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 September 30, 2001
   --------------------------------------------------------------------------

                                       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 _________



<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             5-9

         Item 2.   Management's Discussion and Analysis of Financial
                       Condition and Results of Operations                 10-15

         Item 3.   Quantitative and Qualitative Disclosures About
                       Market Risk                                         15

Part II.

         Other Information                                                 16-17



<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                           September 30,           December 31,
                                                                               2001                    2000
                                                                         ------------------     -------------------

 <c>
                               ASSETS

   Land and buildings on operating leases, net                                $ 12,325,383            $ 11,297,040
   Net investment in direct financing leases                                     2,477,186               2,548,324
   Investment in joint ventures                                                  7,723,166               6,452,604
   Mortgage note receivable, less deferred gain of
       $122,996 in 2000                                                                 --                 994,593
   Cash and cash equivalents                                                     1,105,710               1,454,025
   Certificate of deposit                                                          102,115                 103,500
   Restricted cash                                                                      --               1,503,929
   Receivables, less allowance for doubtful accounts
       of $68,037 and $504, respectively                                             1,126                  86,351
   Due from related parties                                                         13,120                   1,256
   Prepaid expenses                                                                 14,928                  27,108
   Accrued rental income, less allowance for doubtful
       accounts of $9,845 in 2001 and 2000                                       1,068,347               1,078,762
   Other assets                                                                     60,422                  60,422
                                                                         ------------------     -------------------

                                                                              $ 24,891,503            $ 25,607,914
                                                                         ==================     ===================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                             $    6,957              $   31,415
   Accrued real estate taxes payable                                                11,327                      --
   Distributions payable                                                           675,000                 675,000
   Due to related parties                                                           27,205                  67,815
   Rents paid in advance and deposits                                                   --                   8,315
                                                                         ------------------     -------------------
       Total liabilities                                                           720,489                 782,545

   Minority interest                                                               142,666                 144,368

   Partners' capital                                                            24,028,348              24,681,001
                                                                         ------------------     -------------------

                                                                              $ 24,891,503            $ 25,607,914
                                                                         ==================     ===================
</TABLE>
           See accompanying notes to condensed financial statements.


<PAGE>


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

<TABLE>
<CAPTION>

                                                                     Quarter Ended                Nine Months Ended
                                                                     September 30,                  September 30,
                                                                  2001           2000            2001            2000
                                                              -------------   ------------   --------------  -------------

 <c>
Revenues:
    Rental income from operating leases                          $ 387,669      $ 441,670      $ 1,178,380     $1,376,390
    Earned income from direct financing leases                      76,147         96,044          230,614        293,376
    Contingent rental income                                         1,489          2,331            3,791          8,846
    Interest and other income                                        5,845         57,404           94,611        139,145
                                                              -------------   ------------   --------------  -------------
                                                                   471,150        597,449        1,507,396      1,817,757
                                                              -------------   ------------   --------------  -------------

Expenses:
    General operating and administrative                            42,081         50,258          213,598        139,566
    Professional services                                            5,892          3,755           30,066         18,965
    Real estate taxes                                                3,778             --           25,473             --
    State and other taxes                                               --             --           31,888         14,430
    Depreciation                                                    61,401         64,742          187,494        207,298
    Transaction costs                                                   --             --               --         65,043
                                                              -------------   ------------   --------------  -------------
                                                                   113,152        118,755          488,519        445,302
                                                              -------------   ------------   --------------  -------------

Income Before Minority Interest in Income of
   Consolidated Joint Venture, Equity in Earnings of
   Unconsolidated Joint Ventures, Gain on Sale of Assets
   and Provision for Loss on Assets                                357,998        478,694        1,018,877      1,372,455

Minority Interest in Income of Consolidated
    Joint Venture                                                   (4,652 )       (4,710 )        (13,823 )      (14,027 )

Equity in Earnings of Unconsolidated Joint Ventures                185,282        108,790          524,159        295,584

Gain on Sale of Assets                                                  --        619,811          122,996        717,375

Provision for Loss on Assets                                            --             --         (279,862 )           --
                                                              -------------   ------------   --------------  -------------

Net Income                                                       $ 538,628     $1,202,585      $ 1,372,347     $2,371,387
                                                              =============   ============   ==============  =============

Allocation of Net Income:
    General partners                                                $   --         $   --          $    --         $   --
    Limited partners                                               538,628      1,202,585        1,372,347      2,371,387
                                                              -------------   ------------   --------------  -------------

                                                                 $ 538,628     $1,202,585      $ 1,372,347     $2,371,387
                                                              =============   ============   ==============  =============

Net Income Per Limited Partner Unit                              $   0.018       $  0.040        $   0.046      $   0.079
                                                              =============   ============   ==============  =============

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.

