SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 2O549
                                    FORM 1O-K

(Mark One)
/ x /Annual  Report  Pursuant  to  Section  13 or 15 (d) of the  Securities  and
Exchange Act of 1934 [Fee required] for the fiscal year ended December 31, 1998.
or /  /Transition  report  pursuant  to  section  13 or 15(d) of the  Securities
Exchange  Act  of  1934  [No  fee  required]  for  the  transition  period  from
_____________ to _____________.

Commission File No. 2-83291.

DSI REALTY  INCOME FUND VII, a  California  Limited  Partnership  (Exact name of
registrant as specified in governing instruments)

_________California___________________________95-3871044_____
(State of other jurisdiction of              (I.R.S. Employer
incorporation or organization                identification number

         6700 E. Pacific Coast Hwy., Long Beach, California 9O8O3
         (Address of principal executive offices)     (Zip Code)

Registrants telephone number, including area code-(562)493-8881

Securities registered pursuant to Section 12(b) of the Act: none.

Securities registered pursuant to Section 12(g) of the Act:

                     Units of Limited Partnership Interests
                        (Class of Securities Registered)

     Indicate by check mark,  whether the  registrant  (l) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 9O days. Yes_X____. No______.

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained,  to the best of registrant's knowledge, in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /x/

     The Registrant is a limited  partnership and there is no voting stock.  All
units of limited  partnership  sold to date are owned by  non-affiliates  of the
registrant. All such units were sold at $5OO.OO per unit.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

Item 8. Registrant's Financial Statements for its fiscal year ended December 31,
     1998, incorporated by reference to Form 10-K, Part II.

Item 11.  Registrant's  Financial  Statements for its fiscal year ended December
     31, 1998, incorporated by reference to Form 10-K, Part III.

Item 12. Registration  Statement  on  Form  S-11,  previously  filed  with  the
     Securities and Exchange  Commission  pursuant to Securities Act of 1933, as
     amended, incorporated by reference to Form 10-K Part III.

Item 13.  Registrant's  Financial  Statements for its fiscal year ended December
     31, 1998, incorporated by reference to Form 10-K, Part III.

                                     PART I

Item l.  BUSINESS

     Registrant,   DSI  Realty  Income  Fund  VII  (the   "Partnership")   is  a
publicly-held limited partnership organized under the California Uniform Limited
Partnership Act pursuant to a Certificate  and Agreement of Limited  Partnership
(hereinafter  referred  to as  "Agreement")  dated  August 1, 1983.  The General
Partners  are  DSI  Properties,  Inc.,  a  California  corporation,  Diversified
Investors  Agency, a general  partnership,  whose current partners are Robert J.
Conway and Joseph W. Conway,  brothers.  The General  Partners are affiliates of
Diversified Securities,  Inc., a wholly-owned subsidiary of DSI Financial,  Inc.
The General Partners provide similar services to other partnerships. Through its
public  offering  of Limited  Partnership  Units,  Registrant  sold  twenty-four
thousand  (24,000) units of limited  partnership  interests  aggregating  Twelve
Million Dollars ($12,000,000).  The General Partners have retained a one percent
(l%)  interest  in all  profits,  losses and  distributions  (subject to certain
conditions)  without making any capital  contribution  to the  Partnership.  The
General  Partners  are not  required  to make any capital  contributions  to the
Partnership in the future. Registrant is engaged in the business of investing in
and operating mini-storage facilities with the primary objectives of generating,
for its  partners,  cash  flow,  capital  appreciation  of its  properties,  and
obtaining  federal  income tax  deductions  so that  during  the early  years of
operations,  all or a  portion  of such  distributable  cash  may not  represent
taxable income to its partners.  Funds obtained by Registrant  during the public
offering period of its units were used to acquire six  mini-storage  facilities.
Registrant does not intend to sell additional  limited  partnership  units.  The
term of the  Partnership  is fifty years but it is anticipated  that  Registrant
will sell  and/or  refinance  its  properties  prior to the  termination  of the
Partnership.  The Partnership is intended to be  self-liquidating  and it is not
intended that proceeds from the sale or refinancing of its operating  properties
will be reinvested. Registrant has no full time employees but shares one or more
employees with other publicly-held limited partnerships sponsored by the General
Partners.  The  General  Partners  are vested with  authority  as to the general
management and  supervision  of the business and affairs of Registrant.  Limited
Partners  have no right to  participate  in the  management  or  conduct of such
business and affairs.  An  independent  management  company has been retained to
provide day-to-day  management services with respect to all of the Partnership's
investment properties.

