FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                  For the quarterly period ended June 30, 2000
   --------------------------------------------------------------------------

                                       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                                          32801-3336
------------------------------------         ----------------------------------
(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             5-6

         Item 2.   Management's Discussion and Analysis of Financial
                         Condition and Results of Operatio               7-10

         Item 3.   Quantitative and Qualitative Disclosures About
                         Market Risk                                     10

Part II.

         Other Information                                               11-13



<PAGE>




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

<CAPTION>

                                                                   June 30,              December 31,
                                                                     2000                    1999
                                                               ------------------     -------------------
<S> <C>
                               ASSETS

   Land and buildings on operating leases, less
       accumulated depreciation of $2,561,269 and
       $2,602,453, respectively                                     $ 12,973,518            $ 13,984,334
   Net investment in direct financing leases                           3,222,682               3,273,155
   Investment in joint ventures                                        5,005,202               4,605,906
   Mortgage notes receivable, less deferred gain of
       $123,635 and $124,143, respectively                               999,778                 994,408
   Cash and cash equivalents                                           1,429,957                 925,348
   Receivables, less allowance for doubtful accounts
       of $10,960 and $16,679, respectively                                3,757                  72,644
   Prepaid expenses                                                       22,374                  14,220
   Accrued rental income, less allowance for doubtful
       accounts of $9,845 in 2000 and 1999                             1,208,702               1,215,696
   Other assets                                                           60,422                  60,422
                                                               ------------------     -------------------

                                                                    $ 24,926,392            $ 25,146,133
                                                               ==================     ===================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                 $     28,323            $     96,894
   Distributions payable                                                 675,000                 675,000
   Due to related parties                                                 81,478                  59,131
   Rents paid in advance and deposits                                     18,354                  10,107
                                                               ------------------     -------------------
       Total liabilities                                                 803,155                 841,132

   Minority interest                                                     144,949                 145,515

   Partners' capital                                                  23,978,288              24,159,486
                                                               ------------------     -------------------

                                                                    $ 24,926,392            $ 25,146,133
                                                               ==================     ===================

           See accompanying notes to condensed financial statements.

<PAGE>


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


                                                               Quarter Ended                   Six Months Ended
                                                                  June 30,                         June 30,
                                                            2000           1999              2000            1999
                                                         ------------   ------------     -------------    ------------
Revenues:
    Rental income from operating leases                    $ 463,274      $ 490,454        $  934,720      $  983,178
    Earned income from direct financing leases                98,284        101,201           197,332         203,077
    Contingent rental income                                     565          2,169             6,515           3,679
    Interest and other income                                 29,772         44,581            81,741          84,139
                                                         ------------   ------------     -------------    ------------
                                                             591,895        638,405         1,220,308       1,274,073
                                                         ------------   ------------     -------------    ------------

Expenses:
    General operating and administrative                      43,874         28,491            89,308          63,827
    Professional services                                      3,284          7,366            15,210          11,785
    State and other taxes                                         --             --            14,430          13,055
    Depreciation and amortization                             71,016         74,630           142,556         150,719
    Transaction costs                                         27,704         78,624            65,043         111,897
                                                         ------------   ------------     -------------    ------------
                                                             145,878        189,111           326,547         351,283
                                                         ------------   ------------     -------------    ------------

Income Before Minority Interest in Income of
    Consolidated Joint Venture, Equity in Earnings
    of Unconsolidated Joint Ventures, and
    Gain on Sale of Land and Buildings                       446,017        449,294           893,761         922,790

Minority Interest in Income of Consolidated
    Joint Venture                                             (4,605 )       (4,631 )          (9,317 )        (9,280 )

Equity in Earnings of Unconsolidated Joint
    Ventures                                                  92,692        195,079           186,794         268,374

Gain on Sale of Land and Buildings                            97,262        188,971            97,564         189,244
                                                         ------------   ------------     -------------    ------------

Net Income                                                 $ 631,366      $ 828,713        $1,168,802      $1,371,128
                                                         ============   ============     =============    ============