<PAGE>


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

<TABLE>
<CAPTION>

                                                                     Nine Months Ended            Year Ended
                                                                       September 30,             December 31,
                                                                           2001                      2000
                                                                 --------------------------    ------------------

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

Limited partners:
    Beginning balance                                                        $  24,450,070          $ 23,928,555
    Net income                                                                   1,372,347             3,221,515
    Distributions ($0.068 and $0.090 per
       limited partner unit, respectively)                                      (2,025,000 )          (2,700,000 )
                                                                 --------------------------    ------------------
                                                                                23,797,417            24,450,070
                                                                 --------------------------    ------------------

Total partners' capital                                                      $  24,028,348          $ 24,681,001
                                                                 ==========================    ==================

</TABLE>
           See accompanying notes to condensed financial statements.


<PAGE>


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


                                                                                    Nine Months Ended
                                                                                      September 30,
                                                                                 2001               2000
                                                                            ----------------    --------------

 <c>
Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                                    $1,879,357        $1,942,752
                                                                            ----------------    --------------

    Cash Flows from Investing Activities:
       Proceeds from sale of assets                                                      --         3,397,334
       Investment in joint venture                                               (1,296,995 )      (1,469,000 )
       Decrease (increase) in restricted cash                                     1,503,682        (1,503,682 )
       Additions to land and buildings on operating
          Leases                                                                 (1,495,699 )              --
       Liquidating distribution from joint venture                                       --           460,885
       Collections on mortgage note receivable                                    1,101,865             7,379
                                                                            ----------------    --------------
          Net cash provided (used in) by investing
              Activities                                                           (187,147 )         892,916
                                                                            ----------------    --------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                                         (2,025,000 )      (2,025,000 )
       Distributions to holder of minority interest                                 (15,525 )         (14,895 )
                                                                            ----------------    --------------
          Net cash used in financing activities                                  (2,040,525 )      (2,039,895 )
                                                                            ----------------    --------------

Net Increase (Decrease) in Cash and Cash Equivalents                               (348,315 )         795,773

Cash and Cash Equivalents at Beginning of Period                                  1,454,025           925,348
                                                                            ----------------    --------------

Cash and Cash Equivalents at End of Period                                       $1,105,710        $1,721,121
                                                                            ================    ==============

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.


<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2001 and 2000


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 nine  months  ended  September  30,  2001,  may not be
         indicative  of the  results  that may be  expected  for the year ending
         December  31, 2001.  Amounts as of December  31, 2000,  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, 2000.

         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 partners'  proportionate share of
         the  equity  in  the  Partnership's  consolidated  joint  venture.  All
         significant   intercompany   accounts   and   transactions   have  been
         eliminated.

2.       Reclassification:

         Certain  items in the  prior  year's  financial  statements  have  been
         reclassified to conform to 2001 presentation.  These  reclassifications
         had no effect on total partners' capital or net income.

3.       Land and Buildings on Operating Leases:

         In January 2001,  the  Partnership  reinvested  the net sales  proceeds
         received  from the 2000  sales  of  three  of its  properties,  (two in
         Jacksonville,  Florida and one in Lake City, Florida), in a property in
         Baton Rouge,  Louisiana at an approximate  cost of $1,495,700 (see Note
         7).

