UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

(Mark One)

[x]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 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 Identification No.)
  incorporation or organization)

                             450 South Orange Avenue
                             Orlando, Florida 32801
          (Address of principal executive offices, including zip code)

       Registrant's telephone number, including area code: (407) 540-2000

          Securities registered pursuant to Section 12 (b) of the Act:

Title of each class:                      Name of exchange on which registered:
        None                                             Not Applicable

           Securities registered pursuant to section 12(g) of the Act:

               Units of limited partnership interest ($1 per Unit)
                                (Title of class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or 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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [x]

         Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 30,000,000 units of limited
partnership  interest  (the  "Units") on Form S-11 under the  Securities  Act of
1933, as amended. Since no established market for such Units exists, there is no
market for such Units. Each Unit was originally sold at $1 per Unit.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None


<PAGE>

                                     PART I


Item 1.  Business

         CNL Income Fund VII, Ltd. (the "Registrant" or the  "Partnership") is a
limited  partnership  which was  organized  pursuant to the laws of the State of
Florida on August 18, 1989. The general  partners of the  Partnership are Robert
A.  Bourne,  James  M.  Seneff,  Jr.  and  CNL  Realty  Corporation,  a  Florida
corporation  (the  "General  Partners").  Beginning  on January  30,  1990,  the
Partnership offered for sale up to $30,000,000 of limited partnership  interests
(the "Units")  (30,000,000 Units each at $1 per Unit) pursuant to a registration
statement  on Form S-11  under  the  Securities  Act of 1933,  as  amended.  The
offering  terminated  on August 1, 1990,  as of which date the maximum  offering
proceeds of  $30,000,000  had been received from  investors who were admitted to
the Partnership as limited partners (the "Limited Partners").

         The  Partnership  was organized to acquire both newly  constructed  and
existing  restaurant  properties,  as well as properties 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 "Restaurant Chains").  Net proceeds to the Partnership from its offering of
Units,  after  deduction  of  organizational  and  offering  expenses,   totaled
$26,550,000, and were used to acquire 42 Properties, including interests in nine
Properties  owned by joint  ventures in which the  Partnership is a co-venturer,
and to establish a working  capital  reserve for  Partnership  purposes.  During
1994, the  Partnership  sold its Property in St. Paul,  Minnesota and reinvested
the majority of the net sales proceeds in a Checkers Property in Winter Springs,
Florida,  consisting  of only  land,  and a Jack in the Box  Property  in  Yuma,
Arizona,  which is owned as  tenants-in-common  with an affiliate of the General
Partners.  The lessee of the Property  consisting of only land owns the building
currently on the land.  During 1995,  the  Partnership  sold its  Properties  in
Florence, South Carolina and Jacksonville, Florida and accepted promissory notes
in the principal sum of $1,160,000 and $240,000,  respectively. In addition, the
building  located on the  Partnership's  Property in Daytona Beach,  Florida was
demolished in accordance with a condemnation  agreement during 1995.  During the
year ended December 31, 1996, the  Partnership  sold its Properties in Hartland,
Michigan and Colorado  Springs,  Colorado and  reinvested the net sales received
from the sale of the  Colorado  Springs,  Colorado  Property in a Boston  Market
Property in Marietta,  Georgia.  During the year ended  December  31, 1997,  the
Partnership  used  the net  sales  proceeds  from the  sale of the  Property  in
Hartland, Michigan to invest in CNL Mansfield Joint Venture with an affiliate of
the General Partners in exchange for a 79 percent interest in the joint venture.
In addition,  during 1997,  the  Partnership  sold its  Properties  in Columbus,
Indiana and Dunnellon, Florida and sold the Property in Yuma, Arizona, which was
owned as  tenants-in-common  with an  affiliate  of the  General  Partners,  and
reinvested the net sales  proceeds in a Property in  Smithfield,  North Carolina
and a Property in Miami, Florida, each as tenants-in-common,  with affiliates of
the General  Partners.  During the year ended December 31, 1999, the Partnership
sold its Property in  Maryville,  Tennessee  and used the net sales  proceeds to
invest  in  a  Property  in  Montgomery,  Alabama  as  tenants-in-common,   with
affiliates of the General  Partners.  In addition,  during 1999, the Partnership
received a prepaid  principal  payment from the borrower  relating to one of the
promissory notes the Partnership had previously  accepted.  The Partnership used
the proceeds to invest in Duluth Joint  Venture with  affiliates  of the General
Partners to construct  and hold one  restaurant  property.  In addition,  during
1999, Halls Joint Venture, in which the Partnership owned a 51.1% interest, sold
its Property in Halls,  Tennessee.  During the year ended December 31, 2000, the
Partnership  sold its Property in Pueblo,  Colorado and reinvested the net sales
proceeds  as  tenants-in-common  with  affiliates  of the  General  Partners  to
purchase and hold one  restaurant  Property in Colorado  Springs,  Colorado.  In
addition,  during 2000, the Partnership  liquidated Halls Joint Venture and used
the pro rata share of the liquidation proceeds it received to enter into a joint
venture  arrangement,  TGIF Pittsburgh  Joint Venture,  to purchase and hold one
restaurant  Property.  In addition,  during 2000, the Partnership sold its three
Properties in Jacksonville,  Florida;  one Property in Lake City,  Florida;  one
Property in Brunswick,  Georgia and one Property in  Friendswood,  Illinois.  In
addition,  during 2000, the Partnership  purchased additional interest in Duluth
Joint  Venture  from CNL Income  Fund V, Ltd.  and CNL Income Fund XV, Ltd. As a
result of the above transactions, as of December 31, 2000, the Partnership owned
35 Properties.  The 35 Properties  included interests in eleven Properties owned
by joint ventures in which the  Partnership is a co-venturer and four Properties
owned with  affiliates as  tenants-in-common.  The  Properties  are, in general,
leased on a triple-net  basis with the lessees  responsible  for all repairs and
maintenance,  property  taxes,  insurance and  utilities.  In February 2001, the
Partnership  reinvested  the net  sales  proceeds  from the sale of three of its
Properties  (two in  Jacksonville,  Florida  and one in Lake City,  Florida in a
Property  located in Baton  Rouge,  Louisiana  from CNL Funding  2001-A,  LP, an
affiliate of the General Partners.