     The average  occupancy level for each of the  Partnership's  six properties
for the years ended December 31, 1998 and December 31, 1997 were as follows:


Location of Property       Average Occupancy         Average Occupancy Level
                           for the                   Level for the
                           Year Ended                Year Ended
                           Dec. 31, 1998             Dec. 31, 1997

Chico, California               89%                       86%

Fairfield, California           91%                       92%

Ft. Collins, Colorado           81%                       84%

LaVerne, California             88%                       89%

Littleton, Colorado             87%                       81%

Riverside, California           82%                       87%

     The  business in which the  Partnership  is engaged is highly  competitive.
Each of its  mini-storage  facilities  is located in or near a major urban area,
and  accordingly,   competes  with  a  significant  number  of  individuals  and
organizations  with respect to both the purchase and sale of its  properties and
for rentals.  Generally,  Registrant's business is not affected by the change in
seasons.

<PAGE>

Item 2.  PROPERTIES

     Registrant  owns a fee  interest in six  mini-storage  facilities,  none of
which are subject to long-term indebtedness. Additional information is set forth
in  Registrant's  letter to its Limited  Partners  regarding the Annual  Report,
attached hereto as Exhibit 2, and incorporated by this reference.  The following
table sets forth information as of December 31, 1998 regarding  properties owned
by the Partnership.

Location          Size of     Net Rentable     No. of            Completion
                  Parcel      Area             Rental Units      Date

Chico, CA         1.97 acres  39,580           366                9/05/84

Fairfield, CA     2.29 acres  40,668           442                8/31/84

Ft.Collins, CO    2.49 acres  57,284           603                3/27/85

LaVerne, CA       2.78 acres  50,652           523                8/21/84

Riverside, CA     2.92 acres  60,011           567               12/12/84

Littleton, CO     3.071 acres 43,380           404               11/01/85

Item 3.  LEGAL PROCEEDINGS

     Registrant is not a party to any material pending legal proceedings.

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

     None.

                                     PART II

Item 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
                  RELATED STOCKHOLDER MATTERS

     Registrant,  a  publicly-held  limited  partnership,  sold  24,000  limited
partnership  units during its offering and currently has 906 limited partners of
record.  There is no intention to sell additional limited  partnership units nor
is there a market for these units.

     Average  cash  distributions  of $12.59 per Limited  Partnership  Unit were
declared and paid each  quarter for the year ended  December 31, 1998 and $10.08
per Limited Partnership Unit were paid each quarter for the year ended 1997
and $10.00 per Limited Partnership Unit were paid each quarter for the year
ended 1996.


Item 6.  SELECTED FINANCIAL DATA
         FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995, and 1994
         --------------------------------------------------------------------
                     1998         1997         1996          1995        1994
                     ----         ----         ----          ----        ----

REVENUES          $2,158,172   $1,963,464   $1,868,678   $1,857,684   $1,845,486

COSTS AND
EXPENSES           1,483,535    1,430,018    1,416,685    1,397,768    1,359,766
                  ----------   ----------   ----------   ----------   ----------

NET
INCOME            $  674,637   $  533,446   $  451,993   $  459,916   $  485,720
                  ==========   ==========   ==========   ==========   ==========

TOTAL
ASSETS            $3,175,348   $3,719,366   $4,187,690   $4,697,315   $5,219,802
                  ==========   ==========   ==========   ==========   ==========

NET CASH
PROVIDED BY
OPERATING
ACTIVITIES        $1,179,538   $1,013,207   $  980,482   $  970,822   $  992,128
                  ==========   ==========   ==========   ==========   ==========

CASH
DISTRIBUTIONS
PER $500
LIMITED
PARTNERSHIP
UNIT              $    50.36   $    40.35   $    40.00   $    40.00   $    36.25
                  ==========   ==========   ==========   ==========   ==========

NET INCOME
PER LIMITED
PARTNERSHIP
UNIT              $    27.83   $    22.00   $    18.64   $    18.97   $    20.03
                  ==========   ==========   ==========   ==========   ==========

<PAGE>

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

                              RESULTS OF OPERATIONS


1998 COMPARED TO 1997

Total revenues increased from $1,963,464 in 1997 to $2,158,172 in 1998, while
total expenses increased from $1,430,018 to $1,483,535 resulting in an increase
in net income from $533,446 to $674,637.  The approximate $191,500 (9.8%)
increase in rental revenues can be attributed to unit higher rental rates.
Occupancy levels for the Partnership's six mini-storage units averaged 86.3%
for the year ended December 31, 1998 and 86.5% for the year ended December 31,
1997.  The Partnership is continuing its advertising campaign to attract and
keep new tenants in its various mini-storage facilities. The approximate $33,400
(5.8%) increase in operating expenses was due primarily to an increase in
maintenance and repair, salaries and wages and real estate tax expenses.
General and administrative expenses decreased slightly as a result of relatively
insignificant fluctuations in various expense accounts.  Property management
fees, which are based on revenue, increased as a result of the increase in
rental revenue.  General Partners' incentive management fee, which is based
on cash available for distribution, increased as a result of the increase in
net income.


