
Tradewinds East Apts
Warren Heights Apts. II
Yorkview Estates
                                ---------          ---------          ---------       --------         --------
                                $ 239,464          $                  $(100,000)      $ 10,162         $149,626
                                =========          =========          =========       ========         ========
</TABLE>


<PAGE>   30

                                                                      SCHEDULE
                                                                     (CONTINUED)

                       REAL ESTATE ASSOCIATES LIMITED VII
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                        Year Ended December 31, 1999
                                ---------------------------------------------------------------------------------
                                                                     Cash              Equity
                                 Balance                            Distri-              in              Balance
                                 January         Capital            butions            Income            December
Limited Partnerships             1, 1999       Contributions       Received            (Loss)            31, 1999
----------------------          --------       -------------       ---------          ---------          --------
<S>                             <C>            <C>                 <C>                <C>                <C>
Aristocrat Manor                $                $                 $                  $                  $
Arkansas City Apts
Bellair Manor Apts
Birch Manor I                                       2,307             (2,307)                                  --
Birch Manor II                                      1,680             (1,680)                                  --
Bluewater Apts
Clarkwood Apts. I                                   3,206             (3,206)                                  --
Clarkwood Apts. II                                  3,268             (3,268)                                  --
Cleveland I                        9,171                              (9,171)                                  --
Cleveland II
Cleveland III
Danbury Park Manor
Desoto Apts
Dexter Apts
Edgewood Terrace II              350,395                                               (110,931)          239,574
Goodlette Arms Apts
Hampshire House Apts
Henrico Arms
Ivywood Apts
Jasper County                                       9,271                                (9,271)               --
Nantucket Apts
Newton Apts
Oak Hill I
Oakview Apts
Oakwood Park I                                      3,405             (1,805)            (1,600)               --
Oakwood Park II                                     2,554             (2,554)                                  --
Pachuta Apts                                       23,858                               (23,858)               --
Parkway Towers
Pebbleshire Apts
Rand Grove Village
Richards Park Apts                                  2,743             (2,743)                                  --
Shubuta Properties
South Glen Apts
Tradewinds East Apts
Warren Heights Apts. II
Yorkview Estates
                                --------         --------          ---------          ---------          --------
                                $359,566         $ 52,292          $ (26,734)         $(145,660)         $239,464
                                ========         ========          =========          =========          ========
</TABLE>


<PAGE>   31

                                                                      SCHEDULE
                                                                     (CONTINUED)

                       REAL ESTATE ASSOCIATES LIMITED VII
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                             Year Ended December 31, 1998
                             -----------------------------------------------------------------------------------------------
                                                                  Cash            Equity
                                Balance                          Distri-            in                              Balance
                                January        Capital           butions          Income                            December
Limited Partnerships            1, 1998     Contributions       Received          (Loss)             Sale           31, 1998
-----------------------      -----------    -------------     -----------       -----------       -----------       --------
<S>                          <C>            <C>               <C>               <C>               <C>               <C>
Anthracite Apartments*       $ 1,054,456      $               $   (25,948)      $    46,548       $(1,075,056)      $
Aristocrat Manor                 428,050                                           (428,050)
Arkansas City Apts
Arrowsmith Apts.*                300,214                          (24,818)          (13,401)         (261,995)
Ashland Manor*                                    4,060            (4,060)
Bangor House*                  1,485,524                                             88,983        (1,574,507)
Bellair Manor Apts               229,540                           (3,531)         (226,009)
Birch Manor I                                     2,249            (2,249)
Birch Manor II                                    1,355            (1,355)
Bluewater Apts                 1,938,577                          (13,502)       (1,925,075)
Center City Apts.*             2,509,667                          (36,470)          125,672        (2,598,869)
Clarkwood Apts. I                                 2,900            (2,900)
Clarkwood Apts. II                                3,657            (3,657)
Cleveland I                       15,335                           (5,422)             (742)                           9,171
Cleveland II                      31,115                           (5,753)          (25,362)
Cleveland III
Danbury Park Manor
Desoto Apts                       78,903                           (1,667)          (77,236)
Dexter Apts                       10,412                           (5,418)           (4,994)
Edgewood Terrace II              463,069                                           (112,674)                         350,395
Goodlette Arms Apts            2,458,687                           (1,485)       (2,457,202)
Hampshire House Apts
Henrico Arms
Ivywood Apts                     253,948                                           (253,948)
Jasper County
King Towers*                     207,114                             (647)          (63,141)         (143,326)
Nantucket Apts                   224,253                           (3,379)         (220,874)
Newton Apts
Oak Hill I                        45,552                                            (45,552)
Oakview Apts
Oakwood Park I                                    3,338            (3,338)
Oakwood Park II                                   4,636            (4,636)
Pachuta Apts
Parkway Towers                 1,989,251                          (15,635)       (1,973,616)
Pebbleshire Apts                                  9,840            (9,840)
Pinebrook Apts.*                 786,035                                             29,836          (815,871)
Rand Grove Village
Richards Park Apts                                1,313            (1,313)
Ridgewood Towers*                356,751                         (256,116)         (100,635)
Shubuta Properties
South Glen Apts
South Park Apts.*                                 2,321            (2,321)
Sunland Terrace*
Tradewinds East Apts           1,575,656                          (19,388)       (1,556,268)
Warren Heights Apts. II          195,110                           (1,694)         (193,416)
White Cliffs Apts.*              129,449                           (1,722)           (8,665)         (119,062)
Yorkview Estates                 103,819                           (3,252)         (100,567)
                               ---------        -------         ---------         ---------         ---------         ------
                             $16,870,487      $  35,669       $  (461,516)      $(9,496,388)      $(6,588,686)      $359,566
                             ===========      =========       ===========       ===========       ===========       ========
</TABLE>

