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, 1997

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


400 E. South Street, #500
Orlando, Florida                                           32801
   (Address of principal                                (Zip Code)
     executive offices)


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


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


<PAGE>









                                    CONTENTS




Part I                                                                Page

  Item 1.  Financial Statements:

    Condensed Balance Sheets                                          1

    Condensed Statements of Income                                    2

    Condensed Statements of Partners' Capital                         3

    Condensed Statements of Cash Flows                                4

    Notes to Condensed Financial Statements                           5-6

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

Part II

  Other Information                                                   12


<PAGE>



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


                                         September 30,            December 31,
            ASSETS                           1997                     1996
                                         -------------            --------

Land and buildings on operating
  leases, less accumulated
  depreciation of $2,093,481
  and $1,865,214                           $15,458,952            $15,930,547
Net investment in direct financing
  leases                                     4,040,314              4,098,192
Investment in joint ventures                 2,364,796              1,789,238
Mortgage notes receivable, less
  deferred gain of $126,544 and
  $127,229                                   1,252,907              1,259,495
Cash and cash equivalents                      979,674              1,305,429
Receivables, less allowance for
  doubtful accounts of $27,959
  and $43,234                                   15,674                 63,386
Prepaid expenses                                 8,046                  4,654
Accrued rental income, less
  allowance for doubtful accounts
  of $9,845 and $10,786                      1,088,359              1,012,490
Other assets                                    60,422                 60,422
                                           -----------            -----------

                                           $25,269,144            $25,523,853
                                           ===========            ===========

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                           $     3,287            $     6,502
Escrowed real estate
  taxes payable                                  6,886                  4,192
Distributions payable                          675,000                675,000
Due to related parties                          26,871                  9,067
Rents paid in advance                           50,180                 38,705
                                           -----------            -----------
    Total liabilities                          762,224                733,466

Commitment (Note 4)

Minority interest                              147,834                148,617

Partners' capital                           24,359,086             24,641,770
                                           -----------            -----------

                                           $25,269,144            $25,523,853
                                           ===========            ===========








            See accompanying notes to condensed financial statements.

                                        1

<PAGE>



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


                                                        Quarter Ended                      Nine Months Ended
                                                        September 30,                        September 30,
                                                     1997             1996              1997             1996
                                                  ----------       ----------        ----------       ----------
<S> <C>
Revenues:
  Rental income from
    operating leases                              $  493,318       $  478,874        $1,473,347       $1,471,463
  Earned income from direct
    financing leases                                 122,508          124,752           369,268          380,844
  Contingent rental income                             2,602            1,361             5,685            2,070
  Interest and other income                           46,474           65,855           131,517          188,418
                                                  ----------       ----------        ----------       ----------
                                                     664,902          670,842         1,979,817        2,042,795
                                                  ----------       ----------        ----------       ----------

Expenses:
  General operating and
    administrative                                    31,784           38,737           101,277          120,734
  Bad debt expense                                        -                -              4,613               -
  Professional services                                4,277            5,122            14,683           19,094
  Real estate taxes                                       -             9,010             2,979            9,010
  State and other taxes                                   -                -              4,560            2,449
  Depreciation and
    amortization                                      76,089           78,320           228,267          242,408
                                                  ----------       ----------        ----------       ----------
                                                     112,150          131,189           356,379          393,695
                                                  ----------       ----------        ----------       ----------

Income Before Minority
  Interest in Income of
  Consolidated Joint Venture,
  Equity in Earnings of
  Unconsolidated Joint
  Ventures, Gain (Loss) on
  Sale of Land and Buildings,
  and Provision for Loss on
  Land and Building                                  552,752          539,653         1,623,438        1,649,100

Minority Interest in Income
  of Consolidated Joint
  Venture                                             (4,698)          (4,690)          (13,998)         (14,000)

Equity in Earnings of Uncon-
  solidated Joint Ventures                            55,939           38,833           151,930          115,957

Gain (Loss) on Sale of Land
  and Buildings                                          234          195,051           (19,054)         195,458

Provision for Loss on Land
  and Building                                            -          (235,465)               -          (235,465)
                                                  ----------       ----------        ----------       ----------

