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, 2004
--------------------------------------------------------------------------------

                                       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 of                        (I.R.S. Employer
 incorporation or organization)                       Identification No.)


        450 South Orange Avenue
            Orlando, Florida                                 32801
----------------------------------------      ----------------------------------
(Address of principal executive offices)                   (Zip Code)


Registrant's telephone number
(including area code)                                    (407) 540-2000
                                              ----------------------------------


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 ____

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act):Yes___ No X

<PAGE>

                                    CONTENTS



                                                                           Page
Part I.

         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            5-7

         Item 2.    Management's Discussion and Analysis of Financial
                        Condition and Results of Operations                8-10

         Item 3.    Quantitative and Qualitative Disclosures About
                        Market Risk                                        10

         Item 4.    Controls and Procedures                                10


Part II.

         Other Information                                                 11-12

<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>

                                                            June 30,             December 31,
                                                              2004                   2003
                                                       ------------------     ------------------
                        ASSETS

   Real estate properties with operating leases, net   $      15,364,057      $      15,516,336
   Net investment in direct financing leases                   2,984,900              3,057,744
   Investment in joint ventures                                5,195,145              5,226,092
   Cash and cash equivalents                                   1,010,026                995,838
   Receivables                                                        --                 94,390
   Accrued rental income                                       1,098,409              1,091,275
   Other assets                                                   87,651                 85,335
                                                       ------------------     ------------------

                                                       $      25,740,188      $      26,067,010
                                                       ==================     ==================

           LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable and accrued expenses               $          20,897      $           6,324
   Real estate taxes payable                                      14,480                  3,656
   Distributions payable                                         675,000                675,000
   Due to related parties                                         17,034                 11,333
   Rents paid in advance                                          86,404                 81,463
   Deferred rental income                                        113,541                117,093
                                                       ------------------     ------------------
       Total liabilities                                         927,356                894,869

   Minority interests                                          1,795,593              1,803,381

   Partners' capital                                          23,017,239             23,368,760
                                                       ------------------     ------------------

                                                       $      25,740,188      $      26,067,010
                                                       ==================     ==================
</TABLE>

           See accompanying notes to condensed financial statements.

                                       1
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                         CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
<S> <C>

                                                                Quarter Ended                  Six Months Ended
                                                                   June 30,                        June 30,
                                                            2004             2003             2004             2003
                                                       --------------   --------------   --------------   --------------
Revenues:
    Rental income from operating leases                $     503,835    $     502,007    $   1,007,872    $   1,002,701
    Earned income from direct financing leases                91,411           95,678          183,940          192,340
    Contingent rental income                                     630              188            2,667              815
    Interest and other income                                     --              966              202            1,502
                                                       --------------   --------------   --------------   --------------
                                                             595,876          598,839        1,194,681        1,197,358
                                                       --------------   --------------   --------------   --------------

Expenses:
    General operating and administrative                      64,457           58,081          146,154          129,082
    Property related                                           9,519            4,898           11,086           10,407
    State and other taxes                                      5,564               --           34,530           31,806
    Depreciation and amortization                             79,937           74,250          156,988          152,280
                                                       --------------   --------------   --------------   --------------
                                                             159,477          137,229          348,758          323,575
                                                       --------------   --------------   --------------   --------------

Income before minority interests and equity in
    earnings of unconsolidated joint ventures                436,399          461,610          845,923          873,783

Minority interests                                           (49,176)         (48,206)         (98,078)         (94,401)

Equity in earnings of unconsolidated joint ventures          126,999          125,752          250,634          252,373
                                                       --------------   --------------   --------------   --------------

Net income                                             $     514,222    $     539,156    $     998,479    $   1,031,755
                                                       ==============   ==============   ==============   ==============

Income per limited partner unit                        $       0.017    $       0.018    $       0.033    $       0.034
                                                       ==============   ==============   ==============   ==============
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
<TABLE>
<CAPTION>
<S> <C>

                                              Six Months Ended         Year Ended
                                                  June 30,            December 31,
                                                    2004                  2003
                                             ------------------    ------------------

General partners:
    Beginning balance                        $         230,931     $         230,931
    Net income                                              --                    --
                                             ------------------    ------------------
                                                       230,931               230,931
                                             ------------------    ------------------

Limited partners:
    Beginning balance                               23,137,829            23,609,162
    Net income                                         998,479             2,228,667
    Distributions ($0.045 and $0.090 per
       limited partner unit, respectively)          (1,350,000)           (2,700,000)
                                             ------------------    ------------------
                                                    22,786,308            23,137,829
                                             ------------------    ------------------

Total partners' capital                      $      23,017,239     $      23,368,760
                                             ==================    ==================
</TABLE>

           See accompanying notes to condensed financial statements.

