<PAGE>
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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


                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

                                       or

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



                 For the Transition period from ______ to ______


                        COMMISSION FILE NUMBER: 0-11779


                         S/M REAL ESTATE FUND VII, LTD.
              Exact Name of Registrant as Specified in its Charter

<Table>
<S>                                                                        <C>
                         Texas                                                         75-1845682
                         -----                                                         ----------
(State or other jurisdiction of incorporation of organization)             (I.R.S. Employer Identification No.)



5520 LBJ Freeway, Suite 500, Dallas, Texas                                                75240
------------------------------------------                                                -----
 (Address of principal executive offices)                                               (Zip code)
</Table>


                                 (972) 404-7100
              (Registrant's telephone number, including area code)



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                            Yes           No         Not yet applicable  X
                                 ---          ---                       ---


<PAGE>



S/M REAL ESTATE FUND VII, LTD.


<Table>
<Caption>
BALANCE SHEETS                                                  AT SEPTEMBER 30,   AT DECEMBER 31,
                                                                            2002              2001
                                                                     (UNAUDITED)
                                                                   -------------     -------------
<S>                                                         <C>             <C>
ASSETS
Real estate, at cost:
   Land                                                            $     962,216     $     962,216
   Building and improvements                                           7,956,802         7,971,336
                                                                   -------------     -------------
                                                                       8,919,018         8,933,552
   Less accumulated depreciation                                      (6,999,600)       (6,724,462)
                                                                   -------------     -------------
                                                                       1,919,418         2,209,090

Cash and cash equivalents                                                311,505           216,234
Cash held in escrow                                                      218,482            53,049
Restricted cash - replacement reserve                                     12,380           106,371
Accounts receivable                                                        6,878             3,846
Other assets, net                                                         72,981            57,859
                                                                   -------------     -------------

     TOTAL ASSETS                                                  $   2,541,644     $   2,646,449
                                                                   =============     =============

LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
   First mortgage note payable                                     $   6,165,600     $   6,218,682
   Accounts payable:
     Trade                                                                14,363            13,470
     Affiliates                                                           45,199            40,665
   Accrued expenses and other liabilities                                182,145            39,991
                                                                   -------------     -------------

     Total Liabilities                                                 6,407,307         6,312,808
                                                                   -------------     -------------
Partners' Deficit:
   General Partners                                                     (125,268)         (123,275)
   Limited Partners (11,080 units outstanding)                        (3,740,395)       (3,543,084)
                                                                   -------------     -------------
     Total Partners' Deficit                                          (3,865,663)       (3,666,359)
                                                                   -------------     -------------
     TOTAL LIABILITIES AND PARTNERS' DEFICIT                       $   2,541,644     $   2,646,449
                                                                   =============     =============
</Table>


STATEMENT OF PARTNERS' DEFICIT (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002



<Table>
<Caption>
                                                   GENERAL            LIMITED
                                                   PARTNERS           PARTNERS           TOTAL
                                                 -------------     -------------     -------------
<S>                                              <C>               <C>               <C>
BALANCE AT DECEMBER 31, 2001                     $    (123,275)    $  (3,543,084)    $  (3,666,359)
Net loss                                                (1,993)         (197,311)         (199,304)
                                                 -------------     -------------     -------------
BALANCE AT SEPTEMBER 30, 2002                    $    (125,268)    $  (3,740,395)    $  (3,865,663)
                                                 =============     =============     =============
</Table>




See accompanying notes to the financial statements.                          2


<PAGE>


S/M REAL ESTATE FUND VII, LTD.