Allocation of Net Income:
    General partners                                       $   6,314      $   8,053        $   11,688      $   13,477
    Limited partners                                         625,052        820,660         1,157,114       1,357,651
                                                         ------------   ------------     -------------    ------------

                                                           $ 631,366      $ 828,713        $1,168,802      $1,371,128
                                                         ============   ============     =============    ============

Net Income Per Limited Partner Unit                        $   0.021      $   0.027        $    0.039      $    0.045
                                                         ============   ============     =============    ============

Weighted Average Number of Limited Partner
    Units Outstanding                                     30,000,000     30,000,000        30,000,000      30,000,000
                                                         ============   ============     =============    ============


           See accompanying notes to condensed financial statements.

<PAGE>


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


                                                   Six Months Ended               Year Ended
                                                       June 30,                  December 31,
                                                         2000                        1999
                                                ------------------------      --------------------

General partners:
    Beginning balance                                    $      230,931            $    205,744
    Net income                                                   11,688                  25,187
                                                ------------------------      --------------------
                                                                242,619                 230,931
                                                ------------------------      --------------------

Limited partners:
    Beginning balance                                        23,928,555              24,108,052
    Net income                                                1,157,114               2,520,503
    Distributions ($0.045 and $0.090 per
       limited partner unit, respectively)                   (1,350,000 )            (2,700,000 )
                                                ------------------------      --------------------
                                                             23,735,669              23,928,555
                                                ------------------------      --------------------

Total partners' capital                                  $   23,978,288           $  24,159,486
                                                ========================      ====================



           See accompanying notes to condensed financial statements.
<PAGE>


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



                                                                     Six Months Ended
                                                                         June 30,
                                                                  2000               1999
                                                             ---------------    ---------------

Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                    $1,289,939         $1,405,372
                                                             ---------------    ---------------

    Cash Flows from Investing Activities:
       Proceeds from sale of land and building                    1,005,000          1,059,954
       Increase in restricted cash                                       --         (1,061,529 )
       Collections on mortgage notes receivable                       4,553              5,832
       Investment in joint venture                                 (435,000 )               --
                                                             ---------------    ---------------
          Net cash provided by investing activities                 574,553              4,257
                                                             ---------------    ---------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                         (1,350,000 )       (1,350,000 )
       Distributions to holder of minority interest                  (9,883 )           (9,825 )
                                                             ---------------    ---------------
          Net cash used in financing activities                  (1,359,883 )       (1,359,825 )
                                                             ---------------    ---------------

Net Increase in Cash and Cash Equivalents                           504,609             49,804

Cash and Cash Equivalents at Beginning of Period                    925,348            856,825
                                                             ---------------    ---------------

Cash and Cash Equivalents at End of Period                       $1,429,957          $ 906,629
                                                             ===============    ===============

Supplemental Schedule of Non-Cash Financing
    Activities:

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


           See accompanying notes to condensed financial statements.

<PAGE>
</TABLE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 2000 and 1999


1.       Basis of Presentation:

         The accompanying  unaudited  condensed  financial  statements have been
         prepared in accordance  with the  instructions  to Form 10-Q and do not
         include  all  of the  information  and  note  disclosures  required  by
         generally  accepted  accounting  principles.  The financial  statements
         reflect all adjustments,  consisting of normal  recurring  adjustments,
         which are, in the opinion of management,  necessary to a fair statement
         of the results for the interim periods presented. Operating results for
         the quarter and six months ended June 30, 2000,  may not be  indicative
         of the results  that may be expected  for the year ending  December 31,
         2000.  Amounts as of  December  31,  1999,  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, 1999.

         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.       Land and Buildings on Operating Leases:

         In June 2000, the Partnership sold its property in Pueblo,  Colorado to
         a third  party  for  $1,005,000,  resulting  in a gain of  $97,056  for
         financial reporting purposes.  This property was originally acquired by
         the  Partnership  in  August  1990  and  had a  cost  of  approximately
         $961,600,  excluding  acquisition  fees and  miscellaneous  acquisition
         expenses;   therefore,   the   Partnership   sold  the   property   for
         approximately $43,400 in excess of its original purchase price.