1997 COMPARED TO 1996

     Total revenues increased from $1,868,678 in 1996 to $1,963,464 in 1997,
while total expenses increased from $1,416,685 to $1,430,018 resulting in an
increase in net income from $451,993 to $533,446.  The approximate $96,100
(5.2%) increase in rental revenues can be attributed to higher average
occupancy and unit rental rates.  Occupancy levels for the Partnership's six
mini-storage units averaged 86.5% for the year ended December 31, 1997 and
85.0% for the year ended December 31, 1996.  The Partnership is continuing its
advertising campaign to attract and keep new tenants in its various mini-
storage facilities.  The approximately $12,700 (2.2%) increase in operating
expenses was due primarily to an increase in yellow pages advertising costs,
maintenance and repair and salaries and wages partially offset by a decrease
in real estate tax expenses.  General and administrative expenses increased
approximately $14,600 (10.1%) primarily as a result of increases in postage,
legal and office expenses.  Property management fees, which are based on
revenue, increased as a result of the increase in rental revenue.  General
Partners' incentive management fees decreased slightly.


                         LIQUIDITY AND CAPITAL RESOURCES

     Net cash  provided  by  operating  activities  increased  by  approximately
$166,300 (16.4%) in 1998 compared to 1997 primarily due to the increase in the
net income.  Net cash provided by operating activities increased by
approximately $32,700 (3.3%) in 1997 compared to 1996 primarily due to the
increase in net income partially offset by decreases in customer deposits and
other liabilities, incentive management fees payable to general partners, other
assets and depreciation.

     Cash used in financing  activities,  as set forth in the statements of cash
flows,  has  consisted  solely of cash  distributions  to partners. A special
distribution of 2% was declared and paid on December 15, 1998.  This action was
the result of the Partnership's increased cash flow from the operations of its
properties.

     Cash used in investing  activities,  as set forth in the statements of cash
flows, has consisted  solely of acquisitions of equipment for the  Partnership's
mini-storage facilities. The Partnership has no material commitments for capital
expenditures.

     The  General  Partners  plan  to  continue  their  policy  of  funding  the
continuing  improvement  and  maintenance  of Partnership  properties  with cash
generated from operations.  The Partnership's  financial  resources appear to be
adequate to meet its needs for the next twelve months.

     The Year 2000 issue refers to the inability of certain computer systems
to recognize a date using "00" as the Year 2000.  The Partnership has
implemented a Year 2000 program, which has three phases: (1) identification;
(2) remediation; and (3) testing and verification.  The Partnership, as well as
the property management company and the Partnership's warehouse facilities have
completed those phases.  Computer programs have been upgraded and tested to
function properly with respect to the dates in the Year 2000 and thereafter.
Year 2000 compliance costs are nominal and have been expensed in the regular
course of business.  The Partnership provides no assurance that third-party
suppliers and customers will be compliant.  Nevertheless, the Partnership does
not believe that the Year 2000 issue will have a material adverse effect on its
financial condition or results of operations.

The General Partners are not aware of any environmental problems which could
have an adverse material effect upon the financial position of the Partnership.



<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Attached hereto as Exhibit l is the information required to be set forth as
     Item 8, Part II hereof.

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

     None.

                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT'S GENERAL PARTNER

     The General Partners of Registrant are the same as when the Partnership was
formed, i.e., DSI Properties,  Inc., a California  corporation,  and Diversified
Investors Agency. As of December 31, 1998,  Messrs.  Robert J. Conway and Joseph
W. Conway,  each of whom own approximately  48.4% of the issued and outstanding
capital stock of DSI Financial,  Inc., a California  corporation,  together with
Mr.  Joseph W. Stok,  currently  comprise  the entire  Board of Directors of DSI
Properties, Inc.

     Mr. Robert J. Conway is 65 years of age and is a licensed  California  real
estate  broker,  and since 1965 has been  President and a member of the Board of
Directors of  Diversified  Securities,  Inc.,  and since 1973  President,  Chief
Financial Officer and a member of the Board of Directors of DSI Properties, Inc.
Mr. Conway received a Bachelor of Science Degree from Marquette  University with
majors in Corporate Finance and Real Estate.

     Mr.  Joseph W.  Conway  is age 69 and has been  Executive  Vice  President,
Treasurer and a member of the Board of Directors of Diversified Securities, Inc.
since 1965 and since 1973 the Vice President,  Treasurer and member of the Board
of Directors of DSI  Properties,  Inc.  Mr.  Conway  received a Bachelor of Arts
Degree from Loras College with a major in Accounting.

     Mr.  Joseph  W.  Stok is age 75 and  has  been a  member  of the  Board  of
Directors of DSI  Properties,  Inc.  since 1994, a Vice President of Diversified
Securities,   Inc.  since  1973,  and  an  Account  Executive  with  Diversified
Securities, Inc. since 1967.