STATEMENTS OF OPERATIONS (UNAUDITED)


<Table>
<Caption>
                                       THREE MONTHS ENDED SEPTEMBER 30,    NINE MONTHS ENDED SEPTEMBER 30,
                                                2002              2001              2002              2001
                                       -------------     -------------     -------------     -------------
<S>                                    <C>               <C>               <C>               <C>
INCOME
Rental                                 $     339,558     $     365,812     $   1,060,860     $   1,083,546
Interest and other                             2,096             4,244             4,313            11,810
                                       -------------     -------------     -------------     -------------
     Total Income                            341,654           370,056         1,065,173         1,095,356
                                       -------------     -------------     -------------     -------------

EXPENSES
Property operating                           198,058           202,055           553,107           532,798
Interest                                     113,031           114,276           336,342           339,973
Depreciation and amortization                108,324           107,491           323,451           324,485
General and administrative                    23,066            19,943            51,577            57,945
                                       -------------     -------------     -------------     -------------
     Total Expenses                          442,479           443,765         1,264,477         1,255,201
                                       -------------     -------------     -------------     -------------
NET LOSS                               $    (100,825)    $     (73,709)    $    (199,304)    $    (159,845)
                                       =============     =============     =============     =============
NET LOSS ALLOCATED:
To the General Partners                $      (1,008)    $        (737)    $      (1,993)    $      (1,598)
To the Limited Partners                      (99,817)          (72,972)         (197,311)         (158,247)
                                       -------------     -------------     -------------     -------------
                                       $    (100,825)    $     (73,709)    $    (199,304)    $    (159,845)
                                       =============     =============     =============     =============
PER LIMITED PARTNERSHIP UNIT
(11,080 OUTSTANDING)                   $       (9.01)    $       (6.59)    $      (17.81)    $      (14.28)
                                       =============     =============     =============     =============
</Table>




See accompanying notes to the financial statements.                          3

<PAGE>

S/M REAL ESTATE FUND VII, LTD.



<Table>
<Caption>
STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30,                                                 2002              2001
                                                                               -------------     -------------
<S>                                                                            <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                       $    (199,304)    $    (159,845)
Adjustments to reconcile net loss to net cash
provided by operating activities:
   Depreciation and amortization                                                     323,451           324,485
   Increase (decrease) in cash arising from changes in
   operating assets and liabilities:
     Cash held in escrow                                                            (165,433)         (129,651)
     Accounts receivable                                                              (3,032)           (2,381)
     Other assets                                                                    (19,707)           (9,758)
     Accounts payable                                                                  5,427             4,417
     Accrued expenses and other liabilities                                          142,154           147,747
                                                                               -------------     -------------
Net cash provided by operating activities                                             83,556           175,014
                                                                               -------------     -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash - replacement reserve                          93,991           (38,139)
Additions to real estate                                                             (29,194)          (29,201)
                                                                               -------------     -------------
Net cash provided by (used in) investing activities                                   64,797           (67,340)
                                                                               -------------     -------------
CASH FLOWS FROM FINANCING ACTIVITIES - Payments of principal
   on first mortgage note payable                                                    (53,082)          (49,451)
                                                                               -------------     -------------
Net increase in cash and cash equivalents                                             95,271            58,223
Cash and cash equivalents, beginning of period                                       216,234           136,606
                                                                               -------------     -------------
Cash and cash equivalents, end of period                                       $     311,505     $     194,829
                                                                               =============     =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest                                       $     336,342     $     339,973
                                                                               =============     =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Write-off of fully depreciated building and improvements                       $      43,728     $      10,123
                                                                               =============     =============
</Table>



See accompanying notes to the financial statements.                          4
<PAGE>


STATEMENTS OF CASH FLOWS (UNAUDITED)


NOTES TO THE FINANCIAL STATEMENTS

The quarterly unaudited financial statements for S/M Real Estate Fund VII, Ltd.
(the "Partnership") include all normal and recurring adjustments which are, in
the opinion of the general partners, necessary to present a fair statement of
financial position as of September 30, 2002, the results of operations for the
three and nine months ended September 30, 2002 and 2001, the change in partners'
deficit for the nine months ended September 30, 2002, and the cash flows for the
nine months ended September 30, 2002 and 2001. Results of operations for the
period are not necessarily indicative of the results to be expected for the full
year.

No significant events have occurred subsequent to fiscal year 2001, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).

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 the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.

During the nine months ended September 30, 2002 and 2001, the general partners
or their affiliates were reimbursed for Partnership administrative and operating
expenses, excluding property and construction management fees, in the amounts of
$8,891 and $7,730, respectively. Property management fees earned by an affiliate
of the Partnership's general partners were $42,604 and $43,420 for the nine
months ended September 30, 2002 and 2001, respectively.