         The  Partnership  will hold its Properties  until the General  Partners
determine that the sale or other  disposition of the Properties is  advantageous
in view of the Partnership's investment objectives.  In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation,  net cash flow and  federal  income  tax  considerations.  Certain
lessees also have been granted options to purchase Properties,  generally at the
Property's  then fair market  value after a specified  portion of the lease term
has elapsed.  The  Partnership has no obligation to sell all or any portion of a
Property  at any  particular  time,  except as may be  required  under  property
purchase options granted to certain lessees.

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with CNL  American  Properties  Fund,  ("APF"),  pursuant to which the
Partnership would be merged with an into a subsidiary of APF (the "Merger"). APF
is a real estate  investment  trust whose  primary  business is the ownership of
restaurant  Properties leased on a long-term  "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration  for the Merger. On
March 1, 2000,  the General  Partners and CNL  American  Properties  Fund,  Inc.
("APF")  announced that they had mutually  agreed to terminate the Agreement and
Plan of Merger  entered  into in March 1999.  The  agreement  to  terminate  the
Agreement and Plan of Merger was based, in large part, on the General  Partners'
concern that,  in light of market  conditions  relating to publicly  traded real
estate  investment  trusts,  the value of the transaction  had diminished.  As a
result of such  diminishment,  the General  Partners'  ability to  unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become  questionable.  The  General  Partners  are  continuing  to  evaluate
strategic  alternatives for the Partnership,  including  alternatives to provide
liquidity to the Limited Partners.

Leases

         Although there are variations in the specific terms of the leases,  the
following  is  a  summarized   description  of  the  general  structure  of  the
Partnership's  leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms  ranging  from five to 20 years (the average  being 17 years),  and expire
between 2003 and 2019. Generally, the leases are on a triple-net basis, with the
lessee  responsible for all repairs and maintenance,  property taxes,  insurance
and  utilities.  The leases of the  Properties  provide for minimum  base annual
rental payments  (payable in monthly  installments)  ranging from  approximately
$21,600 to $259,900.  The majority of the leases  provide for  percentage  rent,
based on sales in excess of a specified amount. In addition,  some of the leases
provide that,  commencing in specified lease years  (generally  ranging from the
sixth to the eleventh lease year), the annual base rent required under the terms
of the lease will increase.

         Generally,  the  leases  of the  Properties  provide  for  two to  four
five-year  renewal  options  subject  to the same  terms and  conditions  as the
initial lease.  Lessees of 25 of the  Partnership's 35 Properties also have been
granted options to purchase  Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed.  Fair market value will
be determined  through an appraisal by an independent  appraisal firm. Under the
terms of certain leases,  the option purchase price may equal the  Partnership's
original cost to purchase the Property  (including  acquisition  costs),  plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.

         The leases also  generally  provide that, in the event the  Partnership
wishes to sell the Property  subject to that lease,  the Partnership  first must
offer the  lessee  the right to  purchase  that  Property  on the same terms and
conditions,  and for the same  price,  as any offer  which the  Partnership  has
received for the sale of the Property.

         In  December  1999,  the  Partnership  entered  into  a  joint  venture
arrangement, Duluth Joint Venture, with CNL Income Fund V, Ltd., CNL Income Fund
XIV, Ltd. and CNL Income Fund XV, Ltd., each a Florida  limited  partnership and
an  affiliate of the General  Partners,  to  construct  and hold one  restaurant
Property.  During 2000, the Partnership  acquired the 12 percent interest and 33
percent interest  previously held by CNL Income Fund V, Ltd. and CNL Income Fund
XV, Ltd., respectively.

         In June 2000, the Partnership  invested in 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 purchase and hold one  restaurant
Property.  In August 2000, the Partnership  invested the net sales proceeds from
the sale of the  Property  in  Pueblo,  Colorado  in a  Bennigan's  Property  in
Colorado Springs, Colorado, as tenants-in-common with CNL Income Fund XII, Ltd.,
a Florida  limited  partnership  and an  affiliate of the General  Partners,  to
purchase and hold one restaurant Property.  The lease terms for these Properties
are  substantially  the same as the  Partnership's  other  leases,  as described
above.

         In January 2001,  the  Partnership  reinvested  the net sales  proceeds
received from the sale of three of its Properties (two in Jacksonville,  Florida
and one in Lake City, Florida) in a Property located in Baton Rouge,  Louisiana.
The  lease  terms  for  this  Property  are   substantially   the  same  as  the
Partnership's other leases.

