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, 1998
             -------------------------------------------------------


                                       OR

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

                        For the transition period from to
              -----------------------------------------------------


                             Commission file number
                                     0-19140
                          ----------------------------


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

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


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


        Registrant's telephone number
        (including area code)                          (407) 650-1000


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X No


<PAGE>








                                    CONTENTS




Part I                                                       Page

    Item 1.  Financial Statements:

       Condensed Balance Sheets                              1

       Condensed Statements of Income                        2

       Condensed Statements of Partners' Capital             3

       Condensed Statements of Cash Flows                    4

       Notes to Condensed Financial Statements               5-6

    Item 2.  Management's Discussion and Analysis
                  of Financial Condition and
                  Results of Operations                      7-11


Part II

    Other Information                                        12


<PAGE>


                                                         





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

                                                                             September 30,            December 31,
                                                                                  1998                    1997
                                                                            -----------------       ------------------
<S> <C>
                          ASSETS

Land and buildings on operating leases, less
    accumulated depreciation of $2,397,837
    and $2,169,570                                                               $15,154,596             $15,382,863
Net investment in direct financing leases                                          3,386,764               3,447,152
Investment in joint ventures                                                       3,340,189               3,393,932
Mortgage notes receivable, less deferred gain
    of $125,545 and $126,303                                                       1,243,284               1,250,597
Cash and cash equivalents                                                            828,551                 761,317
Receivables, less allowance for doubtful
    accounts of $28,936 and $32,959                                                    6,576                  64,092
Prepaid expenses                                                                       7,291                   4,755
Accrued rental income, less allowance for
    doubtful accounts of $9,845 in 1998 and 1997                                   1,183,770               1,114,632
Other assets                                                                          60,422                  60,422
                                                                            -----------------       -----------------


                                                                                 $25,211,443             $25,479,762
                                                                            =================       =================


                    LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                                                             $         2,327         $         6,131
Escrowed real estate taxes payable                                                     4,727                   7,785
Distributions payable                                                                675,000                 675,000
Due to related parties                                                                11,443                  34,883
Rents paid in advance                                                                 44,359                  60,671
                                                                            -----------------       -----------------
       Total liabilities                                                             737,856                 784,470

Minority interest                                                                    146,865                 147,514

Partners' capital                                                                 24,326,722              24,547,778
                                                                            -----------------       -----------------

                                                                                 $25,211,443             $25,479,762
                                                                            =================       =================
</TABLE>




                 See accompanying notes to financial statements.

                                       1
<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,
                                                     1998               1997               1998               1997
                                                  ------------      -------------      --------------     --------------
<S> <C>
Revenues:
    Rental income from operating leases            $  492,759       $    493,318        $  1,483,950       $  1,473,347
    Earned income from direct financing
       leases                                         103,164            122,508             311,318            369,268
    Contingent rental income                            4,829              2,602              17,207              5,685
    Interest and other income                          42,300             46,474             127,438            131,517
                                                  ------------      -------------      --------------     --------------
                                                      643,052            664,902           1,939,913          1,979,817
                                                  ------------      -------------      --------------     --------------
Expenses:
    General operating and administrative               37,062             31,784             104,724            101,277
    Bad debt expense                                       --                 --                  --              4,613
    Professional services                               3,973              4,277              16,567             14,683
    Real estate taxes                                      --                 --                  --              2,979
    State and other taxes                                  --                 --               2,728              4,560
    Depreciation and amortization                      76,089             76,089             228,267            228,267
                                                  ------------      -------------      --------------     --------------
                                                      117,124            112,150             352,286            356,379
                                                  ------------      -------------      --------------     --------------
Income Before Minority Interest in Income
    of Consolidated Joint Venture, Equity
    in Earnings of Unconsolidated Joint
    Ventures and Gain (Loss) on Sale of
    Land and Buildings                                525,928            552,752           1,587,627          1,623,438

Minority Interest in Income of
    Consolidated Joint Venture                         (4,665 )           (4,698 )           (13,921 )          (13,998 )

Equity in Earnings of Unconsolidated
    Joint Ventures                                     78,287             55,939             229,480            151,930