The financial information included in this interim report as of September 30,
2002 and for the three and nine months ended September 30, 2002 and 2001 has
been prepared by management without audit by independent certified public
accountants. The Partnership's 2001 annual report contains audited financial
statements including the notes to the financial statements and should be read in
conjunction with the financial information contained in this interim report.

In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144), establishing financial
accounting and reporting for the impairment or disposal of long-lived assets.
The provisions of SFAS 144 were effective for the Partnership on January 1,
2002. The implementation of SFAS 144 on January 1, 2002 had no effect on the
Partnership's financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections."
The main provisions of this statement address the classification of debt
extinguishments and accounting for certain lease transactions. Implementation of
this statement is expected to have no impact on the financial statements of the
Partnership.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The main provisions of this statement address
the recognition of liabilities associated with an exit or disposal activity.
Implementation of this statement is expected to have no impact on the financial
statements of the Partnership.


                                                                              5
<PAGE>


S/M REAL ESTATE FUND VII, LTD.

PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.


Liquidity and Capital Resources

Under the terms of the Partnership's loan agreement, the Partnership is required
to make fixed monthly payments of principal and interest in the amount of
$43,269 until maturity on January 1, 2009, at which time the entire outstanding
principal balance and accrued interest is due. Under the terms of the loan
agreement, the Partnership is required to make monthly contributions of $3,905
which are held by the lender pending application for the completion of certain
required repairs to the Fifth Avenue property. At September 30, 2002, the
balance in this replacement reserve account was $12,380.

Cash and cash equivalents totaled $311,505 at September 30, 2002, compared to
$216,234 at December 31, 2001. The $95,271 increase is primarily attributable to
cash provided by operations and the release of restricted cash (see below)
partially offset by debt service payments and payments made to the replacement
reserve account and escrow account.

Cash held in escrow increased to $218,482 at September 30, 2002, from $53,049 at
December 31, 2001. The $165,433 increase is attributable to contributions to the
insurance and real estate tax escrow as required by the Partnership's loan
agreement.

Restricted cash replacement reserve decreased to $12,380 at September 30, 2002,
from $106,371 at December 31, 2001. The $93,991 decrease is attributable to the
release of $129,622 for replacements and completed required lender repairs,
offset in part by monthly contributions to the replacements reserve in
accordance with the terms of the loan agreement.

Other assets increased to $72,981 at September 30, 2002, from $57,859 at
December 31, 2001. The increase is primarily due to increases in prepaid
insurance which was partially offset by the amortization of loan costs.

Accounts receivable totaled $6,878 at September 30, 2002, compared to $3,846 at
December 31, 2001. The increase is primarily attributable to the timing of
tenant rental receipts. Accounts payable totaled $59,562 at September 30, 2002,
compared to $54,135 at December 31, 2001. The increase is primarily attributable
to the timing of payments for property management fees.

Accrued expenses and other liabilities totaled $182,145 at September 30, 2002,
compared to $39,991 at December 31, 2001. The change is primarily attributable
to the timing of payments for real estate taxes and partnership administrative
costs.

The Partnership's general partners currently expect funds from operations to be
sufficient to pay all obligations for 2002, including debt service. In the event
of any cash flow deficits, it is expected that such deficits will be funded by
the Partnership's existing cash balances. However, there can be no assurance
that the Partnership will have sufficient cash to fund such deficits.

Results of Operations

Operations resulted in net losses of $100,825 and $199,304 for the three and
nine-month periods ended September 30, 2002, respectively, compared with net
losses of $73,709 and $159,845 for the three and nine-month periods ended
September 30, 2001, respectively. The increased net loss for the three and
nine-months ended September 30, 2002 from the corresponding periods in 2001 are
primarily attributable to decreases in rental income and increases in property
operating expenses.