Major Tenants

         During 2000,  three  lessees of the  Partnership  and its  consolidated
joint venture, Golden Corral Corporation,  Restaurant Management Services, Inc.,
and  Waving  Leaves,  Inc.,  each  contributed  more  than  ten  percent  of the
Partnership's  total  rental,  earned and mortgage  interest  income  (including
rental  income  from  the  Partnership's  consolidated  joint  venture  and  the
Partnership's  share of rental and earned  income from ten  Properties  owned by
unconsolidated  joint ventures and four Properties  owned with affiliates of the
General Partners as  tenants-in-common).  As of December 31, 2000, Golden Corral
Corporation was the lessee under leases relating to five restaurants, Restaurant
Management  Services,  Inc.  was the lessee  under a lease  relating to one site
currently  consisting of land only, and Waving Leaves, Inc. was the lessee under
leases  relating  to four  restaurants.  It is  anticipated  that,  based on the
minimum rental payments  required by the leases,  Golden Corral  Corporation and
Waving  Leaves,  Inc. each will continue to contribute  more than ten percent of
the Partnership's total rental,  earned and mortgage interest income in 2001. In
addition,  three Restaurant Chains, Golden Corral Family Steakhouse  Restaurants
("Golden Corral"),  Hardee's,  and Burger King, each accounted for more than ten
percent of the Partnership's  total rental,  earned and mortgage interest income
in 2000  (including  rental  income from the  Partnership's  consolidated  joint
venture  and the  Partnership's  share of  rental  and  earned  income  from ten
Properties owned by unconsolidated joint ventures and four Properties owned with
affiliates  of the  General  Partners  as  tenants-in-common).  In  2001,  it is
anticipated that these three Restaurant Chains each will continue to account for
more than ten percent of the  Partnership's  total  rental,  earned and mortgage
interest  income to which the  Partnership  is  entitled  under the terms of the
leases.  Any failure of these  lessees or  Restaurant  Chains  could  materially
affect the  Partnership's  income if the Partnership is not able to re-lease the
Properties in a timely manner. No single tenant or groups of affiliated  tenants
lease Properties with an aggregate carrying value in excess of 20 percent of the
total assets of the Partnership.

Joint Venture and Tenancy in Common Arrangements

         The  Partnership  has entered  into a joint  venture  arrangement,  San
Antonio #849 Joint Venture, with an unaffiliated entity to purchase and hold one
Property.  In addition,  the  Partnership  has entered into four separate  joint
venture  arrangements  with affiliates of the General  Partners:  CNL Restaurant
Investments II with CNL Income Fund VIII, Ltd. and CNL Income Fund IX, Ltd.; Des
Moines Real Estate  Joint  Venture  with CNL Income Fund XI, Ltd. and CNL Income
Fund XII, Ltd.; CNL Mansfield Joint Venture with CNL Income Fund XVII, Ltd.; and
Duluth Joint Venture with CNL Income Fund XIV,  Ltd. In addition,  in June 2000,
the Partnership entered 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 of the CNL Income  Funds is an  affiliate  of the
General Partners and is a limited partnership  organized pursuant to the laws of
the state of Florida. CNL Restaurants  Investments II was formed to purchase and
hold six  Properties and each of the other joint ventures was formed to purchase
and hold one Property.

         The joint  venture  arrangements  provide for the  Partnership  and its
joint venture  partners to share in all costs and benefits  associated  with the
joint venture in accordance with their  respective  percentage  interests in the
joint venture.  The Partnership  has an 83 percent  interest in San Antonio #849
Joint Venture, an 18 percent interest in CNL Restaurant  Investments II, a 4.79%
interest in Des Moines Real Estate Joint Venture,  a 79 percent  interest in CNL
Mansfield Joint Venture,  a 56 percent  interest in Duluth Joint Venture,  and a
17.16% interest in TGIF Pittsburgh Joint Venture.  The Partnership and its joint
venture   partners  are  also  jointly  and  severally  liable  for  all  debts,
obligations and other liabilities of the joint venture.

         San Antonio #849 Joint  Venture,  Des Moines Real Estate Joint Venture,
CNL Mansfield  Joint  Venture,  Duluth Joint Venture and TGIF  Pittsburgh  Joint
Venture each have an initial term of 20 years and,  after the  expiration of the
initial term,  continue in existence from year to year unless  terminated at the
option  of  any  joint  venturer  or by  an  event  of  dissolution.  Events  of
dissolution  include the  bankruptcy,  insolvency  or  termination  of any joint
venturer,  sale of the Property owned by the joint venture and mutual  agreement
of the Partnership and each joint venture partner to dissolve the joint venture.
CNL Restaurant Investments II's joint venture agreement does not provide a fixed
term, but continues in existence until terminated by any of the joint venturers.

         The  Partnership  has management  control of the San Antonio #849 Joint
Venture and shares  management  control  equally with  affiliates of the General
Partners  for CNL  Restaurant  Investments  II, Des  Moines  Real  Estate  Joint
Venture, CNL Mansfield Joint Venture,  Duluth Joint Venture, and TGIF Pittsburgh
Joint Venture.  The joint venture agreements restrict each venturer's ability to
sell,  transfer or assign its joint venture  interest  without first offering it
for sale to its joint venture partner,  either upon such terms and conditions as
to which the venturers may agree or, in the event the venturers cannot agree, on
the same terms and  conditions  as any offer from a third party to purchase such
joint venture interest.

         Net cash flow from  operations of San Antonio #849 Joint  Venture,  CNL
Restaurant  Investments II, Des Moines Real Estate Joint Venture,  CNL Mansfield
Joint  Venture,  Duluth Joint  Venture,  and TGIF  Pittsburgh  Joint  Venture is
distributed  83.3%,  18  percent,  4.79%,  79  percent,  56 percent  and 17.16%,
respectively,  to the  Partnership and the balance is distributed to each of the
other joint venture  partners in  accordance  with their  respective  percentage
interests in the joint venture.  Any  liquidation  proceeds,  after paying joint
venture debts and liabilities and funding  reserves for contingent  liabilities,
will be distributed  first to the joint venture  partners with positive  capital
account  balances in proportion to such balances until such balances equal zero,
and thereafter in proportion to each joint venture partner's percentage interest
in the joint venture.

