FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


             (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1998
                             -----------------------

                                       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
                                     0-19140


                            CNL Income Fund VII, Ltd.
             (Exact name of registrant as specified in its charter)


          Florida                         59-2963871
(State or other jurisdiction            (I.R.S. Employer
of incorporation or organiza-           Identification No.)
tion)


400 E. South Street
Orlando, Florida                              32801
----------------------------             -----------------
(Address of principal                       (Zip Code)
executive offices)


Registrant's telephone number
(including area code)                         (407) 422-1574


Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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


<PAGE>









                                    CONTENTS




Part I                                                           Page

  Item 1.  Financial Statements:

    Condensed Balance Sheets                                     1

    Condensed Statements of Income                               2

    Condensed Statements of Partners' Capital                    3

    Condensed Statements of Cash Flows                           4

    Notes to Condensed Financial Statements                      5-6

  Item 2.  Management's Discussion and Analysis
             of Financial Condition and
             Results of Operations                               7-9

Part II

  Other Information                                              10


<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                            CONDENSED BALANCE SHEETS


                                               June 30,         December 31,
            ASSETS                               1998               1997
                                              -----------       --------

Land and buildings on operating
  leases, less accumulated
  depreciation of $2,321,748
  and $2,169,570                              $15,230,685      $15,382,863
Net investment in direct financing
  leases                                        3,407,502        3,447,152
Investment in joint ventures                    3,356,244        3,393,932
Mortgage notes receivable, less
  deferred gain of $125,804 and
  $126,303                                      1,245,798        1,250,597
Cash and cash equivalents                         822,009          761,317
Receivables, less allowance for
  doubtful accounts of $28,911
  and $32,959                                       6,435           64,092
Prepaid expenses                                   10,649            4,755
Accrued rental income, less
  allowance for doubtful accounts
  of $9,845 in 1998 and 1997                    1,162,013        1,114,632
Other assets                                       60,422           60,422
                                              -----------      -----------

                                              $25,301,757      $25,479,762
                                              ===========      ===========

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                              $     2,950      $     6,131
Escrowed real estate taxes payable                  9,581            7,785
Distributions payable                             675,000          675,000
Due to related parties                             10,926           34,883
Rents paid in advance                              54,280           60,671
                                              -----------      -----------
    Total liabilities                             752,737          784,470

Minority interest                                 147,107          147,514

Partners' capital                              24,401,913       24,547,778
                                              -----------      -----------

                                              $25,301,757      $25,479,762
                                              ===========      ===========

            See accompanying notes to condensed financial statements.

                                        1

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                            Quarter Ended                      Six Months Ended
                                                               June 30,                          June 30,
                                                     1998             1997              1998             1997
                                                  ----------       ----------        ----------       -------
<S> <C>
Revenues:
  Rental income from
    operating leases                              $  498,467       $  492,747        $  991,191       $  980,029
  Earned income from direct
    financing leases                                 103,779          123,095           208,154          246,760
  Contingent rental income                             2,958            1,972            12,378            3,083
  Interest and other income                           41,148           40,074            85,138           85,043
                                                  ----------       ----------        ----------       ----------
                                                     646,352          657,888         1,296,861        1,314,915
                                                  ----------       ----------        ----------       ----------

Expenses:
  General operating and
    administrative                                    34,550           37,767            67,662           69,493
  Bad debt expense                                        -             4,613                -             4,613
  Professional services                                7,313            5,498            12,594           10,406
  Real estate taxes                                       -             1,951                -             2,979
  State and other taxes                                   40               42             2,728            4,560
  Depreciation and
    amortization                                      76,089           76,089           152,178          152,178
                                                  ----------       ----------        ----------       ----------
                                                     117,992          125,960           235,162          244,229
                                                  ----------       ----------        ----------       ----------

Income Before Minority
  Interest in Income of
  Consolidated Joint Venture,
  Equity in Earnings of
  Unconsolidated Joint
  Ventures and Gain (Loss)
  on Sale of Land and
  Building                                           528,360          531,928         1,061,699        1,070,686