Net Income                                        $  604,227       $  533,382        $1,742,316       $1,711,050
                                                  ==========       ==========        ==========       ==========

Allocation of Net Income:
  General partners                                $    6,036       $    5,647        $   17,495       $   17,424
  Limited partners                                   598,191          527,735         1,724,821        1,693,626
                                                  ----------       ----------        ----------       ----------

                                                  $  604,227       $  533,382        $1,742,316       $1,711,050
                                                  ==========       ==========        ==========       ==========

Net Income Per Limited
  Partner Unit                                    $    0.020       $    0.018        $    0.057       $    0.056
                                                  ==========       ==========        ==========       ==========

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

            See accompanying notes to condensed financial statements.

                                        2

<PAGE>



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


                                   Nine Months Ended             Year Ended
                                      September 30,             December 31,
                                          1997                      1996
                                   -----------------            -----------

General partners:
  Beginning balance                  $   156,785                $   133,199
  Net income                              17,495                     23,586
                                     -----------                -----------
                                         174,280                    156,785
                                     -----------                -----------

Limited partners:
  Beginning balance                   24,484,985                 24,881,708
  Net income                           1,724,821                  2,303,277
  Distributions ($0.068 and
    $0.090 per limited partner
    unit, respectively)               (2,025,000)                (2,700,000)
                                     -----------                -----------
                                      24,184,806                 24,484,985
                                     -----------                -----------

Total partners' capital              $24,359,086                $24,641,770
                                     ===========                ===========



            See accompanying notes to condensed financial statements.

                                        3

<PAGE>



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


                                                          Nine Months Ended
                                                           September 30,
                                                   1997               1996
                                               -----------         ----------

Increase (Decrease) in Cash and Cash
  Equivalents:

    Net Cash Provided by Operating
      Activities                               $ 2,099,452         $ 2,006,079
                                               -----------         -----------

    Cash Flows from Investing Activities:
      Proceeds from sale of land                   223,589           1,044,909
      Investment in joint venture                 (616,245)                 -
      Collections on mortgage notes
        receivable                                   7,230               6,531
      Increase in restricted cash                       -           (1,044,909)
                                               -----------         -----------
          Net cash provided by (used in)
            investing activities                  (385,426)              6,531
                                               -----------         -----------

    Cash Flows from Financing Activities:
      Distributions to limited partners         (2,025,000)         (2,025,000)
      Distributions to holder of minority
        interest                                   (14,781)            (14,776)
                                               -----------         -----------
          Net cash used in financing
            activities                          (2,039,781)         (2,039,776)
                                               -----------         -----------

Net Decrease in Cash and Cash
  Equivalents                                     (325,755)            (27,166)

Cash and Cash Equivalents at Beginning of
  Period                                         1,305,429             725,074
                                               -----------         -----------

Cash and Cash Equivalents at End of
  Period                                       $   979,674         $   697,908
                                               ===========         ===========

Supplemental Schedule of Non-Cash
  Financing Activities:

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










            See accompanying notes to condensed financial statements.

                                        4

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 1997 and 1996


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,  1997,  may not be
         indicative  of the  results  that may be  expected  for the year ending
         December  31, 1997.  Amounts as of December  31, 1996,  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, 1996.

         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.

2.       Land and Buildings on Operating Leases:

         In May 1997, the  Partnership  sold its property in Columbus,  Indiana,
         for $240,000 and received net sales proceeds of $223,589,  resulting in
         a loss of $19,739 for financial reporting purposes.

3.       Investment in Joint Ventures:

         In  February  1997,  the  Partnership  entered  into  a  joint  venture
         arrangement,  CNL  Mansfield  Joint  Venture,  with an affiliate of the
         Partnership which has the same general partners, to hold one restaurant
         property in Mansfield, Texas. As of September 30, 1997, the Partnership
         and its  co-venture  partner had  contributed  $616,245  and  $163,964,
         respectively,  to the joint venture to acquire the restaurant property.
         As of September 30, 1997, the  Partnership  and its co-venture  partner
         owned  a 79  percent  and 21  percent  interest,  respectively,  in the
         profits and losses of the joint venture.  The Partnership  accounts for
         its  investment in this joint venture under the equity method since the
         Partnership shares control with the affiliate.