         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.  During 2000, the  Partnership  and the joint
venture partner liquidated Halls Joint Venture and the Partnership  received its
pro rata share of the liquidation proceeds from the joint venture.

         In December 1997, the  Partnership  entered into an agreement to hold a
Property in Miami, Florida, as tenants-in-common with CNL Income Fund III, Ltd.,
CNL Income  Fund X, Ltd.  and CNL  Income  Fund XIII,  Ltd.,  affiliates  of the
General Partners.  The agreement  provides for the Partnership and the affiliate
to share in the  profits  and  losses  of the  Property  in  proportion  to each
co-tenant's  percentage interest.  The Partnership owns a 35.64% interest in the
Property in Miami, Florida.

         In  addition,  in  December  1997,  the  Partnership  entered  into  an
agreement to purchase and hold a Golden  Corral  Property in  Smithfield,  North
Carolina,  as  tenants-in-common  with CNL Income Fund II, Ltd., an affiliate of
the  General  Partners.  The  agreement  provides  for the  Partnership  and the
affiliate  to share in the profits and losses of the Property in  proportion  to
each co-tenant's percentage interest. The Partnership owns a 53 percent interest
in this Property.

         In November 1999, the Partnership entered into an agreement to purchase
and hold a IHOP property in Montgomery,  Alabama, as tenants-in-common  with CNL
Income Fund IX,  Ltd.,  an  affiliate  of the General  Partners.  The  agreement
provides  for the  Partnership  and the  affiliate  to share in the  profits and
losses of the Property in proportion to each  co-tenant's  percentage  interest.
The Partnership owns a 71 percent interest in this Property.

         In August 2000, the  Partnership  entered into an agreement to purchase
and  hold  a   Bennigan's   Property   in   Colorado   Springs,   Colorado,   as
tenants-in-common  with CNL Income Fund XII,  Ltd.,  an affiliate of the General
Partners.  The agreement provides for the Partnership and the affiliate to share
in the profits  and losses of the  Property in  proportion  to each  co-tenant's
percentage interest.  The Partnership owns an approximate 43 percent interest in
this Property.

         Each of the affiliates is a limited  partnership  organized pursuant to
the laws of the state of Florida. The tenancy in common agreement restricts each
co-tenant's ability to sell, transfer,  or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining co-tenant.

         The use of joint venture and tenancy in common  arrangements allows the
Partnership  to fully invest its available  funds at times at which it would not
have  sufficient  funds to purchase an additional  property,  or at times when a
suitable  opportunity to purchase an additional  property is not available.  The
use of joint  venture  and  tenancy in common  arrangements  also  provides  the
Partnership  with  increased  diversification  of its portfolio  among a greater
number of properties. In addition,  tenancy in common arrangements may allow the
Partnership  to defer the gain for federal  income tax purposes upon the sale of
the property if the proceeds  are  reinvested  in an  additional  property.  The
affiliates are limited partnerships  organized pursuant to the laws of the state
of Florida.

Certain Management Services

         CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain  services  relating to management of the  Partnership and its Properties
pursuant to a management  agreement with the Partnership.  Under this agreement,
CNL  Fund  Advisors,   Inc.  is  responsible  for  collecting  rental  payments,
inspecting  the  Properties  and the tenants'  books and records,  assisting the
Partnership  in  responding  to  tenant  inquiries  and  notices  and  providing
information  to  the  Partnership  about  the  status  of  the  leases  and  the
Properties.  CNL Fund  Advisors,  Inc.  also  assists  the  General  Partners in
negotiating the leases.  For these  services,  the Partnership has agreed to pay
CNL Fund Advisors,  Inc. an annual fee of one percent of the sum of gross rental
revenues from Properties  wholly owned by the Partnership plus the Partnership's
allocable  share of gross revenues of joint ventures in which the Partnership is
a co-venturer and the Property held as tenants-in-common with an affiliate,  but
not in excess of competitive fees for comparable services.  Under the management
agreement, the management fee is subordinated to receipt by the Limited Partners
of an aggregate, ten percent,  cumulative,  noncompounded annual return on their
adjusted  capital  contributions  (the "10%  Preferred  Return"),  calculated in
accordance   with  the   Partnership's   limited   partnership   agreement  (the
"Partnership  Agreement").  In any year in which the Limited  Partners  have not
received the 10% Preferred Return, no property management fee will be paid.

         The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.

Competition

         The fast-food and family-style  restaurant business is characterized by
intense  competition.  The restaurants on the Partnership's  Properties  compete
with  independently  owned  restaurants,  restaurants which are part of local or
regional chains, and restaurants in other well-known national chains,  including
those offering different types of food and service.

Employees

         The  Partnership   has  no  employees.   The  officers  of  CNL  Realty
Corporation  and the  officers and  employees of APF, the parent  company of CNL
Fund Advisors,  Inc. perform certain services for the Partnership.  In addition,
the General  Partners have  available to them the resources and expertise of the
officers and employees of CNL Financial  Group,  Inc. a diversified  real estate
company,  and its  affiliates,  who may also  perform  certain  services for the
Partnership.


Item 2.  Properties

         As of December 31, 2000, the Partnership owned 35 Properties. Of the 35
Properties,  20 are owned by the  Partnership  in fee  simple,  eleven are owned
through joint venture  arrangements and four are owned through tenancy in common
arrangements.  See Item 1.  Business  - Joint  Venture  and  Tenancy  in  Common
Arrangements.  The Partnership is not permitted to encumber its Properties under
the terms of its  partnership  agreement.  Reference  is made to the Schedule of
Real Estate and  Accumulated  Depreciation  for a listing of the  Properties and
their  respective  costs  including  acquisition  fees and  certain  acquisition
expenses.