Rental income totaled $339,558 and $1,060,860 for the three and nine-month
periods ended September 30, 2002, respectively, compared to $365,812 and
$1,083,546, respectively, for the corresponding periods in 2001. Occupancy at
Fifth Avenue averaged approximately 94% and 95% for the three and nine-month
periods ended September 30, 2002, respectively, compared to 98% and 96% for the
three and nine-month periods ended September 30, 2001, respectively. The average
rental income per occupied square foot at Fifth Avenue was $8.59 and $8.75 for
the three and nine months ended September 30, 2002, respectively, compared to
$8.85 and $8.92, respectively, for the corresponding periods in 2001. The
decreases in the average rental income per occupied square foot in 2002 is
primarily attributable to an increase in rental concessions.



                                                                              6
<PAGE>



S/M REAL ESTATE FUND VII, LTD.

Total expenses for the three and nine-month periods ended September 30, 2002
were $442,479 and $1,264,477, respectively, compared to $443,765 and $1,255,201,
respectively, for the three and nine-month periods ended September 30, 2001. The
increase for the nine months ended September 30, 2002 from the corresponding
period in 2001 is primarily attributable to an increase in property operating
expenses offset in part by a decrease in partnership administration costs.

Property operating expenses consist primarily of on-site personnel expenses,
utility costs, repair and maintenance costs, property management fees,
advertising costs, insurance and real estate taxes. Property operating expenses
for the three and nine-month periods ended September 30, 2002 were $198,058 and
$553,107, respectively, compared to $202,055 and $532,798, respectively, for the
three and nine-month periods ended September 30, 2001. The increase for the nine
months ended September 30, 2002 from the corresponding period in 2001 is
primarily attributable to higher utility costs and property insurance costs.

General and administrative expenses for the three and nine-month periods ended
September 30, 2002 were $23,066 and $51,577, respectively, compared to $19,943
and $57,945, respectively, for the three and nine-month periods ended September
30, 2001. The increase for the three month period ended September 30, 2002 from
the corresponding period in 2001 is primarily due to higher professional
expenses. The decrease for the nine month period ended September 30, 2002 from
the corresponding period in 2001 is primarily due to lower legal expenses and
other professional expenses.

General

Words or phrases when used in this Form 10-Q or other filings with the
Securities and Exchange Commission, such as "does not believe" and "believes,"
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.


PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the information related to the market
risk of the Partnership since December 31, 2001.


PART I, ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of the chief executive officer
and chief financial officer of our general partner, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, the chief executive officer and chief financial officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic SEC
reports.

In addition, we reviewed our internal controls, and there has been no
significant changes in our internal controls or in other factors including any
corrective actions with regard to significant deficiencies and material
weaknesses that could significantly affect those controls subsequent to the
date of their last evaluation.



                                                                              7
<PAGE>



S/M REAL ESTATE FUND VII, LTD.



PART II                    OTHER INFORMATION

ITEMS 1-5                  Not applicable.

ITEM 6                     Exhibits and reports on Form 8-K.

                           (a) Exhibits -

                           2.1      Voluntary Petition of Shearson-Murray Real
                                    Estate Fund VII, Ltd. to commence a case
                                    under Chapter 11 of the Federal Bankruptcy
                                    Code in the United States Bankruptcy Court
                                    for the Western District of Texas-Austin
                                    Division, as filed on June 6, 1989.
                                    Reference is made to Exhibit 2a to the
                                    Partnership's Annual Report on Form 10-K
                                    filed with the Securities and Exchange
                                    Commission on June 14, 1989.

                           2.2      Modified First Amended Plan of
                                    Reorganization of Shearson-Murray Real
                                    Estate Fund VII, Ltd. in the United States
                                    Bankruptcy Court for the Western District of
                                    Texas-Austin Division Case No. 89-11662-LC
                                    filed February 20, 1990. Reference is made
                                    to the Partnership's Annual Report on Form
                                    10-K filed with the Securities and Exchange
                                    Commission on April 12, 1990.

                           3        Agreement of Limited Partnership of
                                    Shearson-Murray Real Estate Fund VII, Ltd.,
                                    as amended as of September 30, 1983.
                                    Reference is made to Partnership's Form 8-K
                                    filed with the Securities and Exchange
                                    Commission on October 26, 1983. Reference is
                                    made to Exhibit A to the Prospectus dated
                                    June 10, 1983 contained in Amendment No. 3
                                    to Partnership's Form S-11 Registration
                                    Statement filed with the Securities and
                                    Exchange Commission June 10, 1983.