                                                         5

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
               NOTES TO CONDENSED FINANCIAL STATEMENTS -CONTINUED
           Quarters and Nine Months Ended September 30, 1997 and 1996


3.       Investment in Joint Ventures - Continued:

         The following presents the combined,  condensed  financial  information
         for all of the Partnership's investments in joint ventures at:

                                            September 30,           December 31,
                                                1997                     1996

                  Land and buildings on
                    operating leases,
                    less accumulated
                    depreciation             $8,389,883              $7,778,815
                  Cash                           23,611                   1,106
                  Receivables                        -                   14,495
                  Accrued rental income         181,652                 154,782
                  Other assets                    1,035                   1,115
                  Liabilities                    32,117                   1,216
                  Partners' capital           8,564,064               7,949,097
                  Revenues                      749,270                 911,833
                  Net income                    571,232                 689,075

         The Partnership  recognized income totalling  $151,930 and $115,957 for
         the nine months ended September 30, 1997 and 1996,  respectively,  from
         these joint  ventures,  $55,939 and $38,833 of which was earned for the
         quarters ended September 30, 1997 and 1996, respectively.

4.       Commitment:

         In  September  1997,  CNL Income Fund VI, Ltd. and CNL Income Fund VII,
         Ltd.,  as  tenants-in-common,  entered  into a sales  contract  with an
         unrelated  third  party to sell the Jack in the Box  property  in Yuma,
         Arizona,  in which the Partnership owns a 48.33% interest.  The general
         partners  believe  that the  anticipated  sales price on this  property
         exceeds the carrying costs  associated  with the property.  The sale of
         this property had not occurred as of October 29, 1997.

5.       Subsequent Event:

         In October  1997,  the  Partnership  sold its  property  in  Dunnellon,
         Florida,  for $800,000 and received net sales  proceeds  (net of $5,055
         which represents  amounts due to the former tenant for prepaid rent) of
         $752,745,  resulting in a gain of approximately  $183,700 for financial
         reporting  purposes.  The Partnership intends to reinvest the net sales
         proceeds in an additional property.


                                        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,
1997, the  Partnership  owned 40 Properties,  including ten Properties  owned by
joint ventures in which the  Partnership is a co-venturer and one Property owned
with an affiliate as tenants-in-common.

Liquidity and Capital Resources

         The  Partnership's  primary source of capital for the nine months ended
September  30, 1997 and 1996,  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
$2,099,452 and $2,006,079 for the nine months ended September 30, 1997 and 1996,
respectively.  The  increase in cash from  operations  for the nine months ended
September 30, 1997, as compared to the nine months ended  September 30, 1996, is
primarily a result of changes in the Partnership's working capital.

         Other  sources and uses of capital  included the  following  during the
nine months ended September 30, 1997.

         In  February  1997,  the  Partnership  entered  into  a  joint  venture
arrangement,  CNL Mansfield Joint Venture,  with an affiliate of the Partnership
which  has  the  same  general  partners  to hold  one  restaurant  Property  in
Mansfield,  Texas.  As of September 30, 1997, the Partnership and its co-venture
partner  had  contributed  $616,245  and  $163,964,  respectively,  to the joint
venture to acquire the  restaurant  Property.  As of  September  30,  1997,  the
Partnership  and its  co-venture  partner  owned  a 79  percent  and 21  percent
interest, respectively, in the profits and losses of the joint venture.

         In May 1997, the  Partnership  sold its Property in Columbus,  Indiana,
for $240,000 and received net sales proceeds of $223,589, resulting in a loss of
$19,739 for financial reporting purposes. The net sales proceeds are expected to
be invested in an additional Property or used for other Partnership purposes.

         In October  1997,  the  Partnership  sold its  Property  in  Dunnellon,
Florida,  for  $800,000 and  received  net sales  proceeds  (net of $5,055 which
represents  amounts  due to the former  tenant for  prepaid  rent) of  $752,745,
resulting in a gain of approximately  $183,700 for financial reporting purposes.
The  Partnership  intends to reinvest  the net sales  proceeds in an  additional
Property.