Description of Properties

         Land. The Partnership's  Property sites range from approximately 17,800
to 110,200  square  feet  depending  upon  building  size and local  demographic
factors.  Sites  purchased  by  the  Partnership  are  in  locations  zoned  for
commercial use which have been reviewed for traffic patterns and volume.

         The following table lists the Properties owned by the Partnership as of
December 31, 2000 by state. More detailed information  regarding the location of
the  Properties  is  contained  in the  Schedule of Real Estate and  Accumulated
Depreciation.

                State                 Number of Properties

                Alabama                             1
                Arizona                             1
                Colorado                            1
                Florida                             6
                Georgia                             2
                Indiana                             1
                Louisiana                           1
                Michigan                            2
                Minnesota                           1
                North Carolina                      1
                Ohio                                7
                Pennsylvania                        1
                Tennessee                           2
                Texas                               7
                Washington                          1
                                               -------
                TOTAL PROPERTIES                   35
                                               =======


         Buildings.  Generally,  each of the Properties owned by the Partnership
includes  a  building  that is one of a  Restaurant  Chain's  approved  designs.
However,  the building located on the Checkers  Property is owned by the tenant,
while the land parcel is owned by the  Partnership.  In  addition,  the building
located on the Partnership's  Property in Daytona Beach,  Florida was demolished
in accordance with a condemnation agreement during 1995. The buildings generally
are rectangular and are constructed from various combinations of stucco,  steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership  range
from  approximately  700 to 10,600 square feet.  All buildings on Properties are
freestanding  and surrounded by paved parking areas.  Buildings are suitable for
conversion to various uses, although  modifications may be required prior to use
for other than restaurant  operations.  As of December 31, 2000, the Partnership
had no plans for renovation of the Properties.  Depreciation expense is computed
for buildings and improvements using the straight-line  method using depreciable
lives of 40 years for federal income tax purposes.

         As of December 31, 2000, the aggregate cost of the Properties  owned by
the   Partnership   (including   its   consolidated   joint   venture)  and  the
unconsolidated   joint  ventures   (including   the  Properties   owned  through
tenants-in-common arrangements), for federal income tax purposes was $16,547,577
and $19,616,916, respectively.





<PAGE>


The following table lists the Properties owned by the Partnership as of December
31, 2000 by Restaurant Chain.

                Restaurant Chain                 Number of Properties

                Bennigan's                                     1
                Boston Market                                  1
                Burger King                                    8
                Checkers                                       1
                Chevy's Fresh Mex                              1
                Church's                                       2
                Denny's                                        1
                Golden Corral                                  5
                Hardee's                                       6
                IHOP                                           1
                Jack in the Box                                3
                KFC                                            1
                Rally's                                        1
                Roadhouse Grill                                1
                Taco Bell                                      1
                TGI Friday's                                   1
                                                          -------

                TOTAL PROPERTIES                              35
                                                          =======

         The General Partners  consider the Properties to be well maintained and
sufficient for the Partnership's operations.

         The General Partners believe that the Properties are adequately covered
by  insurance.  In  addition,  the General  Partners  have  obtained  contingent
liability and property coverage for the Partnership.  This insurance is intended
to reduce the Partnership's  exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.

         Leases.  The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term  "triple  net"  basis,  meaning  that the  tenant is  responsible  for
repairs,  maintenance,  property taxes,  utilities and insurance.  Generally,  a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably  necessary to refurbish  buildings,  premises,
signs  and  equipment  so  as  to  comply  with  the  lessee's  obligations,  if
applicable,  under the  franchise  agreement  to reflect the current  commercial
image of its Restaurant  Chain.  These capital  expenditures  are required to be
paid by the lessee during the term of the lease.  The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.

         At December 31, 2000, 1999, 1998, 1997, and 1996, all of the Properties
were occupied.  The following is a schedule of the average rent per Property for
each of the years ended December 31:

<TABLE>
<CAPTION>
<S><C>

                                   2000              1999              1998               1997               1996
                               -------------     -------------    ---------------     --------------     --------------

Rental Revenues (1)             $ 2,801,210       $ 2,902,968         $2,879,831         $2,751,418         $2,850,721
Properties                               35                40                 40                 40                 40
Average Rent per
     Property                     $  80,035         $  72,574          $  71,996          $  68,785          $  71,268

</TABLE>

(1)      Rental income  includes the  Partnership's  share of rental income from
         the  Properties  owned  through  joint  venture  arrangements  and  the
         Properties  owned  through  tenancy  in  common  arrangements.   Rental
         revenues have been adjusted,  as applicable,  for any amounts for which
         the Partnership has established an allowance for doubtful accounts.


<PAGE>


         The following is a schedule of lease expirations for leases in place as
of December 31, 2000 for the next ten years and thereafter.

<TABLE>
<CAPTION>
<S><C>


                                                                                     Percentage of
             Expiration Year          Number              Annual Rental              Gross Annual
                                     of Leases               Revenues                Rental Income
             -----------------    ----------------       -----------------     --------------------------

              2001                             --                 $     --                      --
              2002                             --                       --                      --
              2003                              1                   30,000                   1.28%
              2004                              1                  137,061                   5.85%
              2005                              9                  561,873                  23.98%
              2006                              1                   62,327                   2.66%
              2007                             --                       --                      --
              2008                              1                   92,440                   3.95%
              2009                              1                  121,000                   5.17%
              2010                             11                  694,688                  29.61%
              Thereafter                       10                  644,397                  27.50%
                                        ----------       ------------------           -------------
              Total                            35             $  2,343,786                 100.00%
                                        ==========       ==================           =============

</TABLE>


         Leases  with Major  Tenants.  The terms of each of the leases  with the
Partnership's  major  tenants as of December  31,  2000 (see Item 1.  Business -
Major  Tenants),  are  substantially  the  same as  those  described  in Item 1.
Business - Leases.