Minority Interest in Income
  of Consolidated Joint
  Venture                                             (4,596)          (4,673)           (9,256)          (9,300)

Equity in Earnings of
  Unconsolidated Joint
  Ventures                                            73,260           54,712           151,193           95,991

Gain (Loss) on Sale of
  Land and Building                                      252          (19,510)              499          (19,288)
                                                  ----------       ----------        ----------       ----------

Net Income                                        $  597,276       $  562,457        $1,204,135       $1,138,089
                                                  ==========       ==========        ==========       ==========

Allocation of Net Income:
  General partners                                $    5,972       $    5,703        $   12,041       $   11,459
  Limited partners                                   591,304          556,754         1,192,094        1,126,630
                                                  ----------       ----------        ----------       ----------

                                                  $  597,276       $  562,457        $1,204,135       $1,138,089
                                                  ==========       ==========        ==========       ==========

Net Income Per Limited
  Partner Unit                                    $    0.020       $    0.019        $    0.040        $    0.038
                                                  ==========       ==========        ==========        ==========

Weighted Average Number
  of Limited Partner
  Units Outstanding                               30,000,000       30,000,000        30,000,000        30,000,000
                                                  ==========       ==========        ==========        ==========
</TABLE>



            See accompanying notes to condensed financial statements.

                                        2

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                    CONDENSED STATEMENTS OF PARTNERS' CAPITAL


                                        Six Months Ended      Year Ended
                                            June 30,         December 31,
                                              1998               1997
                                        ----------------     ------------

General partners:
  Beginning balance                       $   181,085         $   156,785
  Net income                                   12,041              24,300
                                          -----------         -----------
                                              193,126             181,085
                                          -----------         -----------

Limited partners:
  Beginning balance                        24,366,693          24,484,985
  Net income                                1,192,094           2,581,708
  Distributions ($0.045 and
    $0.090 per limited partner
    unit, respectively)                    (1,350,000)         (2,700,000)
                                          -----------         -----------
                                           24,208,787          24,366,693
                                          -----------         -----------

Total partners' capital                   $24,401,913         $24,547,778
                                          ===========         ===========


            See accompanying notes to condensed financial statements.

                                        3

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                       CONDENSED STATEMENTS OF CASH FLOWS


                                                   Six Months Ended
                                                       June 30,
                                              1998                1997
                                          -----------          ----------

Increase (Decrease) in Cash and
  Cash Equivalents:

    Net Cash Provided by
      Operating Activities                $ 1,401,833          $ 1,380,469
                                          -----------          -----------

    Cash Flows from Investing
      Activities:
        Proceeds from sale of land                 -               223,589
        Investment in joint venture                -              (616,245)
        Collections on mortgage
          notes receivable                      5,267                4,758
        Other                                  13,255                   -
                                          -----------          ----------
            Net cash provided by
              (used in) investing
              activities                       18,522             (387,898)
                                          -----------          -----------

    Cash Flows from Financing
      Activities:
        Distributions to limited
          partners                         (1,350,000)          (1,350,000)
        Distributions to holder of
          minority interest                    (9,663)              (9,835)
                                          -----------          -----------
            Net cash used in
              financing activities         (1,359,663)          (1,359,835)
                                          -----------          -----------

Net Increase (Decrease) in Cash and
  Cash Equivalents                             60,692             (367,264)

Cash and Cash Equivalents at
  Beginning of Period                         761,317            1,305,429
                                          -----------          -----------

Cash and Cash Equivalents at End
  of Period                               $   822,009          $   938,165
                                          ===========          ===========

Supplemental Schedule of Non-Cash
  Financing Activities:

    Distributions declared and
      unpaid at end of period             $   675,000          $   675,000
                                          ===========          ===========






            See accompanying notes to condensed financial statements.