*Sold to the Operating Partnership in 1998.

<PAGE>   32

                                                                      SCHEDULE
                                                                     (CONTINUED)

                       REAL ESTATE ASSOCIATES LIMITED VII
        INVESTMENTS IN, EQUITY IN EARNINGS OF AND DIVIDENDS RECEIVED FROM
                          AFFILIATES AND OTHER PERSONS
                               FOR THE YEARS ENDED
                        DECEMBER 31, 2000, 1999 AND 1998

NOTES:  1.      Equity in income (losses) of the limited partnerships represents
                the Partnership's allocable share of the net results of
                operations from the limited partnerships for the year. Equity in
                losses of the limited partnerships will be recognized until the
                investment balance is reduced to zero or below zero to an amount
                equal to future capital contributions to be made by the
                Partnership.

        2.      Cash distributions from the limited partnerships will be treated
                as a return of the investment and will reduce the investment
                balance until such time as the investment is reduced to an
                amount equal to additional contributions. Distributions
                subsequently received will be recognized as income.


<PAGE>   33

                                                                    SCHEDULE III
                                                                     (CONTINUED)

                       REAL ESTATE ASSOCIATES LIMITED VII
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                       HELD BY LOCAL LIMITED PARTNERSHIPS
                        IN WHICH REAL VII HAS INVESTMENTS
                                DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                 Buildings,
                                                                                Furnishings
                                     Number    Outstanding                     and Equipment
                                      of         Mortgage                      Amount Carried                       Accumulated
Partnership/Location                 Units         Loan            Land      at close of period      Total         Depreciation
------------------------------       ------    -----------      ----------   ------------------   ------------     ------------
<S>                                  <C>       <C>              <C>          <C>                  <C>              <C>
Aristocrat Manor                      114      $ 3,117,465      $  265,158      $  3,493,023      $  3,758,181      $ 1,523,662
       Hot Springs, AR
Arkansas City Apartments               16          494,938          22,416           504,920           527,336          183,834
       Arkansas City, AR
Bluewater Apartments                  116        1,578,842         130,163         4,042,947         4,173,110        2,139,568
       Port Huron, MI
Cleveland Apartments I                 50          740,353          60,000         1,422,437         1,482,437          949,894
       Hayti, MO
Cleveland Apartments II                50          738,923          50,000         1,450,620         1,500,620          953,924
       Hayti, MO
Cleveland Apartments III               21          327,242          25,000           604,465           629,465          412,261
       Hayti, MO
Danbury Park Manor                    151        1,625,927         183,752         5,201,664         5,385,416        2,560,576
       Superior Township, MI
Desoto Apartments                      42          612,845          50,000         1,223,647         1,273,647          803,944
       Desoto, MO
Dexter Apartments                      50          749,858          50,000         1,522,910         1,572,910        1,014,813
       Dexter, MO
Goodlette Arms Apartments             250        2,793,778       1,239,262         6,461,974         7,701,236        3,931,710
     Naples, FL
Henrico Arms                          232        2,555,849         206,980         4,047,663         4,254,643        3,622,787
       Richmond, VA
Jasper County Prop                     24          657,711          33,000           785,153           818,153          734,519
       Heidelberg, MS
Newton Apartments                      36          984,921          55,017         1,069,170         1,124,187        1,053,459
       Newton, MS
Oakview Apartments                     32        1,102,057          75,000         1,174,431         1,249,431          404,312
       Monticello, AR
Pachuta Apartments                     16          443,058          20,680           490,732           511,412          487,460