         Golden Corral  Corporation leases five Golden Corral  restaurants.  The
initial term of each lease is 15 years (expiring  between 2004 and 2012) and the
average  minimum  base  annual  rent is  approximately  $148,700  (ranging  from
approximately $137,100 to $166,700).

         Waving Leaves, Inc. leases four Hardee's restaurants.  The initial term
of each lease is 20 years (expiring in 2010) and the average minimum base annual
rent is approximately $72,300 (ranging from approximately $62,800 to $79,800).

         Restaurant   Management  Services,   Inc.  leases  one  site  currently
consisting of land only  (formerly  operated as a Church's Fried  Chicken).  The
initial  term for this  lease is 19 years  (expiring  in 2010)  and the  minimum
annual base rent is approximately $37,400.


Item 3. Legal Proceedings

         Neither the  Partnership,  nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties,  is a party to, or
subject to any material pending legal proceedings.


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

         Not applicable.


<PAGE>


                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

(a) As of March 15, 2001, there were 3,140 holders of record of the Units. There
is no public  trading  market for the Units,  and it is not  anticipated  that a
public  market for the Units will  develop.  During 2000,  Limited  Partners who
wished to sell their Units may have  offered the Units for sale  pursuant to the
Partnership's  distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their  distributions used to acquire additional Units (to the
extent Units were  available  for  purchase),  may have done so pursuant to such
Plan. The General  Partners had the right to prohibit  transfers of Units.  From
inception  through  December 31, 2000,  the price paid for any Unit  transferred
pursuant to the Plan was $.95 per Unit. The price paid for any Unit  transferred
other than pursuant to the Plan was subject to  negotiation by the purchaser and
the selling  Limited  Partner.  The  Partnership  will not redeem or  repurchase
Units.

         The following table reflects,  for each calendar quarter, the high, low
and average  sales prices for transfers of Units during 2000 and 1999 other than
pursuant to the Plan, net of commissions.

<TABLE>
<CAPTION>
<S><C>
                                                2000 (1)                                   1999 (1)
                                -----------------------------------------    --------------------------------------
                                    High          Low          Average         High          Low         Average
      -------------------         ----------    ---------     -----------    ----------    ---------    -----------
      First Quarter                  $  .77       $  .77          $  .77        $  .95       $  .95        $  .95
      -------------------
      Second Quarter                    (2)          (2)             (2)           .89          .87           .88
      -------------------
      Third Quarter                     .88          .68             .71           .91          .68           .79
      -------------------
      Fourth Quarter                    .68          .65             .68          1.57          .75           .96
      -------------------

</TABLE>

(1)      A total of  138,570  and  273,773  Units  were  transferred  other than
         pursuant  to the Plan for the years ended  December  31, 2000 and 1999,
         respectively.

(2)      No transfer of Units took place during the quarter  other than pursuant
         to the plan.

         The  capital  contribution  per Unit was $1.  All  cash  available  for
distribution  will be distributed to the partners  pursuant to the provisions of
the Partnership Agreement.

         For each of the years ended December 31, 2000 and 1999, the Partnership
declared cash distributions of $2,700,000 to the Limited Partners. Distributions
of $675,000  were  declared at the close of each of the  Partnership's  calendar
quarters  during 2000 and 1999 to the Limited  Partners.  These amounts  include
monthly  distributions  made in arrears  for the  Limited  Partners  electing to
receive  distributions on this basis. No amounts distributed to partners for the
years ended  December 31, 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.   No
distributions have been made to the General Partners to date.

         The  Partnership  intends to  continue  to make  distributions  of cash
available  for  distribution  to the  Limited  Partners  on a  quarterly  basis,
although some Limited  Partners,  in  accordance  with their  election,  receive
monthly distributions, for an annual fee.

(b)      Not applicable.



<PAGE>


Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
<S><C>
                                             2000            1999            1998           1997           1996
                                         --------------  -------------- --------------- -------------- --------------
Year ended December 31:
     Revenues (1)                          $ 2,842,101     $ 2,992,933     $ 2,948,217   $ 2,919,734     $ 2,882,709
     Net income (2)                          3,221,515       2,545,690       2,466,018     2,606,008       2,326,863
     Cash distributions declared             2,700,000       2,700,000       2,700,000     2,700,000       2,700,000
     Net income per Unit (2)                     0.107           0.084           0.081         0.086           0.077
     Cash distributions declared
         per Unit                                0.090           0.090           0.090         0.090           0.090

At December 31:
     Total assets                          $25,607,914    $ 25,146,133     $25,218,258   $25,479,762     $25,523,853
     Partners' capital                      24,681,001      24,159,486      24,313,796    24,547,778      24,641,770


</TABLE>

(1)      Revenues  include equity in earnings of  unconsolidated  joint ventures
         and minority interest in income of the consolidated joint venture.

(2)      Net income for the years ended December 31, 2000, 1999, 1998, 1997, and
         1996,  includes $878,347,  $189,826,  $1,025,  $184,627,  and $195,675,
         respectively,  from gains on sale of  assets.  Net income for the years
         ended December 31, 1997 and 1996,  includes a loss on sale of assets of
         $19,739 and $235,465, respectively.

         The above selected  financial  data should be read in conjunction  with
the financial statements and related notes contained in Item 8 hereof.