                                        4

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 1998 and 1997


1.       Basis of Presentation:

         The accompanying  unaudited  condensed  financial  statements have been
         prepared in accordance  with the  instructions  to Form 10-Q and do not
         include  all  of the  information  and  note  disclosures  required  by
         generally  accepted  accounting  principles.  The financial  statements
         reflect all adjustments,  consisting of normal  recurring  adjustments,
         which are, in the opinion of management,  necessary to a fair statement
         of the results for the interim periods presented. Operating results for
         the quarter and six months ended June 30, 1998,  may not be  indicative
         of the results  that may be expected  for the year ending  December 31,
         1998.  Amounts as of  December  31,  1997,  included  in the  financial
         statements,  have been derived from audited financial  statements as of
         that date.

         These unaudited financial statements should be read in conjunction with
         the financial statements and notes thereto included in Form 10-K of CNL
         Income Fund VII, Ltd. (the  "Partnership)  for the year ended  December
         31, 1997.

         The  Partnership  accounts  for its 83 percent  interest in San Antonio
         #849 Joint Venture using the  consolidation  method.  Minority interest
         represents the minority joint venture partner's  proportionate share of
         the  equity  in  the  Partnership's  consolidated  joint  venture.  All
         significant   intercompany   accounts   and   transactions   have  been
         eliminated.

         The general partners are in the process of analyzing the effects of the
         consensus reached by the Financial  Accounting  Standards Board in EITF
         98-9, entitled "Accounting for Contingent Rent in the Interim Financial
         Periods,"  issued in May 1998. The general  partners do not expect that
         the  conclusions  reached in this consensus will have a material effect
         on the Partnership's financial position or results of operations.




                                        5

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 1998 and 1997


2.       Concentration of Credit Risk:

         The  following  schedule  presents  total rental and earned income from
         individual  lessees,  each  representing  more than ten  percent of the
         Partnership's   total   rental  and  earned   income   (including   the
         Partnership's  share  of  total  rental  and  earned  income  from  the
         unconsolidated    joint   ventures   and   the   properties   held   as
         tenants-in-common  with  affiliates)  for at least one of the six month
         periods ended June 30:

                                                    1998                1997
                                                  --------            ------

                  Golden Corral Corporation       $341,757            $297,501
                  Restaurant Management
                    Services, Inc.                 220,170             220,750
                  Waving Leaves, Inc.              150,906                  -
                  Advantica Restaurant Group,
                    Inc.                            75,655             229,821

         Although  the  Partnership's   properties  are  geographically  diverse
         throughout the United States and the  Partnership's  lessees  operate a
         variety of  restaurant  concepts,  default by any one of these  lessees
         could   significantly   impact  the  results  of   operations   of  the
         Partnership.  However,  the general  partners  believe that the risk of
         such a default is reduced due to the  essential or important  nature of
         these properties for the on-going operations of the lessees.

                                        6

<PAGE>



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

         CNL Income Fund VII,  Ltd.  (the  "Partnership")  is a Florida  limited
partnership  that was organized on August 18, 1989, to acquire for cash,  either
directly or through  joint  venture  arrangements,  both newly  constructed  and
existing  restaurants,  as  well  as  land  upon  which  restaurants  were to be
constructed  (the  "Properties"),  which are leased  primarily  to  operators of
national and regional  fast-food and family-style  restaurant chains. The leases
are triple-net  leases,  with the lessees generally  responsible for all repairs
and maintenance,  property taxes, insurance and utilities.  As of June 30, 1998,
the  Partnership  owned 40 Properties,  including ten Properties  owned by joint
ventures in which the Partnership is a co-venturer and two Properties owned with
affiliates as tenants-in-common.

Liquidity and Capital Resources

         The  Partnership's  primary  source of capital for the six months ended
June 30, 1998 and 1997, was cash from  operations  (which includes cash received
from tenants,  distributions from joint ventures,  and interest and other income
received, less cash paid for expenses).  Cash from operations was $1,401,833 and
$1,380,469  for the six months ended June 30, 1998 and 1997,  respectively.  The
increase in cash from  operations  for the six months  ended June 30,  1998,  as
compared to the six months ended June 30, 1997, is primarily a result of changes
in income and expenses as described in "Results of Operations" below and changes
in the Partnership's working capital.