                                       3
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C>

                                                                  Six Months Ended
                                                                      June 30,
                                                               2004              2003
                                                          --------------    --------------


  Net cash provided by operating activities               $   1,470,054     $   1,438,117
                                                          --------------    --------------

  Cash flows from financing activities:
      Distributions to limited partners                      (1,350,000)       (1,350,000)
      Distributions to holders of minority interests           (105,866)         (101,261)
                                                          --------------    --------------
         Net cash used in financing activities               (1,455,866)       (1,451,261)
                                                          --------------    --------------

  Net increase (decrease) in cash and cash equivalents           14,188           (13,144)

  Cash and cash equivalents at beginning of period              995,838           988,102
                                                          --------------    --------------

  Cash and cash equivalents at end of period              $   1,010,026     $     974,958
                                                          ==============    ==============

  Supplemental schedule of non-cash financing
      activities:

         Distributions declared and unpaid at end of
            period                                        $     675,000     $     675,000
                                                          ==============    ==============
</TABLE>

           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, 2004 and 2003


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 the general partners, necessary for a fair
         statement of the results for the interim periods  presented.  Operating
         results for the quarter and six months ended June 30, 2004,  may not be
         indicative  of the  results  that may be  expected  for the year ending
         December  31, 2004.  Amounts as of December  31, 2003,  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, 2003.

         The Partnership accounts for its 83% interest in San Antonio #849 Joint
         Venture,  its 79%  interest in CNL  Mansfield  Joint  Venture,  its 56%
         interest in Duluth Joint  Venture,  its 68.75%  interest in CNL VII, XV
         Columbus Joint Venture and its 79% interest in Arlington  Joint Venture
         using  the  consolidation  method.  Minority  interests  represent  the
         minority joint venture partners'  proportionate  share of the equity in
         the consolidated joint ventures. All significant  intercompany accounts
         and transactions have been eliminated.

         In December 2003,  the Financial  Accounting  Standards  Board issued a
         revision to FASB  Interpretation  No. 46 (originally  issued in January
         2003)  ("FIN  46R"),  "Consolidation  of  Variable  Interest  Entities"
         requiring  existing  unconsolidated  variable  interest  entities to be
         consolidated by their primary beneficiaries. The primary beneficiary of
         a variable  interest entity is the party that absorbs a majority of the
         entity's expected losses,  receives a majority of its expected residual
         returns, or both, as a result of holding variable interests,  which are
         the ownership,  contractual,  or other pecuniary interests in an entity
         that change with  changes in the fair value of the  entity's net assets
         excluding  variable  interests.  Prior to FIN 46R, a company  generally
         included  another  entity  in  its  financial  statements  only  if  it
         controlled the entity through voting interests.  Application of FIN 46R
         is  required  in  financial  statements  of public  entities  that have
         interests in variable  interest entities for periods ending after March
         15,  2004.  The  Partnership  adopted FIN 46R during the quarter  ended
         March 31,  2004,  which  resulted in the  consolidation  of  previously
         unconsolidated  joint  ventures,  which  were  accounted  for under the
         equity method. FIN 46R does not require, but does permit restatement of
         previously  issued financial  statements.  The Partnership has restated
         prior year's financial statements to maintain comparability between the
         periods presented.  Such  consolidation  resulted in certain assets and
         minority  interests,  and revenues and expenses,  of the entities being
         reported on a gross basis in the  Partnership's  financial  statements;
         however,  these  restatements had no effect on partners' capital or net
         income.

2.       Reclassification

         Certain  items in the  prior  year's  financial  statements  have  been
         reclassified to conform to 2004 presentation.  These  reclassifications
         had no effect on total partners' capital or net income.