3.       Investment in Joint Ventures:

         In June 2000, the Partnership  used a portion of the net sales proceeds
         received  from  the  sale  of the  Partnership's  property  in  Pueblo,
         Colorado,  to enter into a joint venture  arrangement,  TGIF Pittsburgh
         Joint Venture, with CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd.
         and CNL Income Fund XVIII, Ltd., each a Florida limited partnership and
         an affiliate of the general partners,  to hold one restaurant property.
         The  Partnership  accounts for its  investment  using the equity method
         since the Partnership  shares control with  affiliates.  As of June 30,
         2000, the Partnership owned a 17.16% interest in the profits and losses
         of the joint venture.



<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 2000 and 1999


3.       Investment in Joint Ventures - Continued:

         CNL  Restaurant  Investments  II owns and leases six  properties  to an
         operator of national  fast-food or  family-style  restaurants,  and Des
         Moines Real Estate Joint Venture,  CNL Mansfield Joint Venture,  Duluth
         Joint Venture,  and the Partnership and affiliates as tenants-in-common
         in three separate  tenancy in common  arrangements,  each own and lease
         one  property  to an operator of  national  fast-food  or  family-style
         restaurants.  The following presents the combined,  condensed financial
         information  for the joint  ventures and the three  properties  held as
         tenants-in-common with affiliates at:

<TABLE>

<CAPTION>
                                                              June 30,                December 31,
                                                                2000                      1999
                                                         --------------------     ---------------------
<S> <C>
            Land and buildings on operating leases,
                 less accumulated depreciation                  $ 14,126,023             $  11,427,388
            Net investment in direct financing lease                 927,524                   932,696
            Cash                                                     930,624                   962,409
            Receivables                                                4,115                    39,213
            Accrued rental income                                    176,451                   148,868
            Other assets                                                 963                     1,917
            Liabilities                                              370,988                    68,783
            Partners' capital                                     15,794,712                13,443,708
            Revenues                                                 672,209                 1,297,799
            Gain on sale of land and building                             --                   239,336
            Net income                                               528,831                 1,246,689
</TABLE>

         The Partnership recognized income totaling $186,794 and $268,374 during
         the six months ended June 30, 2000 and 1999,  respectively,  from these
         joint  ventures  and  the  properties  held as  tenants-in-common  with
         affiliates,  of which  $92,692  and  $195,079  was  earned  during  the
         quarters ended June 30, 2000 and 1999, respectively.

4.       Termination of Merger:

         On March 1, 2000,  the general  partners  and CNL  American  Properties
         Fund, Inc.  ("APF") mutually agreed to terminate the Agreement and Plan
         of  Merger  entered  into in  March  1999.  The  general  partners  are
         continuing  to evaluate  strategic  alternatives  for the  Partnership,
         including alternatives to provide liquidity to the limited partners.



<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  restaurant  chains.  The leases  generally are
triple-net leases, with the lessees responsible for all repairs and maintenance,
property  taxes,  insurance and utilities.  As of June 30, 2000, the Partnership
owned 40 Properties,  which  included  interests in eleven  Properties  owned by
joint ventures in which the  Partnership is a co-venturer  and three  Properties
owned with affiliates of the general partners as tenants-in-common.

Capital Resources

         The  Partnership's  primary  source of capital for the six months ended
June 30, 2000 and 1999 was cash from  operations  (which  includes cash received
from tenants,  distributions from joint ventures,  and interest and other income
received, less cash paid for expenses).  Cash from operations was $1,289,939 and
$1,405,372  for the six months ended June 30, 2000 and 1999,  respectively.  The
decrease in cash from  operations  for the six months  ended June 30,  2000,  as
compared  to the six  months  ended June 30,  1999,  was  primarily  a result of
changes in income and expenses as described in "Results of Operations" below.

         Other sources and uses of capital included the following during the six
months ended June 30, 2000.