Item 11. EXECUTIVE COMPENSATION (MANAGEMENT REMUNERATION AND TRANSACTIONS)

     The  information  required  to be  furnished  in  Item  11 of  Part  III is
contained  in  Registrant's  Financial  Statements  for its  fiscal  year  ended
December 31, 1998,  which together with the report of its independent  auditors,
Deloitte & Touche LLP, is attached hereto as Exhibit 1 and  incorporated  herein
by this reference. In addition to such information:  (a) No annuity,  pension or
retirement  benefits are proposed to be paid by Registrant to any of the General
Partners or to any officer or director of the corporate General Partner;

     (b)  No  standard or other  arrangement  exists by which  directors  of the
          Registrant are compensated;

     (c)  The  Registrant  has not  granted  any option to  purchase  any of its
          securities; and

     (d)  The Registrant has no plan, nor does the Registrant  presently propose
          a plan,  which  will  result  in any  remuneration  being  paid to any
          officer or director upon termination of employment.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     As of  December  31,  1998,  no person of record  owned more than 5% of the
limited partnership units of Registrant,  nor was any person known by Registrant
to own of record and beneficially,  or beneficially  only, more than 5% thereof.
The balance of the  information  required to be furnished in Item 12 of Part III
is contained in  Registrant's  Registration  Statement on Form S-11,  previously
filed  pursuant  to the  Securities  Act of  1933,  as  amended,  and  which  is
incorporated  herein  by this  reference.  The only  change  to the  information
contained in said  Registration  Statement on Form S-11 is the fact that Messrs.
Benes and Blakley have retired and Messrs. Robert J. Conway and Joseph W. Conway
equity  interest in DSI Financial,  Inc.,  parent of DSI  Properties,  Inc., has
increased. Please see information contained in Item 10 hereinabove.

<PAGE>

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required  to be  furnished  in  Item  13 of  Part  III is
contained  in  Registrant's  Financial  Statements  for its  fiscal  year  ended
December 31, 1998,  attached hereto as Exhibit l and incorporated herein by this
reference.

                                     PART IV

Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)(l) Attached hereto and incorporated herein by this reference as Exhibit
          l are Registrant's  Financial Statements and Supplemental Schedule for
          its fiscal year ended December 31, 1998,  together with the reports of
          its independent  auditors,  Deloitte & Touche LLP.  See Index to 
          Financial Statements and Supplemental Schedule.

     (a)(2) Attached hereto and incorporated herein by this reference as Exhibit
          2 is Registrant's  letter to its Limited Partners regarding its Annual
          Report for its fiscal year ended December 31, 1998.

     (b)  No reports on Form 8K were filed during the fiscal year ended December
          31, 1998.

                                   SIGNATURES

     Pursuant  to the  requirements  of Section  13 or 15 (d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DSI REALTY INCOME FUND VII
by:  DSI Properties, Inc., a
California corporation, as
General Partner



By_____________________________     Dated:  March 31, 1999
  ROBERT J. CONWAY, President
  (Chief Executive Officer, Chief
  Financial Officer, and Director)



By____________________________      Dated:  March 31, 1999
  JOSEPH W. CONWAY (Executive
  Vice President and Director)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the following  persons on behalf of the registrant and
in the capacities and on the date indicated.

DSI REALTY INCOME FUND VII
by:  DSI Properties, Inc., a
California corporation, as
General Partner



By:__________________________               Dated:  March 31, 1999
  ROBERT J. CONWAY, President,
  Chief Executive Officer, Chief
  Financial Officer, and Director



By___________________________               Dated:  March 31, 1999
  JOSEPH W. CONWAY
  (Executive Vice President
  and Director)

<PAGE>

                           DSI REALTY INCOME FUND VII

                              CROSS REFERENCE SHEET

                        FORM 1O-K ITEMS TO ANNUAL REPORT


PART I, Item 3. There are no legal proceedings pending or threatened.

PART I, Item 4.  Not applicable.

PART II, Item 5.  Not applicable.

PART II, Item 6. The information required is contained in Registrant's Financial
Statements for its fiscal year ended December 31, 1998, attached as Exhibit l to
Form 10-K.

PART II, Item 8. See Exhibit l to Form 10-K filed herewith.

PART II, Item 9.  Not applicable.