3.       Investment in Joint Ventures

         During 2003, CNL Restaurant  Investments  II, in which the  Partnership
         owns an 18% interest,  entered into  negotiations with a third party to
         sell the property in San Antonio,  Texas. During 2004, the contract was
         terminated and as a result,  the joint venture  reclassified the assets
         from real estate held for sale to real estate properties with operating
         leases.

                                       5
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 2004 and 2003

3.       Investment in Joint Ventures - Continued

         CNL  Restaurant  Investments II owns five  properties.  Des Moines Real
         Estate Joint Venture,  TGIF Pittsburgh Joint Venture and CNL VII & XVII
         Lincoln  Joint  Venture  each  own  one  property.  In  addition,   the
         Partnership  and  affiliates,   in  four  separate  tenancy  in  common
         arrangements, each own one property.

         The following presents the combined,  condensed  financial  information
         for the joint  ventures and the  properties  held as  tenants-in-common
         with affiliates at:
<TABLE>
<CAPTION>
<S> <C>
                                                      June 30,       December 31,
                                                        2004             2003
                                                   --------------   --------------
          Real estate properties with operating
              leases, net                          $  14,044,828    $  14,218,282
          Net investment in direct financing
              leases                                     875,543          883,215
          Cash                                            50,343           73,039
          Receivables                                      2,798               --
          Accrued rental income                          505,547          467,513
          Liabilities                                     15,987           42,890
          Partners' capital                           15,463,072       15,599,159


                                 Quarter Ended                   Six Months Ended
                                   June 30,                          June 30,
                             2004             2003             2004             2003
                        --------------   --------------   --------------   --------------

          Revenues      $     468,782    $     465,897    $     931,608    $     936,086
          Expenses            (87,747)         (88,467)        (177,714)        (177,252)
                        --------------   --------------   --------------   --------------

          Net income    $     381,035    $     377,430    $     753,894    $     758,834
                        ==============   ==============   ==============   ==============
</TABLE>


         The Partnership  recognized  income of $250,634 and $252,373 during the
         six months  ended June 30, 2004 and 2003,  respectively,  $126,999  and
         $125,752  of which were earned  during the second  quarters of 2004 and
         2003,  respectively,  from these joint  ventures and  tenants-in-common
         arrangements.

4.       Subsequent Event

         On August 9, 2004, the Partnership entered into a definitive  Agreement
         and Plan of Merger  pursuant  to which the  Partnership  will be merged
         with a subsidiary of U.S. Restaurant Properties,  Inc. (NYSE: USV). The
         merger is one of multiple concurrent  transactions pursuant to which 17
         other  affiliated  limited  partnerships  also  will be  merged  with a
         subsidiary  of  U.S.  Restaurant  Properties,  Inc.  and in  which  CNL
         Restaurant  Properties,  Inc., an  affiliate,  also will be merged with
         U.S.  Restaurant  Properties,  Inc.  CNL  Restaurant  Properties,  Inc.
         currently  provides  property  management  and  other  services  to the
         Partnership.  The merger of the  Partnership  (and each of the 17 other
         affiliated mergers) is subject to certain conditions including approval
         by a majority of the limited partners, consummation of a minimum number
         of limited partnership mergers representing at least 75.0% in value (as
         measured  by the  value of the  merger  consideration)  of all  limited
         partnerships,  consummation  of the  merger  between  U. S.  Restaurant
         Properties,  Inc. and CNL Restaurant Properties,  Inc., approval of the
         shareholders of U.S. Restaurant  Properties,  Inc., and availability of
         financing.  The  transaction is expected to be consummated in the first
         quarter of 2005.

                                       6
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 2004 and 2003

4.       Subsequent Event - Continued

         Under the terms of the  transaction,  the limited partners will receive
         total  consideration  of  approximately  $30.21 million,  consisting of
         approximately $25.26 million in cash and approximately $4.95 million in
         U.S. Restaurant  Properties,  Inc. Series A Convertible Preferred Stock
         that is listed on the New York Stock  Exchange.  The  general  partners
         will receive total  consideration of approximately  $188,000 consisting
         of  approximately   $157,000  in  cash  and  approximately  $31,000  in
         preferred stock.