         Currently,  rental income from the Partnership's Properties is invested
in money market accounts or other short-term,  highly liquid investments pending
the  Partnership's  use of such  funds to pay  Partnership  expenses  or to make
distributions  to the partners.  At June 30, 1998, the  Partnership had $822,009
invested in such short-term investments, as compared to $761,317 at December 31,
1997. The funds remaining at June 30, 1998, after payment of  distributions  and
other  liabilities,  will be used to meet the Partnership's  working capital and
other needs.

         Total liabilities of the Partnership,  including distributions payable,
decreased to $752,737 at June 30, 1998,  from $784,470 at December 31, 1997. The
general  partners  believe that the  Partnership  has sufficient cash on hand to
meet its current working capital needs.

         Based on cash from operations,  the Partnership declared  distributions
to the limited  partners of $1,350,000 for each of the six months ended June 30,
1998 and 1997  ($675,000 for each of the quarters ended June 30, 1998 and 1997).
This represents  distributions for each applicable six months of $0.045 per unit
($0.023 per unit for each applicable quarter). No distributions were made to the
general  partners  for the quarters and six months ended June 30, 1998 and 1997.
No amounts distributed to the limited partners for the six months ended June 30,
1998 and 1997,

                                        7

<PAGE>



Liquidity and Capital Resources - Continued

are  required  to be or have  been  treated  by the  Partnership  as a return of
capital  for  purposes of  calculating  the  limited  partners'  return on their
adjusted  capital  contributions.  The  Partnership  intends to continue to make
distributions  of cash available for  distribution to the limited  partners on a
quarterly basis.

         The Partnership's  investment strategy of acquiring Properties for cash
and  leasing  them under  triple-net  leases to  operators  who  generally  meet
specified financial  standards  minimizes the Partnership's  operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.

         The general  partners have the right,  but not the obligation,  to make
additional capital  contributions if they deem it appropriate in connection with
the operations of the Partnership.

Results of Operations

         During the six months  ended June 30,  1997,  the  Partnership  and its
consolidated joint venture, San Antonio #849 Joint Venture,  owned and leased 31
wholly owned  Properties  (including  two  Properties  in Columbus,  Indiana and
Dunnellon,  Florida, which were sold in May and October 1997,  respectively) and
during the six months ended June 30, 1998, the Partnership and its  consolidated
joint  venture  owned and leased 29 wholly  owned  Properties,  to  operators of
fast-food and family-style  restaurant chains. In connection  therewith,  during
the six months  ended June 30, 1998 and 1997,  the  Partnership  and San Antonio
#849 Joint Venture earned  $1,199,345 and  $1,226,789,  respectively,  in rental
income from  operating  leases and earned income from direct  financing  leases,
$602,246 and  $615,842 of which was earned for the quarters  ended June 30, 1998
and 1997,  respectively.  Rental and earned income  decreased during the quarter
and six months  ended June 30,  1998,  as compared to the quarter and six months
ended June 30,  1997,  primarily as a result of the sales of the  Properties  in
Columbus, Indiana and Dunnellon, Florida in May and October 1997, respectively.

         During the six months ended June 30, 1997,  the  Partnership  owned and
leased nine Properties  indirectly through other joint venture  arrangements and
one Property  indirectly with an affiliate as  tenants-in-common  (including the
Property in Yuma, Arizona held as tenants-in-common  with an affiliate which was
sold in October 1997).  In addition,  during the six months ended June 30, 1998,
the Partnership owned and leased nine Properties  indirectly through other joint
venture   arrangements   and  two  Properties   indirectly  with  affiliates  as
tenants-in-common. In connection therewith, during the six months ended June 30,
1998 and 1997,  the  Partnership  earned  $151,193  and  $95,991,  respectively,
attributable  to net  income  earned  by these  unconsolidated  joint  ventures,
$73,260 and $54,712 of which was earned for the quarters ended June 30, 1998 and
1997,  respectively.  The increase in net income earned by joint ventures during
the quarter and six months

                                        8

<PAGE>



Results of Operations - Continued

ended June 30,  1998,  as compared to the quarter and six months  ended June 30,
1997,  is  primarily  due to the fact that in  December  1997,  the  Partnership
reinvested  the net sales  proceeds  received from the sale of two Properties in
October 1997, in a Property in  Smithfield,  North  Carolina,  and a Property in
Miami, Florida, with affiliates of the general partners as tenants-in-common.