         In June 2000, the Partnership sold its Property in Pueblo,  Colorado to
a third  party for  $1,005,000,  resulting  in a gain of $97,056  for  financial
reporting purposes.  This Property was originally acquired by the Partnership in
August 1990 and had a cost of approximately $961,600, excluding acquisition fees
and  miscellaneous  acquisition  expenses;  therefore,  the Partnership sold the
Property for approximately  $43,400 in excess of its original purchase price. In
June 2000, the  Partnership  used a portion of these net sales proceeds to enter
into a joint venture arrangement, TGIF Pittsburgh Joint Venture, with CNL Income
Fund XV, Ltd., CNL Income Fund XVI, Ltd. and CNL Income Fund XVIII, Ltd., each a
Florida limited  partnership and an affiliate of the general  partners,  to hold
one  restaurant  property.  The  Partnership  intends to reinvest the  remaining
proceeds in an additional  Property.  The Partnership  will  distribute  amounts
sufficient to enable the limited partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the general  partners),  resulting from
the sale.

         Currently,  rental  income from the  Partnership's  Properties  and net
sales proceeds from the sale of Properties are invested in money market accounts
or other short-term,  highly liquid investments, such as demand deposit accounts
at commercial banks and certificates of deposit with less than a 30-day maturity
date,  pending the Partnership's use of such funds to pay Partnership  expenses,
to make distributions to the partners or to reinvest in an additional  Property.
At June 30, 2000, the  Partnership  had $1,429,957  invested in such  short-term
investments,  as compared to $925,348 at December 31, 1999. The increase in cash
and cash equivalents was primarily due to the Partnership retaining a portion of
the net sales  proceeds from the sale of the  Partnership's  Property in Pueblo,
Colorado,  as described  above.  The funds  remaining  at June 30,  2000,  after
payment  of  distributions  and  other  liabilities,  will be  used to meet  the
Partnership's working capital and other 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.

         Total liabilities of the Partnership,  including distributions payable,
decreased to $803,155 at June 30, 2000,  from $841,132 at December 31, 1999. The
decrease in liabilities was primarily a result of a decrease in accounts payable
at June 30, 2000, as compared to December 31, 1999.  The decrease in liabilities
was partially  offset by an increase in due to related parties at June 30, 2000,
as  compared  to December  31,  1999.  The  general  partners  believe  that the
Partnership  has  sufficient  cash on hand to meet its current  working  capital
needs.

         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 current and anticipated  future cash from  operations,  the Partnership
declared distributions to the limited partners of $1,350,000 for each of the six
months ended June 30, 2000 and 1999  ($675,000  for each of the  quarters  ended
June 30, 2000 and 1999).  This represents  distributions for each applicable six
months of $0.045 per unit  ($0.023  per unit for each  applicable  quarter).  No
distributions  were made to the general partners for the quarters and six months
ended June 30, 2000 and 1999. No amounts distributed to the limited partners for
the six months  ended June 30,  2000 and 1999,  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.

Long-Term Liquidity

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



<PAGE>


Results of Operations

         During the six months  ended June 30,  1999,  the  Partnership  and its
consolidated joint venture, San Antonio #849 Joint Venture,  owned and leased 29
wholly owned  Properties to operators of fast-food and  family-style  restaurant
chains  (which  included  one Property  which was sold in 1999).  During the six
months ended June 30, 2000, the  Partnership  and San Antonio #849 Joint Venture
owned and leased 28 wholly  owned  properties  to  operators  of  fast-food  and
family-style  restaurant chains (which included one Property sold in June 2000).
In connection therewith, during the six months ended June 30, 2000 and 1999, the
Partnership and San Antonio #849 Joint Venture earned $1,132,052 and $1,186,255,
respectively,  in rental  income from  operating  leases and earned  income from
direct  financing  leases,  $561,558 and $591,655 of which was earned during the
quarters ended June 30, 2000 and 1999, respectively.  The decrease in rental and
earned income for the quarter and six months ended June 30, 2000, as compared to
the quarter and six months ended June 30, 1999, was primarily due to the sale of
the Partnership's Properties in Maryville, Tennessee in June 1999 and in Pueblo,
Colorado in June 2000.  The  Partnership  reinvested the net sales proceeds from
the Property in Maryville,  Tennessee in a Property in Montgomery,  Alabama,  as
tenants-in-common  with an  affiliate of the general  partners and  reinvested a
portion  of the net sales  proceeds  from the sale of the  Property  in  Pueblo,
Colorado in a joint venture  arrangement.  Rental and earned income are expected
to remain at reduced  amounts  while  equity in  earnings  of joint  ventures is
expected to remain at  increased  amounts  due to the fact that the  Partnership
reinvested  these net sales  proceeds  in a Property  with an  affiliate  of the
general partners as tenants-in-common and in a joint venture arrangement.