                                       7
<PAGE>

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

         CNL Income Fund VII, Ltd. (the "Partnership,"  which may be referred to
as "we," "us," or "our") is a Florida limited  partnership that was organized on
August 18, 1989, to acquire for cash,  either  directly or through joint venture
and  tenancy  in  common  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  restaurant chains.  The leases generally are triple-net leases,  with
the  lessees  responsible  for all  repairs  and  maintenance,  property  taxes,
insurance  and  utilities.  As of June 30, 2004 and 2003, we owned 18 Properties
directly and 17 Properties indirectly through joint venture or tenancy in common
arrangements.

Capital Resources

         For the six months ended June 30, 2004 and 2003,  net cash  provided by
operating activities was $1,470,054 and $1,438,117, respectively.

         At June 30, 2004, we had  $1,010,026 in cash and cash  equivalents,  as
compared to $995,838 at December  31, 2003.  At June 30, 2004,  these funds were
held in demand deposit  accounts at a commercial  bank.  The funds  remaining at
June 30, 2004, after payment of distributions and other liabilities, may be used
to invest in an additional Property and to meet our working capital needs.

Short-Term Liquidity

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

         Our  short-term   liquidity   requirements  consist  primarily  of  our
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
our operations.

         We  generally  distribute  cash  from  operations  remaining  after the
payment of operating  expenses to the extent that the general partners determine
that such funds are available for distribution.  Based primarily on current cash
from operations, we declared distributions to the limited partners of $1,350,000
for each of the six  months  ended  June 30,  2004 and 2003  ($675,000  for each
applicable quarter).  This represents  distributions of $0.045 per unit for each
of the six  months  ended  June  30,  2004 and  2003  ($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, 2004 and 2003. No amounts  distributed to
the  limited  partners  for the six  months  ended  June  30,  2004 and 2003 are
required  to be or have been  treated as a return of  capital  for  purposes  of
calculating   the   limited   partners'   return  on  their   adjusted   capital
contributions.  We  intend  to  continue  to make  distributions  of cash to the
limited partners on a quarterly basis.

         Total liabilities,  including  distributions  payable, were $927,356 at
June 30, 2004,  as compared to $894,869 at December  31,  2003.  The increase in
liabilities  was the result of an  increase  in  accounts  payable  and  accrued
expenses and real estate taxes  payable.  The general  partners  believe that we
have sufficient cash on hand to meet our current working capital needs.

Long-Term Liquidity

         We have no long-term debt or other long-term liquidity requirements.

Results of Operations

         Rental revenues from continuing  operations were $1,191,812  during the
six months ended June 30, 2004, as compared to $1,195,041 during the same period
of 2003, $595,246 and $597,685 of which were earned during the second quarter of
2004 and 2003,  respectively.  Rental revenues from continuing operations during
the quarter and six months ended June 30, 2004,  as compared to the same periods
of 2003, remained relatively constant,  as the leased property portfolio did not
change.

                                       8
<PAGE>

         In December 2003, Waving Leaves,  Inc., the tenant of the Properties in
Orrville,  Akron,  Minerva and  Seville,  Ohio filed for  Chapter 11  bankruptcy
protection.  In May 2004,  the leases  were  assigned to and assumed by Hardee's
Food Systems,  Inc. As of August 9, 2004,  we have received all rental  payments
relating to these leases.

         We earned $250,634  attributable to net income earned by unconsolidated
joint  ventures  during  the six months  ended June 30,  2004,  as  compared  to
$252,373  during the same period of 2003,  $126,999  and  $125,752 of which were
earned  during the  quarters  ended June 30,  2004 and 2003,  respectively.  Net
income earned by  unconsolidated  joint ventures during 2004, as compared to the
same periods of 2003,  remained relatively  constant,  as the property portfolio
owned by the joint ventures and tenancies in common did not change. During 2003,
CNL Restaurant  Investments II, in which the  Partnership  owns an 18% interest,
entered  into  negotiations  with a third  party  to sell  the  property  in San
Antonio,  Texas.  During 2004, the contract was terminated and as a result,  the
joint  venture  reclassified  the assets  from real estate held for sale to real
estate properties with operating leases.

         Operating expenses,  including  depreciation and amortization  expense,
were $348,758 during the six months ended June 30, 2004, as compared to $323,575
during the same period of 2003,  $159,477  and  $137,229 of which were  incurred
during the quarters ended June 30, 2004 and 2003, respectively.  The increase in
operating  expenses  during the quarter and six months ended June 30, 2004,  was
primarily  due to incurring  additional  general  operating  and  administrative
expenses, including legal fees.