<PAGE>

                                    EXHIBIT l

DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)

SELECTED FINANCIAL DATA
FIVE YEARS ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------

                         1998        1997        1996        1995        1994

REVENUES              $2,158,172  $1,963,464  $1,868,678  $1,857,684  $1,845,486

COSTS AND EXPENSES     1,483,535   1,430,018   1,416,685   1,397,768   1,359,766
                      ----------  ----------  ----------  ----------  ----------
NET INCOME            $  674,637  $  533,446  $  451,993  $  459,916  $  485,720
                      ==========  ==========  ==========  ==========  ==========
TOTAL ASSETS          $3,175,348  $3,719,366  $4,187,690  $4,697,315  $5,219,802
                      ==========  ==========  ==========  ==========  ==========
NET CASH PROVIDED BY
OPERATING ACTIVITIES  $1,179,538  $1,013,207  $  980,482  $  970,822     992,128
                      ==========  ==========  ==========  ==========  ==========
CASH DISTRIBUTIONS
PER $500 LIMITED
PARTNERSHIP UNIT      $    50.36  $    40.35  $    40.00  $    40.00  $    36.25
                      ==========  ==========  ==========  ==========  ==========
NET INCOME PER
LIMITED
PARTNERSHIP UNIT      $    27.83  $    22.00  $    18.64  $    18.97  $    20.03
                      ==========  ==========  ==========  ==========  ==========



The following are  reconciliations  between the operating  results and partners'
equity per the financial  statements and the Partnership's income tax return for
the year ended December 31, 1998.


                                                      Operating        Partners'
                                                        Results         Equity

Per financial statements                             $   674,637    $ 2,629,127
Excess financial statements depreciation                  59,154        563,104
Accrued property taxes                                   (13,055)       (89,055)
Deferred rental revenues                                                 67,065
Accrued incentive management fees                         (4,911)       216,206
Fixed asset adjustments                                                 218,274
Accrued distributions to partners                                       242,415
State taxes                                               (8,611)
                                                     -----------    -----------
Per Partnership income tax return                    $   707,214    $ 3,847,136
                                                     ===========    ===========
Net taxable income per $500 
limited partnership unit                             $     29.48
                                                     ===========
<PAGE>

DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)


INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE


                                                                            Page


FINANCIAL STATEMENTS:

   Independent Auditors' Report                                              F-1

    Balance Sheets at December 31, 1998 and 1997                             F-2

    Statements of Income for the Three Years Ended December 31, 1998         F-3

    Statements of Changes in Partners' Equity for the Three Years Ended
    December 31, 1998                                                        F-4

    Statements of Cash Flows for the Three Years Ended December 31, 1998     F-5

    Notes to Financial Statements                                            F-6

SUPPLEMENTAL SCHEDULE:

   Independent Auditors' Report                                              F-8

    Schedule XI - Real Estate and Accumulated Depreciation                   F-9

SCHEDULES OMITTED:

Financial  statements and schedules not listed above are omitted  because of the
     absence  of  conditions  under  which  they are  required  or  because  the
     information is included in the financial  statements named above, or in the
     notes thereto.

<PAGE>

INDEPENDENT AUDITORS' REPORT
To the Partners of 
DSI Realty Income Fund VII:

We have audited the accompanying balance sheets of DSI Realty Income Fund VII, a
California Real Estate Limited  Partnership (the  "Partnership")  as of December
31, 1998 and 1997,  and the related  statements of income,  changes in partners'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 1998.  These  financial  statements  are the  responsibility of the
Partnership's  management.  Our  responsibility  is to  express  an  opinion  on
these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial  position of DSI Realty Income Fund VII at December 31,
1998 and 1997,  and the results of its operations and its cash flows for each of
the three years in the period  ended  December  31,  1998,  in  conformity  with
generally accepted accounting principles.

February 5, 1999

DELOITTE & TOUCHE LLP
LONG BEACH, CALIFORNIA 

<PAGE>

DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)

BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------


ASSETS                                                  1998             1997

CASH AND CASH EQUIVALENTS                           $   459,100      $  500,294

PROPERTY, net (Notes 1, 2 and 3)                      2,672,106       3,181,412

OTHER ASSETS                                             44,142          37,660
                                                    -----------      -----------
TOTAL                                               $ 3,175,348      $3,719,366
                                                    ===========      ===========

LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:
Distribution due partners (Note 4)                  $   242,424      $   242,424
Incentive management fee payable to
general partners (Note 4)                               216,206          214,665
Property management fees payable (Note 1)                 8,527            7,991
Customer deposits and other liabilities                  79,064           79,064
                                                    -----------      -----------
Total liabilities                                       546,221          544,144
                                                    -----------      -----------
PARTNERS' EQUITY (DEFICIT)(Notes 1 and 4):
General partners                                        (81,477)        (76,015)
Limited partners (24,000 limited
partnership units outstanding
at December 31, 1998 and 1997)                        2,710,604        3,251,237
                                                   ------------      -----------
Total partners' equity                                2,629,127        3,175,222
                                                   ------------      -----------
TOTAL                                               $ 3,175,348      $ 3,719,366
                                                   ============      ===========

See accompanying notes to financial statements.