                           10.1     Assignment and Assumption Agreement between
                                    Murray Management Corporation and Anterra
                                    Management Corporation for property
                                    management and leasing services dated
                                    January 1, 1990. Reference is made to
                                    Exhibit 10u to the Partnership's Annual
                                    Report on Form 10-K filed with the
                                    Securities and Exchange Commission May 15,
                                    1990.

                           10.2     Loan Agreement between S/M Real Estate Fund
                                    VII, Ltd. and General Electric Capital
                                    Corporation, dated December 3, 1998.
                                    Reference is made to Exhibit 10.1 to
                                    Partnership's Form 8-K filed with the
                                    Securities and Exchange Commission on
                                    December 14, 1998.

                           99.1     Pages A-16 to A-18 of Exhibit A to the
                                    Prospectus dated June 10, 1983, contained in
                                    Amendment No. 3 to Partnership's Form S-11
                                    Registration Statement filed with the
                                    Securities and Exchange Commission on June
                                    10, 1983. Reference is made to Exhibit 28a
                                    to the Partnership's Annual Report on Form
                                    10-K filed with the Securities and Exchange
                                    Commission on May 12, 1988.

                           99.2     Pages 10-18 of the Prospectus dated June 10,
                                    1983, contained in Amendment No. 3 to
                                    Partnership's Form S-11 Registration
                                    Statement filed with the Securities and
                                    Exchange Commission on June 10, 1983.
                                    Reference is made to Exhibit 28b to the
                                    Partnership's Annual Report on Form 10-K
                                    filed with the Securities and Exchange
                                    Commission on May 12, 1988.


                                                                              8
<PAGE>



S/M REAL ESTATE FUND VII, LTD.



                           99.3     Compromise Settlement Agreement between S/M
                                    Real Estate Fund VII, Ltd. and Federal
                                    National Mortgage Association, dated May 6,
                                    1996. Reference is made to Exhibit 99.1 to
                                    the Partnership's Quarterly Report on Form
                                    10-Q for the quarter ended June 30, 1996
                                    filed with the Securities and Exchange
                                    Commission.

                           99.4     $5,830,000 Multifamily Note and Addendum,
                                    dated May 30, 1996. Reference is made to
                                    Exhibit 99.2 to the Partnership's Quarterly
                                    Report on Form 10-Q for the quarter ended
                                    June 30, 1996 filed with the Securities and
                                    Exchange Commission.

                           99.5     $681,142 Subordinate Multifamily Note and
                                    Addendum, dated May 30, 1996. Reference is
                                    made to Exhibit 99.3 to the Partnership's
                                    Quarterly Report on Form 10-Q for the
                                    quarter ended June 30, 1996 filed with the
                                    Securities and Exchange Commission.

                           99.6     $6,400,000 Promissory Note, dated December
                                    3, 1998. Reference is made to Exhibit 99.1
                                    of the Partnership's Form 8-K filed with the
                                    Securities and Exchange Commission on
                                    December 14, 1998.

                           99.7     Certification Pursuant to 18 U.S.C. Section
                                    1350, as Adopted Pursuant to Section 906 of
                                    the Sarbanes-Oxley Act of 2002.

                           99.8     Certification Pursuant to 18 U.S.C. Section
                                    1350, as Adopted Pursuant to Section 906 of
                                    the Sarbanes-Oxley Act of 2002.

                           (b) Reports on Form 8-K - No reports on Form 8-K
                               were filed during the quarter ended
                               September 30, 2002.




                                                                             9
<PAGE>



S/M REAL ESTATE FUND VII, LTD.



                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                            S/M REAL ESTATE FUND VII, LTD.