         During the six months ended June 30, 1999,  the  Partnership  owned and
leased nine  Properties  indirectly  through  other joint  venture  arrangements
(which  included one Property in Halls Joint Venture which was sold in 1999) and
owned two  Properties,  indirectly  with  affiliates of the general  partners as
tenants-in-common.  During the six months ended June 30, 2000,  the  Partnership
owned and leased ten  Properties  through joint venture  arrangements  and owned
three  Properties  indirectly  with  affiliates  of  the  general  partners,  as
tenants-in-common. In connection therewith, during the six months ended June 30,
2000 and 1999,  the  Partnership  earned  $186,794 and  $268,374,  respectively,
$92,692 and $195,079 of which was earned during the quarters ended June 30, 2000
and 1999, respectively.  The decrease in net income earned by joint ventures was
primarily due to the fact that in June 1999,  Halls Joint Venture,  in which the
Partnership owns a 51.1% interest,  recognized a gain of approximately $239,300.
Approximately  $122,000  of  the  joint  venture's  gain  was  allocated  to the
Partnership for financial reporting purposes.  The decrease was partially offset
by the fact that the Partnership reinvested the net sales proceeds received from
the 1999  sale of a  Property  in  Maryville,  Tennessee  and the 2000 sale of a
Property in Pueblo,  Colorado,  in a Property  with an  affiliate of the general
partners as tenants-in-common,  and in a joint venture arrangement, as described
in "Capital Resources," respectively.

         Operating expenses,  including  depreciation expense, were $326,547 and
$351,283 for the six months ended June 30, 2000 and 1999, respectively, $145,878
and $189,111 of which were incurred  during the quarters ended June 30, 2000 and
1999, respectively.  Operating expenses decreased partially due to the fact that
the  Partnership  incurred  less  transaction  costs  during the quarter and six
months ended June 30, 2000 related 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"),  due to the termination
of the merger as described below in  "Termination  of Merger." In addition,  the
decrease  during the  quarter and six months  ended June 30, 2000 was  partially
attributable  to a decrease in  depreciation  expense as a result of the sale of
one  Property  in June 1999 and one  Property  in June  2000.  The  decrease  in
operating  expenses  was  partially  offset  by an  increase  in  administrative
expenses for servicing the Partnership and its Properties.

         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 $508 and $553
for the six months ended June 30, 2000 and 1999, respectively,  $206 and $280 of
which  was   recognized   for  the  quarters  ended  June  30,  2000  and  1999,
respectively.  In  addition,  as a result of the sale of the Property in Pueblo,
Colorado, as described above in "Capital Resources," the Partnership  recognized
a gain of $97,056 for financial  reporting  purposes  during the quarter and six
months  ended June 30, 2000.  As a result of the 1999 sale of the  Partnership's
Property in Maryville,  Tennessee, the Partnership recognized a gain of $188,691
for financial  reporting  purposes  during the quarter and six months ended June
30,1999.

Termination of Merger

         On March 1, 2000,  the  general  partners  and APF  mutually  agreed to
terminate the Agreement and Plan of Merger (the "Merger")  entered into in March
1999. The general partners are continuing to evaluate strategic alternatives for
the  Partnership,  including  alternatives  to provide  liquidity to the limited
partners.

Dismissal of Legal Action

         As described in greater detail in Part II, Item 1. "Legal Proceedings,"
in 1999,  two  groups of limited  partners  in several  CNL Income  Funds  filed
purported  class action  suits  against the general  partners and APF  alleging,
among other  things,  that the general  partners  had breached  their  fiduciary
duties  in  connection  with the  proposed  Merger.  These  actions  were  later
consolidated  into one action.  On April 25, 2000, the judge in the consolidated
action issued an order dismissing the action without prejudice,  with each party
to bear its own costs and attorneys' fees.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         No material  changes in the  Partnership's  market risk  occurred  from
December 31, 1999 through June 30, 2000. Information regarding the Partnership's
market risk at December  31, 1999 is included in its Annual  Report on Form 10-K
for the year ended December 31, 1999.