         In addition,  during the nine months  ended  September  30,  2001,  the
         Partnership  established  a provision  for loss on assets of  $279,862,
         relating to its property in  Saddlebrook,  Florida.  The tenant vacated
         the  property  and  ceased   restaurant   operations.   The   provision
         represented  the  difference  between  the net  carrying  value  of the
         property at September 30, 2001 and the general partners'  estimated net
         realizable value of the property.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2001 and 2000


4.       Restricted Cash:

         As of December 31, 2000, net sales proceeds of $1,503,682 from the sale
         of three properties plus accrued interest of $247 were being held in an
         interest-bearing escrow account pending the release of the funds by the
         escrow  agent to  acquire  an  additional  property.  These  funds were
         released  by the  escrow  agent  in 2001  and were  used to  acquire  a
         property in Baton Rouge, Louisiana (see Note 3).

5.       Mortgage Note Receivable:

         During 1995, the  Partnership  accepted a promissory note in connection
         with the 1995 sale of its property in Florence, South Carolina.  During
         the nine months ended September 30, 2001, the Partnership collected the
         outstanding  balance of $1,117,589 relating to this promissory note and
         recognized the remaining gain of $122,996 relating to this property, in
         accordance  with  Statement of Financial  Accounting  Standards No. 66,
         "Accounting for Sales of Real Estate."

6.       Investment in Joint Ventures:

         In January 2001, the Partnership acquired an additional 19.72% interest
         in TGIF  Pittsburgh  Joint Venture from CNL Income Fund XVIII,  Ltd., a
         Florida limited  partnership and an affiliate of the general  partners,
         for an  aggregate  purchase  price  of  approximately  $500,000.  As of
         September  30, 2001,  the  Partnership  owned a 36.88%  interest in the
         profits and losses of the joint venture.

         In April 2001, the Partnership used a portion of the net sales proceeds
         from the sale of its  property in  Friendswood,  Texas and a portion of
         the 2001 collection of the promissory note (see Note 5) to enter into a
         joint venture arrangement,  CNL VII & XVII Lincoln Joint Venture,  with
         CNL Income  Fund  XVII,  Ltd.,  a Florida  limited  partnership  and an
         affiliate of the general partners, to hold one restaurant property. The
         joint venture acquired this property from CNL BB Corp., an affiliate of
         the general  partners  (see Note 7). The  Partnership  accounts for its
         investment using the equity method since the Partnership shares control
         with an affiliate.  As of September 30, 2001, the  Partnership  owned a
         14% interest in the profits and losses of the joint venture.

         In  August  2001,  the  Partnership  used a  portion  of the net  sales
         proceeds  from the 2000 sale of its property in  Friendswood,  Texas to
         enter  into joint  venture  arrangement,  CNL VII,  XV  Columbus  Joint
         Venture,  with CNL Income Fund XV, Ltd., a Florida limited  partnership
         and  affiliate of the general  partners,  to construct  one  restaurant
         property  in  Columbus,   Georgia.   As  of  September  30,  2001,  the
         Partnership had contributed

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2001 and 2000


6.       Investment in Joint Ventures - Continued:

         approximately  $553,300 to purchase land and pay for construction costs
         relating to the joint venture and has agreed to  contribute  additional
         amounts during 2001 for its share of additional construction costs. The
         Partnership  accounts for its investment  using the equity method since
         the  Partnership  shares control with  affiliates.  As of September 30,
         2001, the Partnership owned a 68.75% interest in the profits and losses
         of the joint venture. When funding is complete, the Partnership expects
         to have an approximately  68.75 % interest in the profits and losses of
         the joint venture.

         The following presents the combined,  condensed  financial  information
         for  all  of  the  Partnership's  investments  in  joint  ventures  and
         properties held as tenants-in-common with affiliates at:
<TABLE>
<CAPTION>

                                                                           September 30,             December 31,
                                                                               2001                     2000
                                                                        --------------------     -------------------

 <c>
           Land and buildings on operating leases, net                        $  19,140,064            $ 16,729,763
           Net investment in direct financing lease                                 913,378                 922,091
           Cash                                                                      65,414                 153,432
           Receivables                                                               78,924                   8,444
           Prepaid expenses                                                             562                     810
           Accrued rental income                                                    339,087                 236,243
           Liabilities                                                              304,238                 172,475
           Partners' capital                                                     20,233,191              17,878,308
           Revenues                                                               1,725,090               1,661,292
           Net income                                                             1,401,741               1,326,080
</TABLE>

         The Partnership recognized income totaling $524,159 and $295,584 during
         the nine months ended September 30, 2001 and 2000,  respectively,  from
         these joint ventures and the properties held as tenants-in-common  with
         affiliates,  of which  $185,282  and  $108,790  was  earned  during the
         quarters ended September 30, 2001 and 2000, respectively.