         In December 2003,  the Financial  Accounting  Standards  Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"),   "Consolidation  of  Variable  Interest  Entities"   requiring  existing
unconsolidated  variable  interest  entities to be consolidated by their primary
beneficiaries.  The primary  beneficiary  of a variable  interest  entity is the
party that  absorbs a  majority  of the  entity's  expected  losses,  receives a
majority  of its  expected  residual  returns,  or both,  as a result of holding
variable  interests,  which are the ownership,  contractual,  or other pecuniary
interests  in an  entity  that  change  with  changes  in the fair  value of the
entity's net assets excluding  variable  interests.  Prior to FIN 46R, a company
generally  included  another  entity  in its  financial  statements  only  if it
controlled  the  entity  through  voting  interests.  Application  of FIN 46R is
required in  financial  statements  of public  entities  that have  interests in
variable  interest  entities for periods ending after March 15, 2004. We adopted
FIN 46R  during  the  quarter  ended  March  31,  2004,  which  resulted  in the
consolidation of previously  unconsolidated joint ventures,  CNL Mansfield Joint
Venture, Duluth Joint Venture, CNL VII, XV Columbus Joint Venture, and Arlington
Joint Venture,  which were  accounted for under the equity method.  FIN 46R does
not  require,  but  does  permit  restatement  of  previously  issued  financial
statements.   We  restated  prior  year's   financial   statements  to  maintain
comparability  between the periods  presented.  Such  consolidation  resulted in
certain  assets and  minority  interests,  and  revenues  and  expenses,  of the
entities being reported on a gross basis in our financial  statements;  however,
these restatements had no effect on partners' capital or net income.

         The general  partners  believe their  primary  objective is to maintain
current operations with restaurant operators as successfully as possible,  while
evaluating  strategic  alternatives,  including  alternatives  that may  provide
liquidity to the limited  partners.  Real estate  markets are strong  throughout
much of the nation,  and the performance of restaurants  has generally  improved
after several  challenging years. As a result, the general partners believe that
this is an attractive  period for a strategic event to monetize the interests of
the limited partners.

         In furtherance of this, on August 9, 2004, we entered into a definitive
Agreement  and  Plan of  Merger  pursuant  to  which  we will be  merged  with a
subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The merger is one of
multiple concurrent  transactions  pursuant to which 17 other affiliated limited
partnerships  also  will  be  merged  with  a  subsidiary  of  U.S.   Restaurant
Properties,  Inc. and in which CNL  Restaurant  Properties,  Inc., an affiliate,
also will be merged with U.S. Restaurant  Properties,  Inc. Our merger (and each
of the 17 other affiliated  mergers) is subject to certain conditions  including
approval by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as measured
by  the  value  of  the  merger  consideration)  of  all  limited  partnerships,
consummation  of the merger between U. S.  Restaurant  Properties,  Inc. and CNL
Restaurant  Properties,  Inc.,  approval of the shareholders of U.S.  Restaurant

                                       9
<PAGE>

Properties,  Inc., and availability of financing.  U.S.  Restaurant  Properties,
Inc.  is a real  estate  investment  trust  (REIT)  that  focuses  primarily  on
acquiring, owning and leasing restaurant properties. The transaction is expected
to be consummated in the first quarter of 2005.

         Under the terms of the  transaction,  our limited partners will receive
total consideration of approximately $30.21 million, consisting of approximately
$25.26  million  in cash and  approximately  $4.95  million  in U.S.  Restaurant
Properties,  Inc. Series A Convertible Preferred Stock that is listed on the New
York Stock Exchange.  The general  partners will receive total  consideration of
approximately   $188,000  consisting  of  approximately  $157,000  in  cash  and
approximately $31,000 in preferred stock.

         We received an opinion from Wachovia  Capital  Markets,  LLC that as of
August 9, 2004 the merger  consideration  to be  received  by the holders of our
general and limited  partnership  interests is fair,  from a financial  point of
view, to such holders.