                                    BY:     SM7 APARTMENT INVESTORS INC.
                                            General Partner


Date:  November 12, 2002                    BY:     /s/ Richard E. Hoffmann
                                                    ---------------------------
                                            Name:   Richard E. Hoffmann
                                            Title:  Chief Executive Officer,
                                                    Director, President and
                                                    Treasurer


Date:  November 12, 2002                    BY:     /s/ Sandy Robison
                                                    ---------------------------
                                            Name:   Sandy Robison
                                            Title:  Chief Financial Officer,
                                                    Vice President,
                                                    Secretary and Controller



                                                                             10
<PAGE>



S/M REAL ESTATE FUND VII, LTD.



                                 CERTIFICATIONS


I, Richard E. Hoffmann, certify that:

         1.       I have reviewed this quarterly report on Form 10-Q of S/M Real
                  Estate Fund VII, Ltd.;

         2.       Based on my knowledge, this quarterly report does not contain
                  any untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  quarterly report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this quarterly report,
                  fairly present in all material respects the financial
                  condition, results of operations and cash flows of the
                  registrant as of, and for, the period presented in this
                  quarterly report;

         4.       The registrant's other certifying officer and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and we have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this
                           quarterly report is being prepared;

                  b)       evaluated the effectiveness of our disclosure
                           controls and procedures as of a date within 90 days
                           prior to the filing date of this quarterly report
                           (the "Evaluation Date"); and

                  c)       presented in this quarterly report our conclusions
                           about the effectiveness of the disclosure controls
                           and procedures based on our evaluation as of the
                           Evaluation Date;

         5.       The registrant's other certifying officer and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  function):

                  a)       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect our ability to record, process, summarize and
                           report financial data and have identified for the
                           registrant's auditors any material weaknesses in
                           internal controls; and

                  b)       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in our internal controls;

         6.       The registrant's other certifying officer and I have indicated
                  in this quarterly report whether or not there were significant
                  changes in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.


                                            S/M REAL ESTATE FUND VII, LTD.

                                    BY:     SM7 APARTMENT INVESTORS INC.
                                            General Partner


Date:  November 12, 2002                    BY:     /s/ Richard E. Hoffmann
                                                    ---------------------------
                                            Name:   Richard E. Hoffmann
                                            Title:  Chief Executive Officer,
                                                    Director, President and
                                                    Treasurer



                                                                             11
<PAGE>



S/M REAL ESTATE FUND VII, LTD.



                                 CERTIFICATIONS


I, Sandy Robison, certify that:

         1.       I have reviewed this quarterly report on Form 10-Q of S/M Real
                  Estate Fund VII, Ltd.;

         2.       Based on my knowledge, this quarterly report does not contain
                  any untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  quarterly report;

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this quarterly report,
                  fairly present in all material respects the financial
                  condition, results of operations and cash flows of the
                  registrant as of, and for, the period presented in this
                  quarterly report;

         4.       The registrant's other certifying officer and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and we have:

                  a)       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this
                           quarterly report is being prepared;

                  b)       evaluated the effectiveness of our disclosure
                           controls and procedures as of a date within 90 days
                           prior to the filing date of this quarterly report
                           (the "Evaluation Date"); and

                  c)       presented in this quarterly report our conclusions
                           about the effectiveness of the disclosure controls
                           and procedures based on our evaluation as of the
                           Evaluation Date;

         5.       The registrant's other certifying officer and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  function):

                  a)       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect our ability to record, process, summarize and
                           report financial data and have identified for the
                           registrant's auditors any material weaknesses in
                           internal controls; and

                  b)       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in our internal controls;

         6.       The registrant's other certifying officer and I have indicated
                  in this quarterly report whether or not there were significant
                  changes in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.


                                            S/M REAL ESTATE FUND VII, LTD.

                                    BY:     SM7 APARTMENT INVESTORS INC.
                                            General Partner


Date:  November 12, 2002                    BY:     /s/ Sandy Robison
                                                    ---------------------------
                                            Name:   Sandy Robison
                                            Title:  Chief Financial Officer,
                                                    Vice President,
                                                    Secretary and Controller



                                                                             12
<PAGE>



S/M REAL ESTATE FUND VII, LTD.