<PAGE>

DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)

STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------


                                               1998         1997         1996

REVENUES:
Rental revenues                             $2,143,909   $1,952,418   $1,856,287
Interest income                                 14,263       11,046       12,391
                                            ----------   ----------   ----------
Total revenues                               2,158,172    1,963,464    1,868,678
                                            ----------   ----------   ----------
EXPENSES:
 Depreciation (Note 2)                         509,306      509,306      520,408
 Operating expenses (Note 1)                   611,775      578,411      565,727
 General and administrative                    155,704      158,808      144,242
 General partners' incentive
  management fee (Note 4)                       99,798       86,172       93,494
 Property management fee (Note 1)              106,952       97,321       92,814
                                            ----------   ----------   ----------
Total expenses                               1,483,535    1,430,018    1,416,685
                                            ----------   ----------   ----------
NET INCOME                                  $  674,637   $  533,446   $  451,993
                                            ==========   ==========   ==========
AGGREGATE NET INCOME ALLOCATED
TO (Note 4):
Limited partners                            $  667,891   $  528,111   $  447,473
General partners                                 6,746        5,335        4,520
                                            ----------   ----------   ----------
TOTAL                                       $  674,637   $  533,446   $  451,993
                                            ==========   ==========   ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (Notes 2 and 4)                        $    27.83   $    22.00   $    18.64
                                            ==========   ==========   ==========

See accompanying notes to financial statements.
<PAGE>

DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)

STATEMENTS OF CHANGES IN PARTNERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------


                                         General       Limited
                                        Partners       Partners         Total

                                       
BALANCE AT JANUARY 1, 1996             ($66,391)    $ 4,204,098     $ 4,137,707

 Net income                               4,520         447,473         451,993

 Distributions                           (9,697)       (960,001)       (969,698)
                                        -------     -----------     -----------
BALANCE DECEMBER 31, 1996              $(71,568)    $ 3,691,570     $ 3,620,002

 Net income                               5,335         528,111         533,446

 Distributions                           (9,782)       (968,444)       (978,226)
                                        -------     -----------     -----------
BALANCE AT DECEMBER 31, 1997           $(76,015)    $ 3,251,237     $ 3,175,222

 Net income                               6,746         667,891         674,637

 Distributions                          (12,208)     (1,208,524)     (1,220,732)
                                        -------     -----------     -----------
BALANCE, DECEMBER 31, 1998             $(81,477)    $ 2,710,604     $ 2,629,127
                                       =========    ===========     =========== 

See accompanying notes to financial statements.
<PAGE>

DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)

STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------


                                            1998          1997          1996

CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                             $   674,637   $   533,446   $   451,993
 Adjustments to reconcile net income
  to net cash provided by
  operating activities:
  Depreciation                              509,306       509,306       520,408
 Changes in assets and liabilities:
  Other assets                               (6,482)       (6,000)
  Incentive management fee
  payable to general partners                 1,541        (6,452)       (9,170)
  Property management fees payable              536          (961)        1,119
  Customer deposits and
   other liabilities                                      (16,132)       16,132
                                         -----------   -----------   -----------
  Net cash provided by operating
  activities                              1,179,538     1,013,207       980,482

CASH FLOWS FROM FINANCING ACTIVITIES -
Distributions to partners                (1,220,732)     (978,226)     (969,698)

CASH FLOWS FROM INVESTING ACTIVITIES -
Additions to property                                     (15,988)
                                        -----------   -----------   ------------
NET DECREASE(INCREASE)IN CASH AND
CASH EQUIVALENTS                            (41,194)       18,993        10,784

CASH AND CASH EQUIVALENTS,
AT BEGINNING OF YEAR                        500,294       481,301       470,517
                                        -----------   -----------   ------------
CASH AND CASH EQUIVALENTS,
AT END OF YEAR                          $   459,100   $   500,294   $   481,301
                                        ===========   ===========   ============

See accompanying notes to financial statements.
<PAGE>

DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)

NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998


1.      GENERAL


        DSI Realty Income Fund VII, a California Real Estate Limited Partnership
        (the "Partnership"),  has two general partners (DSI Properties, Inc. and
        Diversified Investors Agency) and limited partners owning 24,000 limited
        partnership  units  that were  purchased  for $500 a unit.  The  general
        partners have made no capital  contribution  to the  Partnership and are
        not  required  to make  any  capital  contribution  in the  future.  The
        Partnership  has a maximum  life of 50 years and was formed on August 1,
        1983  under  the  California  Uniform  Limited  Partnership  Act for the
        primary purpose of acquiring and operating real estate.

        The  Partnership  has acquired six  mini-storage  facilities  located in
        Chico,  Fairfield,  La Verne, and Riverside,  California and Ft. Collins
        and  Littleton,  Colorado.  All  facilities  were  purchased  from  Dahn
        Corporation ("Dahn"). Dahn is not affiliated with the Partnership.  Dahn
        is affiliated with other partnerships in which DSI Properties, Inc. is a
        general  partner.  The  mini-storage  facilities  are  operated  for the
        Partnership by Dahn under various agreements that are subject to renewal
        annually. Under the terms of the agreements, the Partnership is required
        to pay Dahn a property  management fee equal to 5% of gross revenue from
        operations, as defined.