Gain (Loss) on Sale of Land and Buildings                 259                234                 758            (19,054 )
                                                  ------------      -------------      --------------     --------------

Net Income                                         $  599,809       $    604,227        $  1,803,944        $ 1,742,316
                                                  ============      =============      ==============     ==============

Allocation of Net Income:
    General partners                               $    5,998       $      6,036        $     18,039        $    17,495
    Limited partners                                  593,811            598,191           1,785,905          1,724,821
                                                  ------------      -------------      --------------     --------------

                                                   $  599,809       $    604,227        $  1,803,944        $ 1,742,316
                                                  ============      =============      ==============     ==============

Net Income Per Limited Partner Unit                $    0.020       $      0.020        $      0.060        $     0.057
                                                  ============      =============      ==============     ==============

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 financial statements.

                                       2
<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,
                                                                         1998                        1997
                                                              ----------------------------     ------------------
<S> <C>
  General partners:
      Beginning balance                                              $     181,085               $     156,785
      Net income                                                            18,039                      24,300
                                                                   ----------------             ---------------
                                                                           199,124                     181,085
                                                                   ----------------             ---------------
  Limited partners:
      Beginning balance                                                 24,366,693                  24,484,985
      Net income                                                         1,785,905                   2,581,708
      Distributions ($0.068 and
         $0.090 per limited partner
         unit, respectively)                                            (2,025,000 )                (2,700,000 )
                                                                   ----------------             ---------------
                                                                        24,127,598                  24,366,693
                                                                   ----------------             ---------------

  Total partners' capital                                              $24,326,722                 $24,547,778
                                                                   ================             ===============


</TABLE>


                 See accompanying notes to financial statements.

                                       3
<PAGE>


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

<TABLE>
<CAPTION>

                                                                              Nine Months Ended
                                                                                September 30,
                                                                         1998                    1997
                                                                    ---------------         ---------------
<S> <C>
Increase (Decrease) in Cash and Cash
   Equivalents:

      Net Cash Provided by Operating Activities                       $  2,085,545            $  2,099,452
                                                                   ----------------         ---------------

      Cash Flows from Investing Activities:
         Proceeds from sale of land                                             --                 223,589
         Investment in joint ventures                                           --                (616,245 )
         Collections on mortgage note receivable                             8,004                   7,230
         Other                                                              13,255                      --
                                                                   ----------------         ---------------
                Net cash provided by (used in)
                   investing activities                                     21,259                (385,426 )
                                                                   ----------------         ---------------

      Cash Flows from Financing Activities:
         Distributions to limited partners                              (2,025,000 )            (2,025,000 )
         Distributions to holder of minority
             interest                                                      (14,570 )               (14,781 )
                                                                   ----------------         ---------------
                Net cash used in financing
                   activities                                           (2,039,570 )            (2,039,781 )
                                                                   ----------------         ---------------

Net Increase (Decrease) in Cash and Cash
   Equivalents                                                              67,234                (325,755 )

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

Cash and Cash Equivalents at End of
   Period                                                            $     828,551            $    979,674
                                                                   ================         ===============

Supplemental Schedule of Non-Cash Financing
   Activities

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



                 See accompanying notes to financial statements.

                                       4
<PAGE>


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


1.       Basis of Presentation:

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

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

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

         In May  1998,  the  Financial  Accounting  Standards  Board  reached  a
         consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the
         Interim Financial  Periods."  Adoption of this consensus did not have a
         material effect on the Partnership's  financial  position or results of
         operations.



                                       5

<PAGE>


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


2.       Concentration of Credit Risk:

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

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

                   Golden Corral Corporation           $509,751       $445,267
                   Restaurant Management
                       Services, Inc.                   327,103        327,855
                   Waving Leaves, Inc.                  225,889        112,948
                   Flagstar Enterprises, Inc.           113,294        231,196

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


                                       6
<PAGE>


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

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

Liquidity and Capital Resources

         The  Partnership's  primary source of capital for the nine months ended
September  30, 1998 and 1997,  was cash from  operations  (which  includes  cash
received from tenants, distributions from joint ventures, and interest and other
income  received,  less  cash  paid for  expenses).  Cash  from  operations  was
$2,085,545 and $2,099,452 for the nine months ended September 30, 1998 and 1997,
respectively.  The  decrease in cash from  operations  for the nine months ended
September 30, 1998, as compared to the nine months ended  September 30, 1997, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.