       Pachuta, MS
Parkway Towers Apartments             104          719,129         287,919         4,366,558         4,654,477        4,023,472
       East Providence, RI
Rand Grove Village                    212        2,485,325         491,000         6,810,642         7,301,642        6,277,058
       Palatine, IL
Shubuta Properties                     16          442,712          23,179           555,601           578,780          511,811
       Shubuta, MS
South Glen Apartments                 159        2,566,723         298,089         5,288,613         5,586,702        4,731,667
       Trenton, MI
Tradewinds East Apartments            150        2,088,523         117,692         5,571,294         5,688,986        2,957,045
       Essexville, MI
Bellair Manor Apartments               68          813,405         152,995         1,546,944         1,699,939          850,822
       Niles, OH
Birch Manor Apartments I               60          465,790          60,889         1,322,956         1,383,845          727,633
       Medina, OH
Birch Manor Apartments II              60          665,418          50,284         1,386,407         1,436,691          762,531
       Medina, OH
Clarkwood Apartments I                 72          515,889          68,841         1,532,128         1,600,969          842,673
       Elyria, OH
Clarkwood Apartments II               120          973,737          92,510         2,628,368         2,720,878        1,445,598
       Elyria, OH
Hampshire House Apartments            150        2,735,511         101,163         3,945,365         4,046,528        2,169,948
       Warren, OH
Ivywood Apartments                    124        1,507,007         200,184         2,938,855         3,139,039        1,614,703
       Columbus, OH
Nantucket Apartments                   60          554,823          34,676         1,303,765         1,338,441          716,350
       Alliance, OH
Oak Hill Apartments                   120        1,738,867          75,834         3,089,355         3,165,189        1,698,338
       Franklin, PA
Oakwood Park I Apartments              50          186,407          63,123           854,198           917,321          469,275
       Lorain, OH
Oakwood Park II Apartments             78          345,618         102,202         1,378,989         1,481,191          758,439
       Lorain, OH
Richards Park Apartments               60          656,977          52,416         1,418,923         1,471,339          772,863
       Elyria, OH
Warren Heights Apartments II           88        1,074,923          21,803         2,202,950         2,224,753        1,211,628
       Warren, OH
Yorkview Estates                       50          598,928          22,049         1,202,879         1,224,928          661,584
       Massillon, OH
Edgewood Terrace II                   258        3,538,262         525,000         9,816,931        10,341,931        7,429,330
       Washington, DC
Pebbleshire Apartments                120        1,789,308         359,943         4,311,798         4,671,741        2,370,591
       Vernon Hills, IL
Additional basis of real estate                                    238,728         4,110,491         4,349,219        2,070,069
        due to capital
        contribution to investee
         limited partnership
                                     ----      -----------      ----------      ------------      ------------      -----------
     TOTAL                           3379      $44,987,049      $5,906,947      $101,079,766      $106,986,713      $65,850,151
                                     ====      ===========      ==========      ============      ============      ===========
</TABLE>


<PAGE>   34

                                                                    SCHEDULE III
                                                                     (CONTINUED)

                       REAL ESTATE ASSOCIATES LIMITED VII
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                       HELD BY LOCAL LIMITED PARTNERSHIPS
                        IN WHICH REAL VII HAS INVESTMENTS
                                DECEMBER 31, 2000

NOTES:  1.      Each local limited partnership has developed, owns and operates
                the housing project. Substantially all project costs, including
                construction period interest expense, were capitalized by the
                limited partnerships.

        2.      Depreciation is provided for by various methods over the
                estimated useful lives of the projects. The estimated composite
                useful lives of the buildings are from 25 to 40 years.