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


        Cash and Cash  Equivalents - The  Partnership  classifies its short-term
        investments  purchased with an original maturity of three months or less
        as cash equivalents.

        Property  and  Depreciation  -  Property  is  recorded  at  cost  and is
        composed primarily of mini-storage facilities. Depreciation is provided
        for using the  straight-line  method over an estimated useful life of 15
        years for the facilities.  Building improvements are depreciated over
        a five-year period.

        Income  Taxes - No  provision  has  been  made for  income  taxes in 
        the  accompanying  financial  statements.  The taxable  income or loss 
        of the Partnership is allocated to each partner in accordance with the 
        terms of the Agreement of Limited  Partnership.  Each  partner's  tax 
        status,  in turn,  determines the appropriate  income tax for its 
        allocated share of the Partnership taxable income or loss.  The net 
        difference between the bases of the Partnership's assets and liabilities
        for federal income tax purposes and as reported for financial statement 
        purpose is  $ 1,218,009. 

        Revenues - Rental revenue is recognized using the accrual method 
        based on contractual amounts provided for in the lease agreements,
        which approximates recognition on a straight line basis.  The term
        of the lease agreements is usually less than one year.

        Net  Income  per  Limited  Partnership  Unit - Net  income  per  limited
        partnership  unit is computed by dividing  net income  allocated  to the
        limited partners by the weighted  average number of limited  partnership
        units outstanding during each year (24,000 in 1998, 1997 and 1996).

        Estimates - The  preparation of financial  statements in conformity with
        generally  accepted  accounting  principles  requires the  Partnership's
        management to make  estimates and  assumptions  that affect the reported
        amounts  of  assets  and  liabilities  at  the  date  of  the  financial
        statements and the reported  amounts of revenues and expenses during the
        reporting period.  Actual results could differ from those estimates.


        Impairment of Long-Lived Assets - The Partnership regularly reviews
        long-lived assets for impairment whenever events or changes in 
        circumstances indicate that the carrying amount of the asset may not
        be recoverable.  If the sum of the expected future cash flow is less
        than the carrying amount of the asset, the Partnership recognizes
        an impairment loss.  No impairment losses were required in 1998, 1997
        and 1996.

        Fair Value of Financial Instruments - The Company's financial
        instruments consist primarily of cash, receivables, accounts payable
        and accrued liabilities.  The carrying values of all financial
        instruments are representative of their fair values due to their short-
        term maturities.

        Concentrations of Credit Risk - Financial instruments that potentially
        subject the Partnership to concentrations of credit risk consist
        primarily of cash equivalents and rent receivables.  The Partnership
        places its cash equivalents with high credit quality institutions.

3.      PROPERTY

        At  December  31,  1998 and 1997,  the total cost of  property  and
        accumulated depreciation are as follows:


                                                  1998                1997
       Land                                   $ 2,089,800        $ 2,089,800
       Buildings and improvements               7,717,469          7,717,469
                                              -----------        -----------

       Total                                    9,807,269          9,807,269
       Less accumulated depreciation           (7,135,163)        (6,625,857)
                                              -----------         ----------

       Property, net                          $ 2,672,106        $ 3,181,412
                                              ===========         ===========

4.      ALLOCATION OF PROFITS AND LOSSES AND GENERAL PARTNER MANAGEMENT FEES


        Under the Agreement of Limited Partnership,  the general partners are to
        be  allocated  1% of the net profits or losses from  operations  and the
        limited  partners are to be allocated  the balance of the net profits or
        losses  from  operations  in  proportion  to their  limited  partnership
        interests.   The  general  partners  are  also  entitled  to  receive  a
        percentage,  based on a predetermined  formula, of any cash distribution
        from the  sale,  other  disposition,  or  refinancing  of a real  estate
        project.

        In addition, the general partners are entitled to receive an incentive 
        management fee for supervising the operations of the Partnership.  The
        fee is to be paid in an amount equal to 9% per annum of the cash 
        available for distribution on a cumulative basis.

5.      BUSINESS SEGMENT INFORMATION

        The following disclosure about segment reporting of the Partnership is
        made in accordance with the requirements of SFAS No. 131, Disclosures
        about Segments of an Enterprise and Related Information.  The
        Partnership operates under a single segment; storage facility
        operartions, under which the Partnership rents its storage facilities
        to its customers on a need basis and charges rent on a predetermined
        rate.

<PAGE>

INDEPENDENT AUDITORS' REPORT 
To the Partners of 
DSI Realty Income Fund VII:

We have  audited the accompanying balance  of DSI Realty  Income Fund VII (the
"Partnership") as of December 31, 1998 and 1997, and the related statements of
income, changes in partners' equity (deficit), and cash flows for each of the
three years in the period ended  December 31, 1998.  These financial statements
are the responsibility of the Partnership's management.  Our  responsibility is
to express an opinion based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion,  such financial  statement present fairly in all material
respects the financial position of DSI Realty Income Fund VII at December 31,
1998, in conformity with generally accepted accounting principles.





