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, 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





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                5-8

   Item 2.    Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                    9-13

   Item 3.    Quantitative and Qualitative Disclosures About
                  Market Risk                                            13

Part II

   Other Information                                                     14-15

















<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                             September 30,           December 31,
                                                                 2000                    1999
                                                           ------------------     -------------------
<S> <C>
                               ASSETS

   Land and buildings on operating leases, less
       accumulated depreciation                                 $ 11,514,545            $ 13,984,334
   Net investment in direct financing leases                       2,873,609               3,273,155
   Investment in joint ventures                                    5,561,928               4,605,906
   Mortgage notes receivable, less deferred gain of
       $123,319 and $124,143, respectively                           997,218                 994,408
   Cash and cash equivalents                                       1,721,121                 925,348
   Restricted cash                                                 1,503,929                      --
   Receivables, less allowance for doubtful accounts
       of $16,679 for the year ended 1999                             24,209                  72,644
   Prepaid expenses                                                   25,919                  14,220
   Accrued rental income, less allowance for doubtful
       accounts of $9,845 in 2000 and 1999                         1,166,327               1,215,696
   Other assets                                                       60,422                  60,422
                                                           ------------------     -------------------

                                                                $ 25,449,227            $ 25,146,133
                                                           ==================     ===================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                               $   28,527             $    96,894
   Distributions payable                                             675,000                 675,000
   Due to related parties                                             92,180                  59,131
   Rents paid in advance and deposits                                  3,000                  10,107
                                                           ------------------     -------------------
       Total liabilities                                             798,707                 841,132

   Minority interest                                                 144,647                 145,515

   Partners' capital                                              24,505,873              24,159,486
                                                           ------------------     -------------------

                                                                $ 25,449,227            $ 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                  Nine Months Ended
                                                               September 30,                    September 30,
                                                            2000           1999              2000            1999
                                                         ------------   ------------     -------------    ------------

Revenues:
    Rental income from operating leases                     $441,670      $ 465,767        $1,376,390      $1,448,945
    Earned income from direct financing leases                96,044        100,506           293,376         303,583
    Contingent rental income                                   2,331          3,197             8,846           6,876
    Interest and other income                                 57,404         51,251           139,145         135,390
                                                         ------------   ------------     -------------    ------------
                                                             597,449        620,721         1,817,757       1,894,794
                                                         ------------   ------------     -------------    ------------

Expenses:
    General operating and administrative                      50,258         31,954           139,566          95,781
    Professional services                                      3,755          5,417            18,965          17,202
    State and other taxes                                         --             --            14,430          13,055
    Depreciation and amortization                             64,742         71,540           207,298         222,259
    Transaction costs                                             --         58,043            65,043         169,940
                                                         ------------   ------------     -------------    ------------
                                                             118,755        166,954           445,302         518,237
                                                         ------------   ------------     -------------    ------------

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                       478,694        453,767         1,372,455       1,376,557

Minority Interest in Income of Consolidated
    Joint Venture                                             (4,710 )       (4,674 )         (14,027 )       (13,954 )

Equity in Earnings of Unconsolidated Joint
    Ventures                                                 108,790         73,394           295,584         341,768

Gain on Sale of Land and Buildings                           619,811            287           717,375         189,531
                                                         ------------   ------------     -------------    ------------

Net Income                                                $1,202,585      $ 522,774        $2,371,387      $1,893,902
                                                         ============   ============     =============    ============

Allocation of Net Income:
    General partners                                      $   10,391      $   5,228        $   22,079      $   18,705
    Limited partners                                       1,192,194        517,546         2,349,308       1,875,197
                                                         ------------   ------------     -------------    ------------

                                                          $1,202,585      $ 522,774        $2,371,387      $1,893,902
                                                         ============   ============     =============    ============

Net Income Per Limited Partner Unit                       $    0.040      $   0.017        $    0.078      $    0.063
                                                         ============   ============     =============    ============

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


                                               Nine Months Ended                Year Ended
                                                 September 30,                 December 31,
                                                      2000                         1999
                                            -------------------------      ---------------------

General partners:
    Beginning balance                                   $    230,931                $   205,744
    Net income                                                22,079                     25,187
                                            -------------------------      ---------------------
                                                             253,010                    230,931
                                            -------------------------      ---------------------

Limited partners:
    Beginning balance                                     23,928,555                 24,108,052
    Net income                                             2,349,308                  2,520,503
    Distributions ($0.0675 and $0.090 per
       limited partner unit, respectively)                (2,025,000 )               (2,700,000 )
                                            -------------------------      ---------------------
                                                          24,252,863                 23,928,555
                                            -------------------------      ---------------------

Total partners' capital                                $  24,505,873              $  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