7.       Related Party Transactions:

         During the nine  months  ended  September  30,  2001,  the  Partnership
         acquired a property located in Baton Rouge,  Louisiana from CNL Funding
         2001-A, LP, for a purchase price of approximately  $1,495,700 (see Note
         3). CNL Funding  2001-A,  LP is a Delaware  limited  partnership and an
         affiliate of the general partners. CNL Funding 2001-A, LP

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2001 and 2000


7.       Related Party Transactions - Continued:

         had  purchased and  temporarily  held title to the property in order to
         facilitate  the  acquisition  of the property by the  Partnership.  The
         purchase price paid by the  Partnership  represented the costs incurred
         by CNL Funding 2001-A, LP to acquire and carry the property,  including
         closing costs.

         During the nine months ended  September 30, 2001, the  Partnership  and
         CNL Income Fund XVII, Ltd. through a joint venture arrangement, CNL VII
         & XVII Lincoln Joint  Venture,  acquired a Golden Corral  property from
         CNL BB  Corp.,  an  affiliate  of the  general  partners,  for a  total
         purchase price of $1,740,374.  CNL Income Fund XVII,  Ltd. is a Florida
         limited  partnership and an affiliate of the general  partners.  CNL BB
         Corp.  had  purchased  and  temporarily  held title to this property in
         order to  facilitate  the  acquisition  of the  property  by the  joint
         venture.  The purchase  price paid by the joint venture  represents the
         costs  incurred  by CNL BB Corp.  to  acquire  and carry the  property,
         including closing costs.

8.       Concentration of Credit Risk:

         The  following  schedule  presents  total  rental,  earned and mortgage
         interest  income  from  individual  lessees,  or  affiliated  groups of
         lessees,  each  representing more than ten percent of the Partnership's
         total rental,  earned and mortgage  interest income  (including  rental
         income from the consolidated joint venture and the Partnership's  share
         of  total  rental  and  earned  income  from its  unconsolidated  joint
         ventures and the properties held as  tenants-in-common  with affiliates
         of the general  partners)  for each of the nine months ended  September
         30:
<TABLE>
<CAPTION>

                                                                         2001                 2000
                                                                   -----------------     ----------------

 <c>
                   Golden Corral Corporation                              $ 518,480            $ 504,532
                   Jack in the Box Inc.                                     259,623                  N/A
                   Waving Leaves, Inc.                                      212,480              217,582
                   Restaurant Management
                        Services, Inc.                                          N/A              328,941

</TABLE>


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2001 and 2000


8.       Concentration of Credit Risk - Continued:

         In addition,  the following schedule presents total rental,  earned and
         mortgage  interest  income  from  individual  restaurant  chains,  each
         representing more than ten percent of the  Partnership's  total rental,
         earned and mortgage  interest income  (including rental income from the
         consolidated joint venture and the Partnership's  share of total rental
         and  earned  income  from its  unconsolidated  joint  ventures  and the
         properties  held as  tenants-in-common  with  affiliates of the general
         partners) for each of the nine months ended September 30:

                                                   2001        2000
                                                --------------------------

                   Golden Corral Family
                        Steakhouse Restaurant       $ 445,776   $ 504,532
                   Hardee's                           320,370     327,488
                   Burger King                        144,776     233,172
                   Jack in the Box                    107,558         N/A

         The  information   denoted  by  N/A  indicates  that  for  each  period
         presented,  the  tenant and the chain did not  represent  more than ten
         percent of the Partnership's total rental, earned and mortgage interest
         income.

         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 or
         restaurant chains could significantly  impact the results of operations
         of the  Partnership  if the  Partnership  is not able to  re-lease  the
         properties in a timely manner.




<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 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 September 30,
2001, the Partnership  owned 38 Properties,  which included  interests in twelve
Properties owned by joint ventures in which the Partnership is a co-venturer and
four   Properties   owned  with   affiliates   of  the   general   partners   as
tenants-in-common.