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

         The  Partnership was organized on August 18, 1989, to acquire for cash,
either directly or through joint venture  arrangements,  both newly  constructed
and  existing  restaurant  Properties,  as well as land  upon  which  restaurant
Properties  were to be constructed,  which are leased  primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally  triple-net leases, with the lessees generally  responsible
for all repairs and maintenance,  property taxes, insurance and utilities. As of
December 31, 2000,  the  Partnership  owned 35  Properties,  either  directly or
indirectly through joint venture or tenancy in common arrangements.

Capital Resources

         The  Partnership's  primary  source  of  capital  for the  years  ended
December 31, 2000, 1999, and 1998, was cash from operations (which includes cash
received from tenants,  distributions from joint ventures and interest received,
less cash paid for expenses).  Cash from operations was $2,620,009,  $2,679,493,
and  $2,790,975  for  the  years  ended  December  31,  2000,  1999,  and  1998,
respectively. The decrease in cash from operations during 2000 and 1999, each as
compared  to the  previous  year,  was  primarily  a result  of  changes  in the
Partnership's working capital.

         Other  significant  sources and uses of capital  included the following
during the years ended December 31, 2000, 1999, and 1998.

         In August 1995, the  Partnership  sold its Property in Florence,  South
Carolina,  to the  tenant of the  Property  for  $1,160,000,  and in  connection
therewith,  accepted  a  promissory  note  in the  principal  sum of  $1,160,000
collateralized by a mortgage on the Property.  The note bears interest at 10.25%
per annum and is being  collected in 59 equal monthly  installments  of $10,395.
This  sale is being  accounted  for  under  the  installment  sales  method  for
financial reporting purposes;  therefore,  the Partnership  recognized a gain of
$1,147,  $1,135, and $1,025 for financial reporting purposes for the years ended
December 31, 2000,  1999, and 1998,  respectively.  The mortgage note receivable
balance relating to this Property at December 31, 2000 and 1999 was $994,593 and
$994,408,  respectively,  including  accrued  interest  of $15,723  and  $6,407,
respectively.  In February 2001, the  Partnership  received a balloon payment of
$1,115,301  which  included  the  outstanding  principal  balance and $14,419 of
accrued  interest.  The  Partnership  may  use  the net  sales  proceeds  to pay
liabilities of the Partnership, including quarterly distributions to the Limited
Partners, or to reinvest in additional Properties.  The Partnership  distributed
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 March 1996,  the  Partnership  entered  into an  agreement  with the
tenant of the Property in Daytona Beach,  Florida, for payment of certain rental
payment  deferrals the  Partnership  had granted to the tenant through March 31,
1996. Under the agreement, the Partnership agreed to abate approximately $13,200
of  the  rental  payment   deferral   amounts.   The  tenant  made  payments  of
approximately  $5,700 in each of June 1998 and June 1999 in accordance  with the
terms of the agreement.  During 2000, the tenant paid the remaining  balance due
of approximately $16,600.

         In  June  1999,  the  Partnership   sold  its  Property  in  Maryville,
Tennessee,  to the tenant in accordance with the purchase option under the lease
agreement  for  $1,068,802  and  received  net  sales  proceeds  of  $1,059,954,
resulting in a gain of $188,691 for financial reporting purposes.  This Property
was  originally  acquired  by  the  Partnership  in  1990  and  had  a  cost  of
approximately $890,700, excluding acquisition fees and miscellaneous acquisition
expenses;  therefore,  the  Partnership  sold  the  Property  for  approximately
$169,300  in excess of its  original  purchase  price.  In  November  1999,  the
Partnership  reinvested  these net sales  proceeds in a Property in  Montgomery,
Alabama,  as  tenants-in-common  with an affiliate of the General Partners.  The
sale of the Property in  Maryville,  Tennessee and the  reinvestment  of the net
sales proceeds in the Property in Montgomery,  Alabama  qualified as a like-kind
exchange  transaction  in accordance  with Section 1031 of the Internal  Revenue
Code.

         In  addition,   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  for  $891,915,
resulting in a gain to the joint venture of approximately $239,300 for financial
reporting  purposes.  The Property  was  originally  contributed  to Halls Joint
Venture  in 1990 and had a total  cost to the  joint  venture  of  approximately
$672,000,  excluding  acquisition fees and miscellaneous  acquisition  expenses;
therefore,  the joint  venture sold the Property for  approximately  $219,900 in
excess of its original  purchase  price.  During 2000, the  Partnership  and the
joint  venture  partner  liquidated  Halls  Joint  Venture  and the  Partnership
received  approximately  $460,900,  representing  its  pro  rata  share  of  the
liquidation  proceeds.  In June 2000, the Partnership  used a portion of the net
sales  proceeds  from the sale of the  Property  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 purchase and hold one
restaurant  Property.  As of December 31, 2000, the  Partnership  owned a 17.16%
interest  in the  profits  and  losses of the  joint  venture.  The  Partnership
distributed 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.