                                                                 Nine Months Ended
                                                                   September 30,
                                                              2000                1999
                                                         ----------------    ---------------

Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                 $1,942,752         $2,072,209
                                                         ----------------    ---------------

    Cash Flows from Investing Activities:
       Proceeds from sale of land and building                 3,397,334          1,059,954
       Increase in restricted cash                            (1,503,682 )       (1,061,529 )
       Return of capital from joint venture                      460,885                 --
       Investment in joint ventures                           (1,469,000 )               --
       Collections on mortgage notes receivable                    7,379            243,093
                                                         ----------------    ---------------
          Net cash provided by investing activities              892,916            241,518
                                                         ----------------    ---------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                      (2,025,000 )       (2,025,000 )
       Distributions to holder of minority interest              (14,895 )          (14,774 )
                                                         ----------------    ---------------
          Net cash used in financing activities               (2,039,895 )       (2,039,774 )
                                                         ----------------    ---------------

Net Increase in Cash and Cash Equivalents                        795,773            273,953

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

Cash and Cash Equivalents at End of Period                    $1,721,121         $1,130,778
                                                         ================    ===============

Supplemental Schedule of Non-Cash Financing
    Activities:

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


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

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 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 nine  months  ended  September  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:

         Land and buildings on operating leases consisted of the following at:
<TABLE>
<CAPTION>

                                                               September 30,         December 31,
                                                                   2000                  1999
                                                             ------------------    -----------------
<S> <C>

                   Land                                            $ 7,012,561          $ 8,010,699
                   Building                                          6,671,945            8,576,088
                                                             ------------------    -----------------
                                                                    13,684,506           16,586,787
                   Less accumulated depreciation                    (2,169,961 )         (2,602,453 )
                                                             ------------------    -----------------

                                                                  $ 11,514,545         $ 13,984,334
                                                             ==================    =================
</TABLE>



<PAGE>


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


2.       Land and Buildings on Operating Leases - Continued:

         In June 2000, the Partnership sold its property in Pueblo,  Colorado to
         a third  party for  $1,005,000,  resulting  in a gain of  approximately
         $97,100 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 September,  the Partnership  sold three  properties in Jacksonville,
         Florida,  one property in  Brunswick,  Georgia and one property in Lake
         City,  Florida,  to a third party for $2,404,835 and received net sales
         proceeds  of   approximately   $2,392,300   resulting   in  a  gain  of
         approximately   $619,500  for  financial  reporting   purposes.   These
         properties  were  originally  acquired by the  partnership in April and
         November of 1990 and had a cost of approximately $2,100,214,  excluding
         acquisition fees and miscellaneous acquisition expenses; therefore, the
         Partnership sold the properties for approximately $292,100 in excess of
         their original purchase price.

3.       Investment in Joint Ventures:

         In June 1999,  Halls Joint Venture,  in which the  Partnership  owned a
         51.1% interest,  sold its property to the tenant in accordance with the
         purchase  option under the lease  agreement.  As of September 30, 2000,
         the  Partnership and the joint venture partner had liquidated the joint
         venture  and  the  Partnership  had  received   approximately  $460,900
         representing  its pro rata  share of the  liquidation  proceeds  of the
         joint venture.

         In 2000, the Partnership  used the liquidation  proceeds  received from
         the  liquidation of Halls Joint Venture,  as described  above, 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 September 30, 2000,
         the  Partnership  owned a 17.16%  interest in the profits and losses of
         the joint venture.

         In August  2000,  the  Partnership  reinvested  the majority of the net
         sales proceeds from the 2000 sale of the Property in Pueblo,  Colorado,
         in a Property in Colorado Springs,  Colorado, as tenants-in-common with
         CNL Income Fund XII,  Ltd.  ("CNL  XII"),  an  affiliate of the general
         partners.  In connection  therewith,  the Partnership and the affiliate
         entered into an agreement  whereby each  co-venturer  will share in the
         profits and losses of the  Property  in  proportion  to its  applicable
         percentage interest. The Partnership and CNL

<PAGE>



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


3.       Investment in Joint Ventures - Continued:

         XII  acquired  this  Property  from CNL BB Corp.,  an  affiliate of the
         general partners.  As of September 30, 2000, the Partnership owned a 43
         percent interest in the Property in Colorado Springs, Colorado.