                                        7

<PAGE>



Liquidity and Capital Resources - Continued

         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, 1997,  the  Partnership  had
$979,674 invested in such short-term  investments,  as compared to $1,305,429 at
December 31, 1996. The decrease in cash and cash equivalents for the quarter and
nine months ended September 30, 1997, is primarily attributable to the fact that
in February 1997, the Partnership  invested in CNL Mansfield  Joint Venture,  as
discussed  above. The decrease in cash and cash equivalents was partially offset
by an increase in cash and cash equivalents due to the receipt of sales proceeds
from the sale of the  Property  in  Columbus,  Indiana  in May  1997.  The funds
remaining  at September  30,  1997,  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 rents paid in advance
and  distributions  payable,  increased to $762,224 at September 30, 1997,  from
$733,466 at December  31,  1996,  primarily  as a result of an increase in rents
paid in advance  during the nine months ended  September  30, 1997.  The general
partners  believe that the  Partnership  has sufficient cash on hand to meet its
current working capital needs.

         In  September  1997,  CNL Income Fund VI, Ltd. and CNL Income Fund VII,
Ltd.,  as  tenants-in-common,  entered into a sales  contract  with an unrelated
third party to sell the Jack in the Box Property in Yuma,  Arizona, in which the
Partnership  owns a 48.33%  interest.  The  general  partners  believe  that the
anticipated  sales price on this Property  exceeds the carrying costs associated
with the Property.  The sale of this Property had not occurred as of October 29,
1997.

         Based  primarily  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, 1997 and 1996  ($675,000  for each of the  quarters  ended
September 30, 1997 and 1996). 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,  1997 and 1996.  No  amounts  distributed  to the  limited
partners for the nine months ended  September 30, 1997 and 1996, 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.



                                        8

<PAGE>



Liquidity and Capital Resources - Continued

         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, 1996, the  Partnership  and
its consolidated joint venture, San Antonio #849 Joint Venture, owned and leased
32 wholly  owned  Properties  (including  two  Properties  in Colorado  Springs,
Colorado,  and  Hartland,  Michigan,  which were sold in July and October  1996,
respectively)  and  during  the  nine  months  ended  September  30,  1997,  the
Partnership and its consolidated  joint venture owned and leased 31 wholly owned
Properties (including one Property in Columbus,  Indiana,  which was sold in May
1997)  to  operators  of  fast-food  and  family-style   restaurant  chains.  In
connection therewith,  during the nine months ended September 30, 1997 and 1996,
the  Partnership  and San  Antonio  #849 Joint  Venture  earned  $1,842,615  and
$1,852,307,  respectively,  in rental  income from  operating  leases and earned
income from direct financing  leases,  $615,826 and $603,626 of which was earned
during the quarters ended September 30, 1997 and 1996, respectively.  Rental and
earned  income  decreased  during the nine months ended  September  30, 1997, as
compared to the nine months ended  September  30, 1996, as a result of the sales
of  the  Properties  in  Colorado  Springs,  Colorado;  Hartland,  Michigan  and
Columbus,  Ohio,  in July 1996,  October  1996 and May 1997,  respectively.  The
decrease  in rental  income for the nine  months  ended  September  30, 1997 was
partially   offset  by  an  increase  in  rental  income   attributable  to  the
reinvestment of the net sales proceeds from the sale of the Property in Colorado
Springs, Colorado, in a Property in Marietta, Georgia, in October 1996.

         During the nine months ended September 30, 1996, the Partnership  owned
and leased eight Properties  indirectly through other joint venture arrangements
and one Property indirectly with an affiliate as  tenants-in-common.  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.  In  connection  therewith,
during the nine months ended September 30, 1997 and 1996, the Partnership earned
$151,930 and $115,957, respectively,  attributable to net income earned by these
unconsolidated  joint  ventures,  $55,939 and $38,833 of which was earned during
the quarters ended  September 30, 1997 and 1996,  respectively.  The increase in
net income earned by joint ventures


                                        9

<PAGE>



Results of Operations - Continued

during the quarter and nine months ended September 30, 1997, is primarily due to
the fact  that in  February  1997,  the  Partnership  reinvested  the net  sales
proceeds  it  received  from the sale,  in  October  1996,  of the  Property  in
Hartland,  Michigan,  in CNL Mansfield  Joint Venture,  with an affiliate of the
Partnership which has the same general partners.