                                INDEX TO EXHIBITS


<Table>
<Caption>
Document
 Number           Description
--------          -----------
<S>               <C>
  2.1             Voluntary Petition of Shearson-Murray Real Estate Fund VII,
                  Ltd. to commence a case under Chapter 11 of the Federal
                  Bankruptcy Code in the United States Bankruptcy Court for the
                  Western District of Texas-Austin Division, as filed on June 6,
                  1989. Reference is made to Exhibit 2a to the Partnership's
                  Annual Report on Form 10-K filed with the Securities and
                  Exchange Commission on June 14, 1989.

  2.2             Modified First Amended Plan of Reorganization of
                  Shearson-Murray Real Estate Fund VII, Ltd. in the United
                  States Bankruptcy Court for the Western District of
                  Texas-Austin Division Case No. 89-11662-LC filed February 20,
                  1990. Reference is made to the Partnership's Annual Report on
                  Form 10-K filed with the Securities and Exchange Commission on
                  April 12, 1990.

  3               Agreement of Limited Partnership of Shearson-Murray Real
                  Estate Fund VII, Ltd., as amended as of September 30, 1983.
                  Reference is made to Partnership's Form 8-K filed with the
                  Securities and Exchange Commission on October 26, 1983.
                  Reference is made to Exhibit A to the Prospectus dated June
                  10, 1983 contained in Amendment No. 3 to Partnership's Form
                  S-11 Registration Statement filed with the Securities and
                  Exchange Commission on June 10, 1983.

 10.1             Assignment and Assumption Agreement between Murray Management
                  Corporation and Anterra Management Corporation for property
                  management and leasing services dated January 1, 1990.
                  Reference is made to Exhibit 10u to the Partnership's Annual
                  Report on Form 10-K filed with the Securities and Exchange
                  Commission May 15, 1990.

 10.2             Loan Agreement between S/M Real Estate Fund VII, Ltd. and
                  General Electric Capital Corporation, dated December 3, 1998.
                  Reference is made to Exhibit 10.1 to Partnership's Form 8-K
                  filed with the Securities and Exchange Commission on December
                  14, 1998.

 99.1             Pages A-16 to A-18 of Exhibit A to the Prospectus dated June
                  10, 1983, contained in Amendment No. 3 to Partnership's Form
                  S-11 Registration Statement filed with the Securities and
                  Exchange Commission on June 10, 1983. Reference is made to
                  Exhibit 28a to the Partnership's Annual Report on Form 10-K
                  filed with the Securities and Exchange Commission on May 12,
                  1988.

 99.2             Pages 10-18 of the Prospectus dated June 10, 1983, contained
                  in Amendment No. 3 to Partnership's Form S-11 Registration
                  Statement filed with the Securities and Exchange Commission on
                  June 10, 1983. Reference is made to Exhibit 28b to the
                  Partnership's Form 10-K filed with the Securities and Exchange
                  Commission on May 12, 1988.

 99.3             Compromise Settlement Agreement between S/M Real Estate Fund
                  VII, Ltd. and Federal National Mortgage Association, dated May
                  6, 1996. Reference is made to Exhibit 99.1 to the
                  Partnership's Quarterly Report on Form 10-Q for the quarter
                  ended June 30, 1996 filed with the Securities and Exchange
                  Commission.

 99.4             $5,830,000 Multifamily Note and Addendum, dated May 30, 1996.
                  Reference is made to Exhibit 99.2 to the Partnership's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1996 filed with the Securities and Exchange Commission.

 99.5             $681,142 Subordinate Multifamily Note and Addendum, dated May
                  30, 1996. Reference is made to Exhibit 99.3 to the
                  Partnership's Quarterly Report on Form 10-Q for the quarter
                  ended June 30, 1996 filed with the Securities and Exchange
                  Commission.

 99.6             $6,400,000 Promissory Note, dated December 3, 1998. Reference
                  is made to Exhibit 99.1 of the Registrant's Form 8-K filed
                  with the Securities and Exchange Commission on December 14,
                  1998.
</Table>


                                                                             13
<PAGE>



S/M REAL ESTATE FUND VII, LTD.




                          INDEX TO EXHIBITS (continued)



<Table>
<Caption>
Document
 Number           Description
--------          -----------
<S>               <C>
 99.7             Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 99.8             Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>