         Currently,  rental income from the Partnership's Properties is invested
in money market accounts or other short-term,  highly liquid investments pending
the  Partnership's  use of such  funds to pay  Partnership  expenses  or to make
distributions  to the  partners.  At September  30, 1998,  the  Partnership  had
$828,551  invested in such  short-term  investments,  as compared to $761,317 at
December 31, 1997. The funds  remaining at September 30, 1998,  after payment of
distributions  and  other  liabilities,  will be used to meet the  Partnership's
working capital and other needs.

         Total liabilities of the Partnership,  including distributions payable,
decreased to $737,856 at September 30, 1998, from $784,470 at December 31, 1997.
The general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.

         Based on cash from operations,  the Partnership declared  distributions
to the  limited  partners  of  $2,025,000  for  each of the  nine  months  ended
September 30, 1998 and 1997 ($675,000 for each of the quarters  ended  September
30, 1998 and 1997).  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 quarters and nine months
ended  September  30,  1998 and 1997.  No  amounts  distributed  to the  limited
partners for the nine months ended  September 30, 1998 and 1997, 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.


                                       7
<PAGE>


Liquidity and Capital Resources - Continued

         The general  partners  have been  informed by CNL  American  Properties
Fund, Inc.  ("APF"),  an affiliate of the general  partners,  that it intends to
significantly  increase its asset base by proposing to acquire affiliates of the
general partners which have similar restaurant  property  portfolios,  including
the Partnership. APF is a real estate investment trust whose primary business is
the ownership of restaurant properties leased on a long-term, "triple-net" basis
to  operators  of national  and regional  restaurant  chains.  Accordingly,  the
general  partners  anticipate  that  APF  will  make an  offer  to  acquire  the
Partnership  in  exchange  for  securities  of APF.  The general  partners  have
recently retained  financial and legal advisors to assist them in evaluating and
negotiating  any offer that may be proposed by APF.  However,  at this time, APF
has made no such offer. In the event that an offer is made, the general partners
will  evaluate it and if the general  partners  believe  that the offer is worth
pursuing,  the general partners will promptly inform the limited  partners.  Any
agreement  to sell the  Partnership  would be  subject  to the  approval  of the
limited partners in accordance with the terms of the partnership agreement.

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

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

Results of Operations

         During the nine months ended  September 30, 1997, the  Partnership  and
its consolidated joint venture, San Antonio #849 Joint Venture, owned and leased
31 wholly owned Properties (including one Property in Columbus,  Indiana and one
Property  in  Dunnellon,  Florida,  which  were  sold in May and  October  1997,
respectively)  and  during  the  nine  months  ended  September  30,  1998,  the
Partnership and its consolidated  joint venture owned and leased 29 wholly owned
Properties,  to operators of fast-food and family-style  restaurant  chains.  In
connection therewith,  during the nine months ended September 30, 1998 and 1997,
the  Partnership  and San  Antonio  #849 Joint  Venture  earned  $1,795,268  and
$1,842,615,  respectively,  in rental  income from  operating  leases and earned
income from direct financing  leases,  $595,923 and $615,826 of which was earned
for the quarters  ended  September 30, 1998 and 1997,  respectively.  Rental and
earned income  decreased  during the quarter and nine months ended September 30,
1998,  as compared to the quarter and nine  months  ended  September  30,  1997,
primarily as a result of the sales of the  Properties  in Columbus,  Indiana and
Dunnellon,  Florida  in May and  October  1997,  respectively.  The  Partnership
reinvested  these net sales proceeds in two  Properties,  as  tenants-in-common,
with affiliates of the general partners as described below.