Capital Resources

         The  Partnership  generated cash from  operations  (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income  received,  less cash paid for expenses) of $1,879,357 and $1,942,752 for
the nine months ended September 30, 2001 and 2000, respectively. The increase in
cash from  operations for the nine months ended  September 30, 2001, as compared
to the nine months ended  September 30, 2000,  was primarily a result of changes
in income and expenses as described in "Results of Operations" below and changes
in the Partnership's working capital.

         Other  sources and uses of capital  included the  following  during the
nine months ended September 30, 2001.

         During 1995, the  Partnership  accepted a promissory note in connection
with the 1995 sale of its Property in Florence, South Carolina.  During the nine
months ended  September 30, 2001,  the  Partnership  collected  the  outstanding
principal  balance  relating to the promissory  note accepted in connection with
the sale of this  Property.  In April 2001,  the  Partnership  used a portion of
these proceeds to acquire a Property in Lincoln,  Nebraska,  as described below.
The  Partnership  intends to reinvest  the  remaining  amounts  collected  in an
additional Property.

         In January 2001, the Partnership  used the proceeds from the 2000 sales
of two  Properties  in  Jacksonville,  Florida  and the  Property  in Lake City,
Florida to acquire a Property in Baton Rouge,  Louisiana for a purchase price of
approximately $1,495,700. The Partnership acquired the Property from CNL Funding
2001-A,  LP, an affiliate of the general  partners.  CNL Funding 2001-A,  LP had
purchased and temporarily held title to this Property in order to facilitate the
acquisition of the Property by the Partnership.

         In  January  2001,  the  Partnership  used a  portion  of the  proceeds
received from the 2000 sale of the Property in Friendswood,  Texas to acquire an
additional  19.72%  interest in TGIF Pittsburgh  Joint Venture,  from CNL Income
Fund XVIII, Ltd., a Florida limited  partnership and an affiliate of the general
partners,  for an aggregate  purchase  price of  approximately  $500,000.  As of
September 30, 2001, the  Partnership  owned a 36.88% interest in the profits and
losses of the joint venture.

         In April  2001,  the  Partnership  invested a portion  of the  proceeds
received from the 2000 sale of the Partnership's property in Friendswood,  Texas
and a portion of the amount  collected  from the  promissory  note, as described
above, in a joint venture arrangement, CNL VII & XVII Lincoln Joint Venture with
CNL Income Fund XVII,  Ltd., a Florida  limited  partnership and an affiliate of
the  general  partners,  to hold one  restaurant  Property.  The  joint  venture
acquired this Property from CNL BB Corp., an affiliate of the general  partners,
who had  purchased  and  temporarily  held  title  to the  Property  in order to
facilitate the acquisition of the Property by the joint venture. As of September
30, 2001, the Partnership  owned a 14 percent interest in the profits and losses
of the joint venture.

         In  August  2001,  the  Partnership  used a  portion  of the net  sales
proceeds from the 2000 sale of its Property in Friendswood,  Texas to enter into
a joint venture arrangement, CNL VII, XV Columbus Joint Venture, with CNL Income
Fund XV,  Ltd.,  a Florida  limited  partnership  and  affiliate  of the general
partners,  to construct  one  restaurant  Property in Columbus,  Georgia.  As of
September 30, 2001, the Partnership had  contributed  approximately  $553,300 to
purchase land and pay for its share of construction  costs relating to the joint
venture  and has  agreed  to  contribute  additional  amounts  during  2001  for
additional construction costs. As of September 30, 2001, the Partnership owned a
68.75  percent  interest in the profits  and losses of the joint  venture.  When
funding is complete,  the  Partnership  expects to have an  approximately  68.75
percent interest in the profits and losses of the joint venture.