         During at least one of the six  months  ended  June 30,  1998 and 1997,
four lessees of the  Partnership  and its  consolidated  joint  venture,  Golden
Corral Corporation,  Restaurant Management Services,  Inc., Advantica Restaurant
Group,  Inc. and Waving Leaves,  Inc., each contributed more than ten percent of
the  Partnership's  total  rental  income  (including  rental  income  from  the
Partnership's  consolidated joint venture and the Partnership's  share of rental
income from  Properties  owned by  unconsolidated  joint ventures and Properties
owned with affiliates as tenants-in-common).  As of June 30, 1998, Golden Corral
Corporation was the lessee under leases relating to five restaurants, Restaurant
Management  Services,  Inc.  was the  lessee  under  leases  relating  to  eight
restaurants,  Advantica  Restaurant  Group,  Inc.  was the lessee  under  leases
relating to two restaurants, and Waving Leaves, Inc. was the lessee under leases
relating  to four  restaurants.  It is  anticipated  that,  based on the minimum
rental payments required by the leases,  Golden Corral  Corporation,  Restaurant
Management  Services,  Inc.  and  Waving  Leaves,  Inc.  each will  continue  to
contribute more than ten percent of the Partnership's total rental income during
1998 and subsequent  years. Any failure of these lessees could materially affect
the Partnership's income.

         Operating expenses,  including  depreciation and amortization  expense,
were  $235,162  and  $244,229  for the six months  ended June 30, 1998 and 1997,
respectively,  of which  $117,992  and $125,960  were  incurred for the quarters
ended June 30, 1998 and 1997, respectively.

         As a result of the sale of the Property in Florence, South Carolina, in
August  1995,  and  recording  the  gain  using  the  installment   method,  the
Partnership  recognized a gain for financial reporting purposes of $499 and $451
for the six months ended June 30, 1998 and 1997, respectively,  $252 and $229 of
which  was   recognized   for  the  quarters  ended  June  30,  1998  and  1997,
respectively.  As a result of the sale of the Property in  Columbus,  Indiana in
1997,  the  Partnership  recognized a loss for financial  reporting  purposes of
$19,739  during the quarter and six months  ended June 30, 1997.  No  Properties
were sold during the quarter and six months ended June 30, 1998.

         The general partners are in the process of analyzing the effects of the
consensus  reached by the  Financial  Accounting  Standards  Board in EITF 98-9,
entitled  "Accounting  for Contingent  Rent in the Interim  Financial  Periods,"
issued in May 1998.  The general  partners  do not expect  that the  conclusions
reached  in this  consensus  will have a  material  effect on the  Partnership's
financial position or results of operations.

                                        9

<PAGE>



                           PART II. OTHER INFORMATION


Item 1.           Legal Proceedings.  Inapplicable.

Item 2.           Changes in Securities.  Inapplicable.

Item 3.           Defaults upon Senior Securities.  Inapplicable.

Item 4.           Submission of Matters to a Vote of Security Holders.

                  Inapplicable.

Item 5.           Other Information.  Inapplicable.

Item 6.           Exhibits and Reports on Form 8-K.

                  (a)      Exhibits - None.

                  (b)      No reports on Form 8-K were filed  during the quarter
                           ended June 30, 1998.

                                       10

<PAGE>


                                   SIGNATURES


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

         DATED this 11th day of August, 1998.


                            CNL INCOME FUND VII, LTD.

                            By:      CNL REALTY CORPORATION
                                     General Partner


                                     By:      /s/ James M. Seneff, Jr.
                                              ----------------------------
                                              JAMES M. SENEFF, JR.
                                              Chief Executive Officer
                                              (Principal Executive Officer)


                                     By:      /s/ Robert A. Bourne
                                              ----------------------------
                                              ROBERT A. BOURNE
                                              President and Treasurer
                                              (Principal Financial and
                                              Accounting Officer)