         During the nine months ended September 30, 1997, the Partnership  owned
and leased nine Properties  indirectly through other joint venture  arrangements
and one Property  indirectly with an affiliate as  tenants-in-common  (including
the Property in Yuma, Arizona held as tenants-in-common with an affiliate, which
was sold in October 1997).  In addition,  during the nine months ended September
30, 1998, the Partnership owned and leased nine Properties indirectly

                                       8
<PAGE>


Results of Operations - Continued

through other joint venture  arrangements  and two  Properties  indirectly  with
affiliates as tenants-in-common. In connection therewith, during the nine months
ended September 30, 1998 and 1997, the Partnership earned $229,480 and $151,930,
respectively,  attributable to net income earned by these  unconsolidated  joint
ventures,  $78,287  and  $55,939  of which was  earned  for the  quarters  ended
September 30, 1998 and 1997, respectively.  The increase in net income earned by
joint ventures  during the quarter and nine months ended  September 30, 1998, as
compared to the quarter and nine months ended  September  30, 1997, is primarily
due to the fact that in December 1997, the Partnership  reinvested the net sales
proceeds received from the sale of two Properties in October 1997, in a Property
in Smithfield, North Carolina, and a Property in Miami, Florida, with affiliates
of the general partners as tenants-in-common.

         During at least one of the nine  months  ended  September  30, 1998 and
1997, four lessees of the Partnership and its  consolidated  joint venture,  San
Antonio #849 Joint Venture,  Golden Corral  Corporation,  Restaurant  Management
Services,  Inc.,  Flagstar  Enterprises,  Inc.  and Waving  Leaves,  Inc.,  each
contributed  more than ten  percent of the  Partnership's  total  rental  income
(including rental income from the Partnership's  consolidated  joint venture and
the Partnership's share of rental income from Properties owned by unconsolidated
joint ventures and Properties owned with affiliates as tenants-in-common). As of
September  30,  1998,  Golden  Corral  Corporation  was the lessee  under leases
relating to five  restaurants,  Restaurant  Management  Services,  Inc.  was the
lessee under leases relating to eight restaurants,  Flagstar  Enterprises,  Inc.
was the lessee under leases relating to two restaurants, and Waving Leaves, Inc.
was the lessee  under leases  relating to four  restaurants.  It is  anticipated
that, based on the minimum rental payments required by the leases, Golden Corral
Corporation,  Restaurant Management Services,  Inc. and Waving Leaves, Inc. each
will continue to  contribute  more than ten percent of the  Partnership's  total
rental income during the remainder of 1998 and subsequent  years. Any failure of
these lessees could materially affect the Partnership's income.

         Operating expenses,  including  depreciation and amortization  expense,
were  $352,286 and $356,379  for the nine months  ended  September  30, 1998 and
1997,  respectively,  of which  $117,124  and  $112,150  were  incurred  for the
quarters ended September 30, 1998 and 1997, respectively.

         As a result of the sale of the Property in Florence, South Carolina, in
August  1995,  and  recording  the  gain  using  the  installment   method,  the
Partnership  recognized a gain for financial reporting purposes of $758 and $685
for the nine months ended  September 30, 1998 and 1997,  respectively,  $259 and
$234 of which was recognized for the quarters ended September 30, 1998 and 1997,
respectively.  As a result of the sale of the Property in  Columbus,  Indiana in
1997,  the  Partnership  recognized a loss for financial  reporting  purposes of
$19,739 during the nine months ended September 30, 1997. No Properties were sold
during the quarter and nine months ended September 30, 1998.

         In May  1998,  the  Financial  Accounting  Standards  Board  reached  a
consensus in EITF 98-9, entitled  "Accounting for Contingent Rent in the Interim
Financial Periods." Adoption of this consensus did not have a material effect on
the Partnership's financial position or results of operations.

                                       9
<PAGE>


Results of Operations - Continued

         The Year 2000 problem is the result of information  technology  systems
and embedded  systems  (products which are made with  microprocessor  (computer)
chips such as HVAC systems,  physical  security  systems and elevators)  using a
two-digit  format,  as  opposed  to four  digits,  to  indicate  the year.  Such
information  technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.