         Currently,  rental income from the  Partnership's  Properties,  any net
sales  proceeds  held by the  Partnership  and any  amounts  collected  from the
promissory  note are  invested in money  market  accounts  or other  short-term,
highly liquid  investments such as demand deposit accounts at commercial  banks,
money  market  accounts  and  certificates  of  deposit  with less than a 90-day
maturity date, pending the Partnership's use of such funds to acquire additional
Properties,  pay Partnership  expenses or to make distributions to the partners.
At  September  30,  2001,  the  Partnership  had  $1,105,710  invested  in  such
short-term  investments  as compared to  $1,454,025  at December 31,  2000.  The
decrease in cash and cash equivalents during the nine months ended September 30,
2001,  as  compared  to  December  31,  2000,  was  primarily  a  result  of the
Partnership  investing  in two  joint  venture  arrangements,  CNL VII and  XVII
Lincoln  Joint  Venture and CNL VII, XV Columbus  Joint  Venture,  as  described
above.  The decrease in cash and cash  equivalents  during the nine months ended
September  30,  2001,  was  partially  offset by the fact  that the  Partnership
received  the payoff of the  promissory  note,  as  described  above.  The funds
remaining  at September  30,  2001,  after  payment of  distributions  and other
liabilities,  will be used to invest in an  additional  Property and to meet the
Partnership's working capital needs.

Short-Term Liquidity

         The Partnership's  short-term liquidity  requirements consist primarily
of the operating expenses of the Partnership.

         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.

         The Partnership  generally  distributes cash from operations  remaining
after the payment of operating  expenses of the Partnership,  to the extent that
the general partners  determine that such funds are available for  distribution.
Based on cash from  operations,  the Partnership  declared  distributions to the
limited  partners of $2,025,000 for each of the nine months ended  September 30,
2001 and 2000  ($675,000 for each of the quarters  ended  September 30, 2001 and
2000).  This represents  distributions for each applicable nine months of $0.068
per unit ($0.023 per unit for each applicable  quarter).  No distributions  were
made to the general partners for the quarter and nine months ended September 30,
2001 and 2000.  No amounts  distributed  to the  limited  partners  for the nine
months ended September 30, 2001 and 2000 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.

         Total liabilities of the Partnership,  including distributions payable,
decreased to $720,489 at September 30, 2001, from $782,545 at December 31, 2000.
The  decrease in  liabilities  was  primarily a result of a decrease in accounts
payable and amounts due to related parties at September 30, 2001, as compared to
December  31,  2000.  The general  partners  believe  that the  Partnership  has
sufficient cash on hand to meet its current working capital needs.

Long-Term Liquidity

         The  Partnership  has no long-term  debt or other  long-term  liquidity
requirements.

Results of Operations

         During the nine months ended  September 30, 2000, the  Partnership  and
its consolidated joint venture, San Antonio #849 Joint Venture, owned and leased
28 wholly owned  Properties  (including  seven Properties which were sold during
2000) to operators of fast-food and family-style  restaurant chains.  During the
nine months ended September 30, 2001, the Partnership and San Antonio #849 Joint
Venture  owned and leased 22 wholly owned  Properties  to operators of fast-food
and family-style  restaurant  chains. In connection  therewith,  during the nine
months ended  September 30, 2001 and 2000, the  Partnership and San Antonio #849
Joint Venture earned $1,408,994 and $1,669,766,  respectively,  in rental income
from operating leases and earned income from direct financing  leases,  $463,816
and $537,714 of which was earned  during the quarters  ended  September 30, 2001
and 2000, respectively. The decrease in rental and earned income for the quarter
and nine months ended  September  30, 2001,  as compared to the quarter and nine
months ended  September 30, 2000,  was primarily due to the sales during 2000 of
several  of the  Partnership's  Properties.  The  decrease  in rental and earned
income was partially  offset by the fact that in January 2001,  the  Partnership
reinvested  a portion of these net sales  proceeds in a Property in Baton Rouge,
Louisiana. In addition,  rental and earned income were higher during the quarter
and nine months ended  September  30, 2000,  as compared to the quarter and nine
months  ended  September  30,  2001,  partially  due to the fact that during the
quarter and nine months ended September 30, 2000, the Partnership  collected and
recognized  as income  past due rental  amounts  for which the  Partnership  had
previously  established  an  allowance  for doubtful  accounts,  relating to its
Property  in  Daytona  Beach,  Florida.  No  such  amounts  were  collected  and
recognized  as income  during the quarter and nine months  ended  September  30,
2001.