<PAGE>


                           PART II. OTHER INFORMATION


Item 1.      Legal Proceedings.

             On May 11, 1999, four limited  partners in several CNL Income Funds
             served a derivative and purported  class action lawsuit filed April
             22, 1999 against the general  partners and APF in the Circuit Court
             of the Ninth Judicial Circuit of Orange County,  Florida,  alleging
             that the  general  partners  breached  their  fiduciary  duties and
             violated  provisions of certain of the CNL Income Fund  partnership
             agreements in connection with the proposed  merger.  The plaintiffs
             sought  unspecified  damages and equitable relief. On July 8, 1999,
             the plaintiffs  filed an amended  complaint  which,  in addition to
             naming three additional plaintiffs,  included allegations of aiding
             and abetting and conspiring to breach fiduciary duties,  negligence
             and breach of duty of good faith against  certain of the defendants
             and sought additional  equitable relief. As amended, the caption of
             the case was Jon Hale, Mary J. Hewitt, Charles A. Hewitt,  Gretchen
             M. Hewitt, Bernard J. Schulte,  Edward M. and Margaret Berol Trust,
             and Vicky Berol v. James M.  Seneff,  Jr.,  Robert A.  Bourne,  CNL
             Realty  Corporation,  and CNL American  Properties Fund, Inc., Case
             No. CIO-99-0003561.

             On June 22,  1999,  a limited  partner of several CNL Income  Funds
             served a  purported  class  action  lawsuit  filed  April 29,  1999
             against the general partners and APF, Ira Gaines,  individually and
             on behalf of a class of persons similarly situated, v. CNL American
             Properties Fund, Inc., James M. Seneff,  Jr., Robert A. Bourne, CNL
             Realty  Corporation,   CNL  Fund  Advisors,   Inc.,  CNL  Financial
             Corporation a/k/a CNL Financial Corp., CNL Financial Services, Inc.
             and CNL Group, Inc., Case NO. CIO-99-3796,  in the Circuit Court of
             the Ninth Judicial Circuit of Orange County, Florida, alleging that
             the general  partners  breached their fiduciary duties and that APF
             aided and abetted  their breach of fiduciary  duties in  connection
             with the proposed merger. The plaintiff sought unspecified  damages
             and equitable relief.

             On September 23, 1999,  Judge  Lawrence  Kirkwood  entered an order
             consolidating  the two cases  under the  caption  In re: CNL Income
             Funds  Litigation,  Case No. 99-3561.  Pursuant to this order,  the
             plaintiffs  in  these  cases  filed  a  consolidated   and  amended
             complaint on November 8, 1999.  On December  22, 1999,  the general
             partners and CNL Group,  Inc.  filed motions to dismiss and motions
             to strike.  On December 28, 1999, APF and CNL Fund  Advisors,  Inc.
             filed motions to dismiss.  On March 6, 2000,  all of the defendants
             filed a Joint Notice of Filing Form 8-K Reports and  Suggestion  of
             Mootness.

             On April 25, 2000,  Judge Kirkwood issued a Stipulated  Final Order
             of Dismissal of Consolidated Action,  dismissing the action without
             prejudice,  with each  party to bear its own  costs and  attorneys'
             fees.

Item 2.      Changes in Securities.       Inapplicable.

Item 3.      Default upon Senior Securities.   Inapplicable.

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

Item 5.      Other Information.        Inapplicable.

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

             (a)    Exhibits

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

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

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

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

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

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

                    27     Financial Data Schedule (Filed herewith.)


             (b)    Reports on Form 8-K

                    No reports on Form 8-K were filed  during the quarter  ended
                    June 30, 2000.



<PAGE>






                                   SIGNATURES


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

         DATED this 9th day of August, 2000


                                        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)