        3.      Investments in property and equipment:

<TABLE>
<CAPTION>
                                                    Buildings,
                                                   Furnishings,
                                                       And
                                   Land             Equipment              Total
                                -----------       -------------       -------------
<S>                             <C>               <C>                 <C>
Balance, January 1, 1998        $ 6,806,200       $ 145,793,559       $ 152,599,759

Sale of Properties               (1,638,515)        (47,366,524)        (49,005,039)

Net additions - 1998                688,860             177,371             866,231
                                -----------       -------------       -------------

Balance, December 31, 1998        5,856,545          98,604,406         104,460,951

Net additions - 1999                 38,287           1,097,917           1,136,204
                                -----------       -------------       -------------

Balance, December 31, 1999        5,894,832          99,702,323         105,597,155

Net additions - 2000                 12,115           1,377,443           1,389,558
                                -----------       -------------       -------------

Balance, December 31, 2000      $ 5,906,947       $ 101,079,766       $ 106,986,713
                                ===========       =============       =============
</TABLE>


<PAGE>   35

                                                                    SCHEDULE III
                                                                     (CONTINUED)

                       REAL ESTATE ASSOCIATES LIMITED VII
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                       HELD BY LOCAL LIMITED PARTNERSHIPS
                        IN WHICH REAL VII HAS INVESTMENTS
                                DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                           Buildings,
                                          Furnishings
                                             And
                                          Equipment
                                         ------------
<S>                                      <C>
Accumulated Depreciation:

Balance, January 1, 1998                 $ 80,004,225

Sale of Properties                        (24,273,559)

Net additions, 1998                         5,657,944
                                         ------------

Balance, December 31, 1998                 61,388,610

Net additions, 1999                         1,263,157
                                         ------------

Balance, December 31, 1999                 62,651,767

Net additions, 2000                         3,198,384
                                         ------------

Balance, December 31, 2000               $ 65,850,151
                                         ============
</TABLE>


<PAGE>   36

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

REAL ESTATE ASSOCIATES LIMITED VII (the "Partnership") has no directors or
executive officers of its own.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P., (the
"Operating Partnership") a majority owned subsidiary of Casden Properties Inc.,
a real estate investment trust organized by Alan I. Casden, purchased a 95.25%
economic interest in NAPICO. The following biographical information is presented
for the directors and executive officers of NAPICO with principal responsibility
for the Partnership's affairs.

CHARLES H. BOXENBAUM, 71, Chairman of the Board of Directors and Chief Executive
Officer of NAPICO.

Mr. Boxenbaum has been associated with NAPICO since its inception. He has been
active in the real estate industry since 1960, and prior to joining NAPICO was a
real estate broker with the Beverly Hills firm of Carl Rhodes Company. Mr.
Boxenbaum has been a member of the Board of Directors of Casden Properties Inc.
since 1998.

Mr. Boxenbaum has been a guest lecturer at national and state realty
conventions, certified properties exchanger's seminars, Los Angeles Town Hall,
National Association of Home Builders, International Council of Shopping
Centers, Society of Conventional Appraisers, California Real Estate Association,
National Institute of Real Estate Brokers, Appraisal Institute, various mortgage
banking seminars, and the North American Property Forum held in London, England.
He is one of the founders and a past director of the First Los Angeles Bank,
organized in November 1974. Since March 1995, Mr. Boxenbaum has served on the
Board of Directors of the National Housing Council. Mr. Boxenbaum received his
Bachelor of Arts degree from the University of Chicago.

BRUCE E. NELSON, 49, President, Chief Operating Officer and a director of
NAPICO.

Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is
responsible for the operations of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs. Mr. Nelson is also involved in
the identification, analysis, and negotiation of real estate investments. Mr.
Nelson is a member of the Board of Directors of Casden Properties Inc. and is a
Director of the Affordable Housing Tax Credit Coalition.

From February 1979 to October 1980, Mr. Nelson held the position of Associate
General Counsel at Western Consulting Group, Inc., private residential and
commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged
in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor
of Arts degree from the University of Wisconsin and is a graduate of the
University of Colorado School of Law. He is a member of the State Bar of
California and is a licensed real estate broker in California and Texas.

ALAN I. CASDEN, 55, Chairman of the Board of Directors and Chief Executive
Officer of Casden Properties Inc., a director and member of the audit committee
of NAPICO, and chairman of the Executive Committee of NAPICO.