         The  Partnership  does  not have any  information  technology  systems.
Affiliates  of the general  partners  provide all services  requiring the use of
information  technology  systems  pursuant to a  management  agreement  with the
Partnership.  The maintenance of embedded systems,  if any, at the Partnership's
properties is the  responsibility of the tenants of the properties in accordance
with the terms of the Partnership's  leases. The general partners and affiliates
have  established  a  team  dedicated  to  reviewing  the  internal  information
technology systems used in the operation of the Partnership, and the information
technology  and  embedded  systems  and the Year  2000  compliance  plans of the
Partnership's  tenants,   significant  suppliers,   financial  institutions  and
transfer agent.

         The  information  technology  infrastructure  of the  affiliates of the
general  partners  consists of a network of personal  computers and servers that
were  obtained   from  major   suppliers.   The   affiliates   utilize   various
administrative  and financial  software  applications on that  infrastructure to
perform the business functions of the Partnership.  The inability of the general
partners  and  affiliates  to identify  and timely  correct  material  Year 2000
deficiencies  in  the  software  and/or   infrastructure   could  result  in  an
interruption in, or failure of, certain of the Partnership's business activities
or operations.  Accordingly,  the general partners and affiliates have requested
and are evaluating  documentation from the suppliers of the affiliates regarding
the Year  2000  compliance  of  their  products  that  are used in the  business
activities or operations of the  Partnership.  The costs expected to be incurred
by the general  partners and  affiliates to become Year 2000  compliant  will be
incurred by the general  partners and  affiliates;  therefore,  these costs will
have no impact on the Partnership's financial position or results of operations.

         The  Partnership  has  material  third  party  relationships  with  its
tenants,  financial  institutions and transfer agent. The Partnership depends on
its  tenants  for  rents  and  cash  flows,   its  financial   institutions  for
availability  of cash and its  transfer  agent to  maintain  and track  investor
information.  If any of these third parties are unable to meet their obligations
to the  Partnership  because of the Year 2000  deficiencies,  such a failure may
have a material impact on the  Partnership.  Accordingly,  the general  partners
have requested and are evaluating  documentation from the Partnership's tenants,
financial  institutions,   and  transfer  agent  relating  to  their  Year  2000
compliance  plans.  At this time,  the general  partners  have not yet  received
sufficient   certifications   to  be  assured   that  the   tenants,   financial
institutions,  and  transfer  agent  have fully  considered  and  mitigated  any
potential material impact of the Year 2000 deficiencies.  Therefore, the general
partners do not, at this time, know of the potential costs to the Partnership of
any  adverse  impact  or effect of any Year  2000  deficiencies  by these  third
parties.



                                       10
<PAGE>


Results of Operations - Continued

         The general  partners  currently  expect that all year 2000  compliance
testing  and any  necessary  remedial  measures  on the  information  technology
systems used in the business  activities and operations of the Partnership  will
be completed prior to June 30, 1999.  Based on the progress the general partners
and affiliates  have made in identifying and addressing the  Partnership's  Year
2000 issues and the plan and timeline to complete the  compliance  program,  the
general  partners  do  not  foresee   significant   risks  associated  with  the
Partnership's  Year 2000 compliance at this time.  Because the general  partners
and affiliates  are still  evaluating the status of the systems used in business
activities  and  operations  of the  Partnership  and the  systems  of the third
parties with which the Partnership  conducts its business,  the general partners
have not yet  developed  a  comprehensive  contingency  plan and are  unable  to
identify "the most  reasonably  likely worst case scenario" at this time. As the
general partners identify  significant  risks related to the Partnership's  Year
2000 compliance or if the Partnership's Year 2000 compliance  program's progress
deviates  substantially from the anticipated timeline, the general partners will
develop appropriate contingency plans.



                                       11

<PAGE>


                           PART II. OTHER INFORMATION


Item 1.          Legal Proceedings.  Inapplicable.

Item 2.          Changes in Securities.  Inapplicable.

Item 3.          Defaults upon Senior Securities.  Inapplicable.

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

                      Inapplicable.

Item 5.          Other Information.  Inapplicable.

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

                 (a)  Exhibits - None.

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

                                       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 10th day of November, 1998.


                             CNL INCOME FUND VII, LTD.

                             By:  CNL REALTY CORPORATION
                                  General Partner


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


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