         In addition,  during the nine months ended September 30, 1997 and 1996,
the  Partnership  earned  $131,517 and $188,418,  respectively,  in interest and
other income,  $46,474 and $65,855 of which was earned during the quarters ended
September  30, 1997 and 1996,  respectively.  The decrease in interest and other
income during the nine months ended  September 30, 1997, as compared to the nine
months ended  September 30, 1996,  was primarily  attributable  to the fact that
during the nine months ended  September  30, 1996,  the  Partnership  recognized
approximately  $46,500  in  other  income  due to the fact  that  the  corporate
franchisor of the Properties in Pueblo and Colorado Springs,  Colorado, paid the
past due real estate taxes  relating to these  Properties,  and the  Partnership
reversed  such  amounts  during 1996 that it had  previously  accrued as payable
during  1995.  In  addition,  the  decrease in interest and other income for the
quarter and nine months ended September 30, 1997 was due to the fact that during
the quarter and nine months ended  September 30, 1996,  the  Partnership  earned
approximately $7,000 in interest income on the net sales proceeds held in escrow
relating to the Property in Colorado  Springs,  Colorado.  These  proceeds  were
reinvested in a Property in Marietta, Georgia, in October 1996.

         Operating expenses,  including  depreciation and amortization  expense,
were  $356,379 and $393,695  for the nine months  ended  September  30, 1997 and
1996,  respectively,  of which  $112,150  and  $131,189  were  incurred  for the
quarters  ended  September  30,  1997 and 1996,  respectively.  The  decrease in
operating  expenses during the quarter and nine months ended September 30, 1997,
as  compared  to the  quarter  and nine months  ended  September  30,  1996,  is
partially  a result of a decrease  in  accounting  and  administrative  expenses
associated with operating the Partnership and its Properties. Operating expenses
also decreased  during the quarter and nine months ended  September 30, 1997 due
to the  fact  that in  connection  with  the sale of the  Property  in  Colorado
Springs,  Colorado,  in July 1996, the Partnership paid approximately  $9,000 in
1996  real  estate  taxes  which  were due upon  the  sale of the  Property.  In
addition,  operating expenses decreased during the quarter and nine months ended
September 30, 1997 as a result of a decrease in depreciation  expense due to the
sale of the Property in Colorado Springs, Colorado, and the sale of the Property
in Hartland,  Michigan,  during 1996. The decrease in  depreciation  expense was
partially  offset by the  purchase of the  Property  in  Marietta,  Georgia,  in
October 1996.

                                       10

<PAGE>



Results of Operations - Continued

         The decrease in operating  expenses for the nine months ended September
30, 1997 was partially offset by the fact that the Partnership recorded bad debt
expense of $4,613 during the nine months ended  September 30, 1997,  relating to
the Property in Columbus,  Indiana, relating to past due rental amounts. No such
amounts were  recorded  during the nine months ended  September  30, 1996.  This
Property was sold in May 1997,  as  discussed  above in  "Liquidity  and Capital
Resources".

         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 $685 and $618
for the nine months ended  September 30, 1997 and 1996,  respectively,  $234 and
$211 of which was earned during the quarters ended  September 30, 1997 and 1996,
respectively.  As a result  of the sale of the  Property  in  Colorado  Springs,
Colorado in July 1996, the Partnership recognized a gain for financial reporting
purposes of $194,840  during the quarter  and nine months  ended  September  30,
1996. As a result of the sale of the Property in Columbus, Indiana, in May 1997,
as  described  above in  "Liquidity  and  Capital  Resources,"  the  Partnership
recognized a loss for financial  reporting  purposes of $19,739  during the nine
months ended September 30, 1997.

         In  addition,  during the quarter and nine months ended  September  30,
1996,  the  Partnership  recorded a provision  for loss on land and  building of
$235,465,  for  financial  reporting  purposes,  relating  to  the  Property  in
Hartland,  Michigan.  This provision  represented the difference between (i) the
Property's  carrying  value at September 30, 1996,  and (ii) the net  realizable
value of the Property based on the net sales proceeds of $617,035  received from
the sale of this Property in October 1996.

                                       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, 1997.

                                       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 29th day of October, 1997.


                            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)