Mr. Casden has been involved in approximately $3 billion of real estate
financings and sales and has been responsible for the development and
construction of more than 12,000 apartment units and 5,000 single-family homes
and condominiums.

Mr. Casden is a member of the American Institute of Certified Public Accountants
and of the California Society of Certified Public Accountants. Mr. Casden is a
member of the advisory board of the National Multi-Family


<PAGE>   37

Housing Conference, the Multi-Family Housing Council, the President's Council of
the California Building Industry Association and the Urban Land Institute. He
also serves on the Board of Trustees of the University of Southern California.
He holds a Bachelor of Science degree and a Masters in Business Administration
degree from the University of Southern California.

BRIAN H. SHUMAN, 38, Vice President and Chief Financial Officer.

Mr. Shuman joined NAPICO in 2000, and is responsible for the financial affairs
of NAPICO, as well as the limited partnerships sponsored by it. From 1996 until
joining NAPICO in August 2000, Mr. Shuman was Vice President - Finance for
Preferred Health Management Inc., the largest provider of worker compensation
diagnostic imaging services in California formed in 1996, and was responsible
for establishing and managing the accounting, billing, collection , treasury and
financial reporting departments. From 1994 to 1996, he was the Controller for
DVI Business Credit Corporation, which provides asset based lending to a wide
range of health concerns. From 1985 to 1994, Mr. Shuman served in senior
management positions, as a director or manager of finance, a portfolio tax
analyst, and a senior accountant/tax consultant. He holds a Bachelor of Arts
degree in economics and accounting from the University of Maryland. Mr. Shuman
is a Certified Public Accountant and is a member of American Institute of
Certified Public Accountants and the California Society of Public Accountants.

PATRICIA W. TOY, 71, Senior Vice President - Communications and Assistant
Secretary.

Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the
Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a
U.S. Naval Officer in communications and personnel assignments. She holds a
Bachelor of Arts Degree from the University of Nebraska.

JEFFREY H. SUSSMAN, 34, Senior Vice President, General Counsel and Secretary.

Mr. Sussman joined NAPICO in 1998, and is responsible for the legal affairs of
NAPICO and its affiliates. He is also the President of NPEI and a member of the
preliminary investment committee. Prior to joining NAPICO in April 1998, Mr.
Sussman was an associate with the law firm of Rus, Miliband, Williams & Smith in
Irvine, California. His practice emphasized real estate finance and insolvency
law and included the representation of borrowers, lenders, and court-appointed
trustees in matters involving apartment complexes, retail centers and hotels.
Mr. Sussman received a Bachelor of Arts degree from the University of
California, Berkeley and Juris Doctor and Master in Business Administration
degrees from the University of Southern California. He is a member of the State
Bar of California, and holds Series 22, 39 and 63 licenses issued by the
National Association of Securities Dealers, Inc.

NAPICO and several of its officers, directors and affiliates, including Charles
H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on
June 25, 1997, of an administrative cease and desist order by the U.S.
Securities and Exchange Commission (the "Commission"), without admitting or
denying any of the findings made by the Commission. The Commission found that
NAPICO and others had violated certain federal securities laws in connection
with transactions unrelated to the Partnership. The Commission's order did not
impose any cost, burden or penalty on any partnership managed by NAPICO and does
not impact NAPICO's ability to serve as the Partnership's Managing General
Partner.


<PAGE>   38

ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS

Real Estate Associates Limited VII has no officers, directors or employees.
However, under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to pay the Corporate General Partner
an annual management fee. The annual management fee is approximately equal to .5
percent of the invested assets, including the Partnership's allocable share of
the mortgages related to the real estate properties held by local limited
partnerships. The fee is earned beginning in the month the Partnership makes its
initial contribution to the local partnership. In addition, the Partnership
reimburses the Corporate General Partner for certain expenses.

An affiliate of the General Partner is responsible for the on-site property
management for a property owned by limited partnership in which the Partnership
has invested.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a)     Security Ownership of Certain Beneficial Owners

        The General Partners own all of the outstanding general partnership
        interests of REAL VII; no person is known to own beneficially in excess
        of 5 percent of the outstanding limited partnership interests.