         As reflected  above, the  contemplated  transactions  are complex,  and
contingent upon certain conditions. The restaurant marketplace,  the real estate
industry,  and the equities markets, all individually or taken as a whole, could
impact the  economics of this  transaction.  As a result,  there is no assurance
that we will be successful in completing the contemplated transaction.


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.


ITEM 4.    CONTROLS AND PROCEDURES

         The  general  partners  maintain  a  set  of  disclosure  controls  and
procedures  designed to ensure that information  required to be disclosed in our
filings  under  the  Securities  Exchange  Act of 1934 is  recorded,  processed,
summarized and reported within the time periods  specified in the Securities and
Exchange  Commission's  rules and forms.  The principal  executive and financial
officers of the corporate general partner have evaluated our disclosure controls
and procedures as of the end of the period  covered by this Quarterly  Report on
Form 10-Q and have determined  that such disclosure  controls and procedures are
effective.

         There was no change in internal  control over financial  reporting that
occurred during the most recent fiscal quarter that has materially affected,  or
is  reasonably  likely to materially  affect,  internal  control over  financial
reporting.

                                       10
<PAGE>

                           PART II. OTHER INFORMATION


Item 1.  Legal Proceedings.   Inapplicable.
         -----------------

Item 2.  Changes in Securities.   Inapplicable.
         ---------------------

Item 3.  Default 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

              3.1  Affidavit  and  Certificate  of  Limited  Partnership  of CNL
                   Income   Fund  VII,   Ltd.   (Included   as  Exhibit  4.1  to
                   Registration   Statement  No.   33-31482  on  Form  S-11  and
                   incorporated herein by reference.)

              4.1  Affidavit  and  Certificate  of  Limited  Partnership  of CNL
                   Income   Fund  VII,   Ltd.   (Included   as  Exhibit  4.1  to
                   Registration   Statement  No.   33-31482  on  Form  S-11  and
                   incorporated herein by reference.)

              4.2  Amended and Restated Agreement of Limited  Partnership of CNL
                   Income Fund VII,  Ltd.  (Included as Exhibit 4.2 to Form 10-K
                   filed with the Securities and Exchange Commission on April 1,
                   1996, and incorporated herein by reference.)

              10.1 Management  Agreement  between CNL Income Fund VII,  Ltd. and
                   CNL Investment Company (Included as Exhibit 10.1 to Form 10-K
                   filed with the Securities and Exchange Commission on April 1,
                   1996, and incorporated herein by reference.)

              10.2 Assignment  of  Management   Agreement  from  CNL  Investment
                   Company  to CNL  Income  Fund  Advisors,  Inc.  (Included  as
                   Exhibit  10.2 to Form  10-K  filed  with the  Securities  and
                   Exchange  Commission  on March  30,  1995,  and  incorporated
                   herein by reference.)

              10.3 Assignment  of  Management  Agreement  from CNL  Income  Fund
                   Advisors,  Inc.  to CNL  Fund  Advisors,  Inc.  (Included  as
                   Exhibit  10.3 to Form  10-K  filed  with the  Securities  and
                   Exchange Commission on April 1, 1996, and incorporated herein
                   by reference.)

              10.4 Assignment of Management  Agreement  from CNL Fund  Advisors,
                   Inc. to CNL APF  Partners,  LP.  (Included as Exhibit 10.4 to
                   Form 10-Q filed with the Securities  and Exchange  Commission
                   on August 10, 2001, and incorporated herein by reference.)

              10.5 Assignment of Management Agreement from CNL APF Partners,  LP
                   to CNL Restaurants  XVIII, Inc.  (Included as Exhibit 10.5 to
                   Form 10-Q filed with the Securities  and Exchange  Commission
                   on August 13, 2002, and incorporated herein by reference.)

                                       11
<PAGE>

              31.1 Certification of Chief Executive Officer of Corporate General
                   Partner  Pursuant  to Rule  13a-14  as  Adopted  Pursuant  to
                   Section  302  of  the  Sarbanes-Oxley  Act  of  2002.  (Filed
                   herewith.)

              31.2 Certification of Chief Financial Officer of Corporate General
                   Partner  Pursuant  to Rule  13a-14  as  Adopted  Pursuant  to
                   Section  302  of  the  Sarbanes-Oxley  Act  of  2002.  (Filed
                   herewith.)