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

                                                                      September 30,            December 31,
                                                                          2000                     1999
                                                                   --------------------    ---------------------
<S> <C>
             Land and buildings on operating leases,
                  less accumulated depreciation                           $ 16,929,651            $  11,427,388
             Net investment in direct financing lease                          924,841                  932,696
             Cash                                                              224,624                  962,409
             Receivables                                                         6,470                   39,213
             Accrued rental income                                             201,470                  148,868
             Other assets                                                        1,498                    1,917
             Liabilities                                                       490,849                   68,783
             Partners' capital                                              17,797,705               13,443,708
             Revenues                                                        1,101,356                1,297,799
             Gain on sale of land and building                                      --                  239,336
             Net income                                                        873,625                1,246,689

</TABLE>

         The Partnership recognized income totaling $295,584 and $341,768 during
         the nine months ended September 30, 2000 and 1999,  respectively,  from
         these joint ventures and the properties held as tenants-in-common  with
         affiliates,  of which  $108,790  and  $73,394  was  earned  during  the
         quarters ended September 30, 2000 and 1999, respectively.

4.       Related Party Transactions:

         During the nine months ended  September 30, 2000, the  Partnership  and
         CNL Income Fund XII, Ltd., as  tenants-in-common,  acquired an interest
         in a Bennigan's property from CNL BB Corp., an affiliate of the general
         partners,  for a  purchase  price  of  $2,226,134.  CNL  BB  Corp.  had
         purchased  and  temporarily  held  title to this  property  in order to
         facilitate  the  acquisition  of the property by the  Partnership.  The
         purchase price paid by

<PAGE>



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


3.       Related Party Transactions - Continued:

         the  Partnership  represents  the  costs  incurred  by CNL BB Corp.  to
         acquire and carry the property,  including closing costs. In accordance
         with the  Statement  of Policy of Real  Estate  Programs  for the North
         American  Securities  Administrators  Association,  Inc.,  all  income,
         expenses,  profits  and  losses  generated  by or  associated  with the
         property,  were treated as belonging to the  Partnership.  For the nine
         months ended September 30, 2000, other income of the  tenants-in-common
         includes $3,693 of such amounts.

5.       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.

6.       Subsequent Events:

         In October  2000,  the  Partnership  used the  majority of the net sale
         proceeds from the sales of the  properties  in  Brunswick,  Georgia and
         Jacksonville,  Florida, to acquire a 33 percent and 12 percent interest
         in Duluth  Joint  Venture  from CNL Income Fund XV, Ltd. and CNL Income
         Fund V, Ltd.,  respectively.  CNL Income Fund XV,  Ltd.  and CNL Income
         Fund V, Ltd., are affiliates of the general 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  September  30,  2000,  the
Partnership owned 36 Properties,  which included  interests in eleven Properties
owned by joint  ventures  in which the  Partnership  is a  co-venturer  and four
Properties owned with affiliates of the general partners as tenants-in-common.

Capital Resources

         The  Partnership's  primary source of capital for the nine months ended
September  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
$1,942,752 and $2,072,209 for the nine months ended September 30, 2000 and 1999,
respectively.  The  decrease in cash from  operations  for the nine months ended
September 30, 2000, as compared to the nine months ended September 30, 1999, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.

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

         In June 1999,  Halls Joint Venture,  in which the  Partnership  owned a
51.1% interest,  sold its Property to the tenant in accordance with the purchase
option under the lease agreement.  As of September 30, 2000, the Partnership and
the joint venture  partner had liquidated the joint venture and the  Partnership
had  received  approximately  $460,900  representing  its pro rata  share of the
liquidation  proceeds of the joint venture. The Partnership used the liquidation
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  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.

         In June 2000, the Partnership sold its Property in Pueblo,  Colorado to
a third party for $1,005,000,  resulting in a gain of approximately  $97,100 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 August 2000, the Partnership reinvested the majority
of these net sales  proceeds  in a Property in Colorado  Springs,  Colorado,  as
tenants-in-common  with CNL Income Fund XII, Ltd. ("CNL XII"), a Florida limited
partnership and an affiliate of the general partners.  In connection  therewith,
the  Partnership  and the  affiliate  entered  into an  agreement  whereby  each
co-venturer  will share in the profits and losses of the Property in  proportion
to its applicable percentage interest. The Partnership and CNL XII acquired this
Property  from  CNL  BB  Corp.,  an  affiliate  of  the  general  partners.  The
transaction,  or a portion  thereof,  relating  to the sale of the  Property  in
Pueblo, Colorado, and the reinvestment of the net sales proceeds in the Property
in Colorado Springs,  Colorado, as tenants-in-common,  was structured to qualify
as a like-kind  exchange  transaction  for federal  income tax  purposes.  As of
September 30, 2000, the Partnership  owned a 43 percent interest in the Property
in Colorado Springs, Colorado.

         In  September   2000,  the   Partnership   sold  three   properties  in
Jacksonville,  Florida,  one property in Brunswick,  Georgia and one property in
Lake City,  Florida,  to a third party for  $2,404,835  and  received  net sales
proceeds  of  approximately  $2,392,300  resulting  in a gain  of  approximately
$619,500 for financial  reporting  purposes.  These  properties  were originally
acquired  by the  partnership  in April and  November  of 1990 and had a cost of
approximately   $2,100,214,   excluding   acquisition  fees  and   miscellaneous
acquisition  expenses;   therefore,   the  Partnership  sold  the  property  for
approximately $292,100 in excess of its original purchase price. The Partnership
intends to  reinvest  the  majority of the net sale  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.