(b)     With the exception of the initial limited partner, Bruce Nelson, who is
        an officer of the Corporate General Partner, none of the officers or
        directors of the Corporate General Partner own directly or beneficially
        any limited partnership interests in REAL VII.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Partnership has no officers, directors or employees of its own. All of its
affairs are managed by the Corporate General Partner, National Partnership
Investments Corp. The Partnership is obligated to NAPICO for an annual
management fee equal to .5 percent of the original remaining invested assets of
the limited partnerships. Invested assets is defined as the costs of acquiring
project interests, including the proportionate amount of the mortgage loans
related to the Partnership's interest in the capital accounts of the respective
partnerships. The management fee was $500,179, $500,179 and $743,640 for the
years ended December 31, 2000, 1999 and 1998, respectively.

The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $7,370, $16,920 and $46,979 in 2000, 1999 and 1998, respectively, and
is included in operating expenses.

An affiliate of NAPICO was the general partner in 26 of the limited partnerships
in which the partnership interests were sold on December 30, 1998, and another
affiliate received property management fees of approximately 5 to 6 percent of
the revenue from three of these partnerships. Subsequent to the sale of certain
partnership interests, NAPICO is the general partner in 22 of the limited
partnerships, and another affiliate manages one of the limited partnerships'
properties. The affiliate received property management fees of $53,589, $50,700,
$115,731 in 2000, 1999 and 1998, respectively.

On December 30, 1998, the Partnership sold its limited partnership interests in
11 local limited partnerships, with a total carrying value of $6,588,686, to the
Operating Partnership. The sale resulted in proceeds to the Partnership of
$400,000 and a net gain of $7,132,262 after being relieved of notes and interest
payable of $13,515,691 and incurring selling costs of $194,743. In March 1999,
the Partnership made cash distributions of $272,250 to the limited partners and
$2,750 to the general partners, using proceeds from the sale of the partnership
interests.


<PAGE>   39

The Operating Partnership purchased such limited partner interests for cash,
which it raised in connection with a private placement of its equity securities.
The purchase was subject to, among other things, (i) the purchase of the general
partner interests in the local limited partnerships by the Operating
Partnership; (ii) the approval of HUD and certain state housing finance
agencies; and (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by the Partnership.

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the proposed transaction. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

FINANCIAL STATEMENTS

Report of Independent Public Accountants.

Balance Sheets as of December 31, 2000 and 1999.

Statements of Operations for the years ended December 31, 2000, 1999 and 1998.

Statements of Partners' Deficiency for the years ended December 31, 2000, 1999
and 1998.

Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.

Notes to Financial Statements.

FINANCIAL STATEMENT SCHEDULES

APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED VII, REAL ESTATE ASSOCIATES IV AND
THE LIMITED PARTNERSHIPS IN WHICH REAL ESTATE ASSOCIATES LIMITED VII AND REAL
ESTATE ASSOCIATES IV HAVE INVESTMENTS.

Schedule - Investments in Limited Partnerships, December 31, 2000, 1999 and
1998.

Schedule III - Real Estate and Accumulated Depreciation, December 31, 2000, 1999
and 1998.

The remaining schedules are omitted because the required information is included
in the financial statements and notes thereto or they are not applicable or not
required.

EXHIBITS

(3)     Articles of incorporation and bylaws: The registrant is not
        incorporated. The Partnership Agreement was filed with Form S-11
        #2-84816 which is incorporated herein by reference.

(10)    Material contracts: The registrant is not party to any material
        contracts, other than the Restated Certificate and Agreement of Limited
        Partnership dated May 24, 1983 and the forty-eight contracts
        representing the partnership investment in local limited partnership's
        as previously filed at the Securities Exchange Commission, File #2-84816
        which is hereby incorporated by reference.

REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the year ended December 31, 2000.


<PAGE>   40

                                   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 in the City of Los Angeles,
State of California.

REAL ESTATE ASSOCIATES LIMITED VII

By:     NATIONAL PARTNERSHIP INVESTMENTS CORP.
        General Partner


/s/ CHARLES H. BOXENBAUM
----------------------------------
Charles H. Boxenbaum
Chairman of the Board of Directors
and Chief Executive Officer


/s/ BRUCE E. NELSON
----------------------------------
Bruce E. Nelson
Director and President


/s/ ALAN I. CASDEN
----------------------------------
Alan I. Casden
Director


/s/ BRIAN H. SHUMAN
----------------------------------
Brian H. Shuman
Chief Financial Officer