         The  decrease in rental and earned  income  during the quarter and nine
months  ended  September  30,  2001,  as compared to the quarter and nine months
ended  September  30, 2000,  was also  partially due to the fact that during the
quarter and nine months ended September 30, 2001, the Partnership  increased its
allowance for doubtful  accounts for rental amounts  relating to the Property in
Saddlebrook,  Florida. In April 2001, the tenant vacated the Property and ceased
restaurant  operations.  In July 2001, the Partnership and the tenant terminated
the lease  relating to this  Property.  The general  partners  will  continue to
pursue  collection of past due rental  amounts  relating to this  Property.  The
general  partners  will not record  rental and earned  income  relating  to this
Property until a replacement tenant is located or until the Property is sold and
the sales  proceeds  are  reinvested  in an  additional  Property.  The  general
partners are currently seeking a new tenant or purchaser for this Property.  The
lost revenues  resulting  from this Property could have an adverse effect on the
results of the operations of the  Partnership if the  Partnership is not able to
re-lease the Property in a timely manner.

         Interest  and other income was $94,611 and $139,145 for the nine months
ended September 30, 2001 and 2000, respectively, of which $57,404 and $5,845 was
earned for the quarters  ended  September 30, 2001 and 2000,  respectively.  The
decrease in interest and other  income  during the quarter and nine months ended
September 30, 2001,  as compared to the quarter and nine months ended  September
30,  2000,  was  primarily   attributable  to  the  Partnership  collecting  the
outstanding  balance of the mortgage note related to the sale of the Property in
Florence, South Carolina during 2001, as described in "Capital Resources."

         During the nine months ended September 30, 2001, three lessees,  Golden
Corral  Corporation,  Jack  in the Box  Inc.,  and  Waving  Leaves,  Inc.,  each
contributed more than ten percent of the Partnership's total rental,  earned and
mortgage interest income  (including  rental income from the consolidated  joint
venture and the Partnership's  share of rental and earned income from Properties
owned by joint  ventures and  Properties  owned with  affiliates  of the general
partners  as  tenants-in-common).  It is  anticipated  that based on the minimum
rental  payments  required by the leases,  these three  lessees will continue to
contribute  more than ten percent of the  Partnership's  total rental and earned
income.  In addition,  during the nine months  ended  September  30, 2001,  four
restaurant  chains,  Burger King, Golden Corral Family  Steakhouse  Restaurants,
Hardee's and Jack in the Box,  each  accounted  for more than ten percent of the
Partnership's  total  rental,  earned and mortgage  interest  income  (including
rental income from the consolidated joint venture and the Partnership's share of
rental and earned income from Properties  owned by joint ventures and Properties
owned with affiliates as  tenants-in-common).  It is anticipated that these four
restaurant chains will each continue to account for more than ten percent of the
Partnership's total rental income to which the Partnership is entitled under the
terms of the leases.  Any failure of these  lessees or  restaurant  chains could
materially  affect the  Partnership's  income if the  Partnership is not able to
re-lease the Properties in a timely manner.

         During  the  nine  months  ended  September  30,  2001  and  2000,  the
Partnership owned and leased twelve and ten Properties, respectively, indirectly
through other joint venture  arrangements  and owned four and three  Properties,
respectively,   indirectly   with   affiliates   of  the  general   partners  as
tenants-in-common.  In  connection  therewith,  during  the  nine  months  ended
September  30, 2001 and 2000,  the  Partnership  earned  $524,159 and  $295,584,
respectively,  $185,282  and  $108,790 of which was earned  during the  quarters
ended  September  30, 2001 and 2000,  respectively,  attributable  to net income
earned by these unconsolidated joint ventures. The increase in net income earned
by joint ventures  during the quarter and nine months ended  September 30, 2001,
as  compared  to the  quarter and nine months  ended  September  30,  2000,  was
partially  due to the fact that in 2000,  the  Partnership  invested  in a joint
venture arrangement, TGIF Pittsburgh Joint Venture. In addition, during the nine
months ended September 30, 2001, the Partnership  made an additional  investment
and increased its ownership  interest in this joint venture,  as described above
in "Capital  Resources."  Net income earned from  unconsolidated  joint ventures
also increased due to the fact that in August 2000, the Partnership  invested in
a  Property  in  Colorado  Springs,  Colorado,  as  tenants-in-common,  with  an
affiliate  of  the  general  partners.   In  addition,   net  income  earned  by
unconsolidated  joint ventures  increased during the nine months ended September
30,  2001,  due to the fact that in April and  August  2001,  respectively,  the
Partnership  invested in CNL VII and XVII Joint Venture and CNL VII, XV Columbus
Joint Venture, as described above in "Liquidity and Capital Resources."