              32.1 Certification of Chief Executive Officer of Corporate General
                   Partner  Pursuant  to  18  U.S.C.  Section  1350  as  Adopted
                   Pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002.
                   (Filed herewith.)

              32.2 Certification of Chief Financial Officer of Corporate General
                   Partner  Pursuant  to  18  U.S.C.  Section  1350  as  Adopted
                   Pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002.
                   (Filed herewith.)

         (b)  Reports on Form 8-K

              No reports on Form 8-K were filed  during the  quarter  ended June
              30, 2004.


                                       12
<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 9th day of August 2004


                            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)

<PAGE>

                                  EXHIBIT INDEX

Exhibit Number

         (c)  Exhibits

              3.1  Affidavit  and  Certificate  of  Limited  Partnership  of CNL
                   Income   Fund  VII,   Ltd.   (Included   as  Exhibit  4.1  to
                   Registration   Statement  No.   33-31482  on  Form  S-11  and
                   incorporated herein by reference.)

              4.1  Affidavit  and  Certificate  of  Limited  Partnership  of CNL
                   Income   Fund  VII,   Ltd.   (Included   as  Exhibit  4.1  to
                   Registration   Statement  No.   33-31482  on  Form  S-11  and
                   incorporated herein by reference.)

              4.2  Amended and Restated Agreement of Limited  Partnership of CNL
                   Income Fund VII,  Ltd.  (Included as Exhibit 4.2 to Form 10-K
                   filed with the Securities and Exchange Commission on April 1,
                   1996, and incorporated herein by reference.)

              10.1 Management  Agreement  between CNL Income Fund VII,  Ltd. and
                   CNL Investment Company (Included as Exhibit 10.1 to Form 10-K
                   filed with the Securities and Exchange Commission on April 1,
                   1996, and incorporated herein by reference.)

              10.2 Assignment  of  Management   Agreement  from  CNL  Investment
                   Company  to CNL  Income  Fund  Advisors,  Inc.  (Included  as
                   Exhibit  10.2 to Form  10-K  filed  with the  Securities  and
                   Exchange  Commission  on March  30,  1995,  and  incorporated
                   herein by reference.)

              10.3 Assignment  of  Management  Agreement  from CNL  Income  Fund
                   Advisors,  Inc.  to CNL  Fund  Advisors,  Inc.  (Included  as
                   Exhibit  10.3 to Form  10-K  filed  with the  Securities  and
                   Exchange Commission on April 1, 1996, and incorporated herein
                   by reference.)

              10.4 Assignment of Management  Agreement  from CNL Fund  Advisors,
                   Inc. to CNL APF  Partners,  LP.  (Included as Exhibit 10.4 to
                   Form 10-Q filed with the Securities  and Exchange  Commission
                   on August 10, 2001, and incorporated herein by reference.)

              10.5 Assignment of Management Agreement from CNL APF Partners,  LP
                   to CNL Restaurants  XVIII, Inc.  (Included as Exhibit 10.5 to
                   Form 10-Q filed with the Securities  and Exchange  Commission
                   on August 13, 2002, and incorporated herein by reference.)

              31.1 Certification of Chief Executive Officer of Corporate General
                   Partner  Pursuant  to Rule  13a-14  as  Adopted  Pursuant  to
                   Section  302  of  the  Sarbanes-Oxley  Act  of  2002.  (Filed
                   herewith.)

              31.2 Certification of Chief Financial Officer of Corporate General
                   Partner  Pursuant  to Rule  13a-14  as  Adopted  Pursuant  to
                   Section  302  of  the  Sarbanes-Oxley  Act  of  2002.  (Filed
                   herewith.)
<PAGE>

              32.1 Certification of Chief Executive Officer of Corporate General
                   Partner  Pursuant  to  18  U.S.C.  Section  1350  as  Adopted
                   Pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002.
                   (Filed herewith.)

              32.2 Certification of Chief Financial Officer of Corporate General
                   Partner  Pursuant  to  18  U.S.C.  Section  1350  as  Adopted
                   Pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002.
                   (Filed herewith.)

<PAGE>



                                  EXHIBIT 31.1


<PAGE>



                                  EXHIBIT 31.2


<PAGE>



                                  EXHIBIT 32.1


<PAGE>



                                  EXHIBIT 32.2