         In October  2000,  the  Partnership  used the  majority of the net sale
proceeds  from  the  sales  of  the   Properties   in  Brunswick,   Georgia  and
Jacksonville, Florida, to acquire a 33 percent and 12 percent interest in Duluth
Joint  Venture  from CNL  Income  Fund XV,  Ltd.  and CNL  Income  Fund V, Ltd.,
respectively.  CNL  Income  Fund XV,  Ltd.  and CNL Income  Fund V, Ltd.,  are a
Florida limited Partnership and are affiliates of the general partners.

         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  September  30,  2000,  the  Partnership  had  $1,721,121  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 receipt of net
sales  proceeds  from the sale of  Properties,  as  described  above.  The funds
remaining  at September  30,  2000,  after  payment of  distributions  and other
liabilities,  will be used to  purchase  additional  Properties  and 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 $798,707 at September 30, 2000, from $841,132 at December 31, 1999.
The  decrease in  liabilities  was  primarily a result of a decrease in accounts
payable at  September  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 $2,025,000  for each of the
nine months ended September 30, 2000 and 1999 ($675,000 for each of the quarters
ended  September  30, 2000 and 1999).  This  represents  distributions  for each
applicable  nine months of $0.0675 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, 2000 and 1999. No amounts distributed to the
limited  partners for the nine months  ended  September  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.

Results of Operations

         During the nine months ended  September 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 nine
months ended  September  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 six Properties sold during
2000). In connection therewith,  during the nine months ended September 30, 2000
and 1999, the Partnership  and San Antonio #849 Joint Venture earned  $1,669,766
and $1,752,528,  respectively, in rental income from operating leases and earned
income from direct financing  leases,  $537,714 and $566,273 of which was earned
during  the  quarters  ended  September  30,  2000 and 1999,  respectively.  The
decrease  in rental and earned  income for the  quarter  and nine  months  ended
September 30, 2000,  as compared to the quarter and nine months ended  September
30,  1999,  was  primarily  due to the  sales  of the  Property  in 1999 and six
Properties in 2000, as described above in "Capital Resources." 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  Properties  with
affiliates  of the general  partners as  tenants-in-common  and in joint venture
arrangements.

         During the nine months ended September 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  nine  months  ended  September  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 nine months ended
September  30, 2000 and 1999,  the  Partnership  earned  $295,584 and  $341,768,
respectively, $108,790 and $73,394 of which was earned during the quarters ended
September 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.  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 net sales  proceeds from Halls Joint
Venture and the 2000 sale of a Property in Pueblo,  Colorado,  in two Properties
each with an affiliate of the general  partners as  tenants-in-common,  and in a
joint venture arrangement, as described in "Capital Resources."

         Operating expenses,  including  depreciation expense, were $445,302 and
$518,237 for the nine months ended  September  30, 2000 and 1999,  respectively,
$118,755 and $166,954 of which were incurred during the quarters ended September
30, 2000 and 1999,  respectively.  Operating expenses decreased partially due to
the fact that the Partnership incurred less transaction costs during the quarter
and nine  months  ended  September  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 nine months  ended
September  30, 2000 was  partially  attributable  to a decrease in  depreciation
expense as a result of the sale of one Property in June 1999 and six  Properties
in 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 $824 and $840
for the nine months ended  September 30, 2000 and 1999,  respectively,  $316 and
$287 of which was recognized for the quarters ended September 30, 2000 and 1999,
respectively.  In addition,  as a result of the sales of five and six Properties
during the quarter and nine months ended  September 30, 2000,  respectively,  as
described above in "Capital  Resources,"  the  Partnership  recognized a gain of
$619,495 and $716,551 for financial  reporting  purposes  during the quarter and
nine months ended September 30, 2000, respectively. 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 nine months ended September 30,1999.

Termination of Merger

         On March 1, 2000,  the  general  partners  and 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.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         No material  changes in the  Partnership's  market risk  occurred  from
December  31,  1999  through  September  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.   Inapplicable.

Item 2.    Changes in Securities.       Inapplicable.

Item 3.    Default upon Senior Securities.   Inapplicable.

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

Item 5.    Other Information.   Inapplicable.

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

           (a)    Exhibits

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

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

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

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

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


<PAGE>



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

                  27      Financial Data Schedule (Filed herewith.)


           (b)    Reports on Form 8-K

                  No  reports on Form 8-K were filed  during the  quarter  ended
                  September 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 10th day of November, 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)