         Operating expenses,  including  depreciation expense, were $488,519 and
$445,302 for the nine months ended  September  30, 2001 and 2000,  respectively,
$113,152 and $118,755 of which were incurred during the quarters ended September
30, 2001 and 2000,  respectively.  The increase in operating expenses during the
nine months  ended  September  30,  2001,  as compared to the nine months  ended
September  30,  2000,  was  partially  due to the fact  that the  tenant  of the
Property in Saddlebrook, Florida ceased restaurant operations in April 2001. The
Partnership incurred and expects to continue to incur operating expenses such as
insurance  and real estate tax  expenses,  relating to this  Property  until the
Property is sold or  re-leased  to a new tenant.  The  Partnership  is currently
seeking a new tenant or purchaser  for this  Property.  Operating  expenses also
increased  during the nine months ended  September 30, 2001  partially due to an
increase in the state taxes  incurred by the  Partnership  due to changes in tax
laws of a state  in  which  the  Partnership  conducts  business.  In  addition,
operating expenses increased during the nine months ended September 30, 2001 due
to an increase in the costs incurred for  administrative  expenses for servicing
the Partnership and its Properties, as permitted by the Partnership agreement.

         The  increase  in  operating  expenses  during  the nine  months  ended
September 30, 2001 was partially offset by the fact that in 2000 the Partnership
incurred $65,043 in transaction costs relating to the general partners retaining
financial and legal  advisors to assist them in evaluating and  negotiating  the
proposed merger with CNL American  Properties  Fund, Inc.  ("APF").  On March 1,
2000, the general  partners and APF mutually agreed to terminate the merger.  No
such expenses were incurred  during the quarter and nine months ended  September
30,  2001.  The increase in operating  expenses was also  partially  offset by a
decrease in  depreciation  expense  during the  quarter  and nine  months  ended
September 30, 2001,  as compared to the quarter and nine months ended  September
30,  2000,  due to the sale of several of the  Partnership's  Properties  during
2000.

         As a result of the sale of the Property in Florence, South Carolina, in
August 1995, and recording the gain from the sale using the installment  method,
the Partnership  recognized a gain for financial  reporting purposes of $122,996
and $824 for the nine months ended  September  30, 2001 and 2000,  respectively,
$316 of which was  recognized  during the quarter ended  September 30, 2000. The
gain recognized during the nine months ended September 30, 2001 increased due to
the fact that during the nine months ended  September 30, 2001, the  Partnership
collected the remaining  outstanding  balance  relating to this  promissory note
collateralized  by the Property in Florence,  South Carolina,  which accelerated
the recognition of the gain for financial reporting purposes. As a result of the
sales of five and six  Properties  during  the  quarter  and nine  months  ended
September 30, 2000, the Partnership  recognized a gain of $619,495 and $716,551,
respectively,  for financial reporting purposes.  No Properties were sold during
the quarter and nine months ended September 30, 2001.

         During the nine  months  ended  September  30,  2001,  the  Partnership
established a provision  for loss on assets of $279,862 for financial  reporting
purposes  for its  Property  in  Saddlebrook,  Florida.  The tenant  vacated the
Property,  ceased restaurant  operations and terminated the lease. The provision
for loss  represented the difference  between the carrying value of the Property
and the net  realizable  value at September 30, 2001. No such provision for loss
was established during the quarter and nine months ended September 30, 2000.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Inapplicable.


<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.)


<PAGE>



              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 7, 2001, and  incorporated  herein by
                      reference.)

              (b)     Reports on Form 8-K

                      No reports on Form 8-K were filed during the quarter ended
                      September 30, 2001.



<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 12th day of November, 2001


                                            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)