February 5, 1999

<PAGE> 

DSI REALTY INCOME FUND VII
(A California Real Estate Limited Partnership)

REAL ESTATE AND ACCUMULATED DEPRECIATION
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                    Costs Capitalized
                                 Initial Cost to      Subsequent to    Gross Amount at Which Carried
                                   Partnership         Acquisition           at Close of Period
                               -------------------  -----------------  -----------------------------
                                        Buildings                               Buildings                         Date  
                                           and       Improve- Carrying             and                    Accum.   of   Date
Description       Encumbrances   Land  Improvements    ments   Costs     Land   Improvements   Total     Deprec.  Const. Acq. Life

MINI-U-STORAGE
<S>                   <C>     <C>       <C>         <C>            <C>         <C>        <C>         <C>         <C>   <C>   <C>

Chico, CA             None    $209,700  $  933,155   $ 5,888         $209,700  $  939,043  $1,148,743    894,697  09/84 12/83 15 Yrs
Fairfield, CO         None     264,500   1,268,897     6,659          264,500   1,275,556   1,540,056  1,223,192  08/84 01/84 15 Yrs
Fort Collins, CO      None     375,100   1,389,919    15,686          375,100   1,405,605   1,780,705  1,318,774  12/84 05/84 15 Yrs
Riverside, CA         None     356,000   1,381,634    18,137          356,000   1,399,771   1,755,771  1,291,695  12/84 06/84 15 Yrs
La Verne, CA          None     453,250   1,243,972     6,127          453,250   1,250,099   1,703,349  1,144,405  03/85 08/84 15 Yrs
Littleton, CO         None     431,250   1,423,813    23,582          431,250   1,447,395   1,878,645  1,262,400  10/85 05/85 15 Yrs
                              --------  ----------   -------         --------  ----------  ---------- ----------
                            $2,089,800  $7,641,390  $ 76,079       $2,089,800  $7,717,469  $9,807,269 $7,135,163
                            ==========  ==========  ========       ==========  ========== =========== ==========
</TABLE>

                                                     Real Estate     Accumulated
                                                        at Cost     Depreciation

               Balance at January 1, 1995               9,791,281      5,596,143
                 Additions                                               520,408
                                                      -----------     ----------
               Balance at December 31, 1996             9,791,281      6,116,551
                 Additions                                 15,988        509,306
                                                      -----------     ----------
               Balance at December 31, 1997           $ 9,807,269     $6,625,857
                 Additions                                               509,306
                                                      -----------     ----------
               Balance at December 31, 1998           $ 9,807,269     $7,135,163
                                                      ===========     ==========



<PAGE>

                                    EXHIBIT 2

                                 March 31, 1999

                      ANNUAL REPORT TO LIMITED PARTNERS OF

                           DSI REALTY INCOME FUND VII

Dear Limited Partner:

     This report  contains the  Partnership's  balance sheets as of December 31,
1998 and 1997, and the related statements of income, changes in partners' equity
and cash flows for each of the three years in the period ended December 31, 1998
accompanied  by an  independent  auditors'  report.  The  Partnership  owns  six
mini-storage  facilities.  The Partnership's  properties were each purchased for
all cash and funded solely from subscriptions for limited partnership  interests
without the use of mortgage financing.

     Your attention is directed to the section entitled Management's  Discussion
and Analysis of Financial  Condition and Results of  Operations  for the General
Partners'  discussion and analysis of the financial statements and operations of
the Partnership.

     Average  occupancy levels for each of the  Partnership's six properties for
the years ended December 31, 1998 and December 31, 1997 were as follows:

Location of Property               Average Occupancy          Average Occupancy
                                   Levels for the             Levels for the
                                   Year Ended                 Year Ended
                                   Dec. 31, 1998              Dec. 31, 1997

Chico, California                     89%                        86%

Fairfield, California                 91%                        92%

Ft. Collins, Colorado                 81%                        84%

LaVerne, California                   88%                        89%

Littleton, Colorado                   87%                        81%

Riverside, California                 82%                        87%

     We will keep you informed of the  activities  of DSI Realty Income Fund VII
as  they  develop.  If  you  have  any  questions,  please  contact  us at  your
convenience at (562) 493-3022.

     If you would like a copy of the  Partnership's  Annual  Report on Form 10-K
for the year ended  December  31, 1998 which was filed with the  Securities  and
Exchange  Commission (which report includes the enclosed Financial  Statements),
we will forward a copy of the report to you upon written request.

                                                     Very truly yours,

                                                     DSI REALTY INCOME FUND VII
                                                     By:  DSI Properties, Inc.



                                                   By___________________________
                                                     ROBERT J. CONWAY, President

<PAGE>