         As of December 31, 1998,  the  Partnership  had accepted two promissory
notes in connection  with the sale of two of its  Properties.  In July 1999, the
Partnership  collected the outstanding principal balance of $235,564 relating to
the promissory note accepted in connection with the 1995 sale of the Property in
Jacksonville,  Florida.  The note bore an interest rate of ten percent per annum
and was to be  collected in 119 equal  monthly  installments  of $2,106,  with a
balloon  payment of $218,252 to be due  December  2005.  In December  1999,  the
Partnership  reinvested  these  amounts in Duluth Joint  Venture with CNL Income
Fund V, Ltd., CNL Income Fund XIV,  Ltd.,  and CNL Income Fund XV, Ltd.,  each a
Florida  limited  partnership  and an  affiliate  of the  General  Partners,  to
construct  and  hold  one  restaurant  Property.   During  2000  and  1999,  the
Partnership contributed  approximately $969,300 and $119,100,  respectively,  to
purchase land and pay for construction  costs relating to the joint venture.  As
of December 31, 1999, the Partnership had an 11 percent  interest in the profits
and losses of this joint venture.  In October 2000, the Partnership  acquired an
additional 45 percent interest in Duluth Joint Venture,  from CNL Income Fund V,
Ltd.  and  CNL  Income  Fund  XV,  Ltd.  for  an  aggregate  purchase  price  of
approximately  $610,000.  As of December  31,  2000,  the  Partnership  had a 56
percent interest in the profits and losses of this joint venture.

         In June 2000, the Partnership sold its Property in Pueblo, Colorado, to
an  unrelated  third  party and  received  net  sales  proceeds  of  $1,005,000,
resulting in a gain of $97,056 for financial reporting  purposes.  This Property
was  originally  acquired  by the  Partnership  in 1990 and had a cost  totaling
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 the net sales  proceeds in an additional  Property in
Colorado Springs, Colorado as tenants-in-common with an affiliate of the General
Partners.  The Partnership  distributed  amounts sufficient to be able 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 September  2000,  the  Partnership  sold its Property in  Brunswick,
Georgia,   its  Property  in  Lake  City,  Florida,   and  three  Properties  in
Jacksonville,  Florida,  to unrelated third parties for a total of approximately
$2,404,800  and  received  net  sales  proceeds  of  approximately   $2,392,300,
resulting in a total gain of $619,495 for financial  reporting  purposes.  These
Properties  were  originally  acquired by the Partnership in 1990, and had costs
totaling approximately $2,055,900,  excluding acquisition fees and miscellaneous
acquisition  expenses;  therefore,  the  Partnership  sold these  Properties for
approximately  $336,400 in excess of their original purchase prices. In February
2001, the Partnership  reinvested the net sales proceeds received from the sales
of two  Properties  in  Jacksonville,  Florida  and the  Property  in Lake City,
Florida in a Jack in the Box Property in Baton Rouge, Louisiana. The Partnership
acquired the Property from an affiliate of the General Partners. The Partnership
intends to reinvest the remaining net sales  proceeds in additional  Properties.
The General Partners believe a portion of the transaction  relating to the sales
of these Properties and the reinvestment of the net sales proceeds in additional
Properties will qualify as a like-kind exchange for federal income tax purposes.
However, the Partnership will distribute amounts sufficient to be able 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  sales.  In
addition,  in December 2000, the  Partnership  sold its Property in Friendswood,
Texas to its tenant and received net sales  proceeds of $725,000  resulting in a
gain of $160,649 for financial reporting purposes.  This Property was originally
acquired by the  Partnership in 1990 and had a cost of  approximately  $485,000;
therefore,  the  Partnership  sold the  Property for  approximately  $239,100 in
excess of its original  purchase price.  The  Partnership,  with CNL Income Fund
XII,  Ltd.,  an  affiliate  of the General  Partners,  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 represents the costs incurred by CNL BB
Corp.  to  acquire  and  carry  the  Property,   including  closing  costs.  The
Partnership  distributed  amounts  sufficient  to be able 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.

         None of the Properties owned by the Partnership,  or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest,  is
or may be  encumbered.  Under its  partnership  agreement,  the  Partnership  is
prohibited from borrowing for any purpose;  provided,  however, that the General
Partners or their affiliates are entitled to reimbursement,  at cost, for actual
expenses  incurred by the General  Partners or their affiliates on behalf of the
Partnership.  Affiliates of the General Partners from time to time incur certain
operating  expenses  on behalf  of the  Partnership  for  which the  Partnership
reimburses the affiliates without interest.

         Currently,  rental  income from the  Partnership's  Properties  and net
sales proceeds from the sale of Properties  pending  reinvestment  in additional
Properties,  are invested in money market accounts or other  short-term,  highly
liquid  investments such as demand deposit accounts at commercial  banks,  money
market  accounts and  certificates  of deposit with less than a 30-day  maturity
date,  pending the Partnership's use of such funds to pay Partnership  expenses,
invest in additional  Properties,  or make  distributions  to the  partners.  At
December 31, 2000, the  Partnership  had $1,557,525  invested in such short-term
investments  (including a certificate of deposit in the amount of $100,000),  as
compared  to  $925,348  at  December  31,  1999.  The  increase in cash and cash
equivalents was primarily attributable to the fact that the Partnership received
net sales proceeds from the sale of several Properties during 2000, as described
above.  As of December 31, 2000, the average  interest rate earned on the rental
income   deposited  in  demand   deposit   accounts  at  commercial   banks  was
approximately three percent annually.  The funds remaining at December 31, 2000,
after payment of distributions and other liabilities,  will be used to invest in
an additional  Property 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.

         Due to low  operating  expenses  and  ongoing  cash flow,  the  General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition,  because all leases of the Partnership's  Properties are
on a  triple-net  basis,  it is not  anticipated  that a  permanent  reserve for
maintenance  and  repairs  will be  established  at this  time.  To the  extent,
however,  that the Partnership  has  insufficient  funds for such purposes,  the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.

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

         The Partnership  generally  distributes cash from operations  remaining
after the payment of the operating  expenses of the  Partnership,  to the extent
that  the  General  Partners   determine  that  such  funds  are  available  for
distribution.  Based primarily on cash from operations, the Partnership declared
distributions  to the Limited Partners of $2,700,000 for each of the years ended
December 31, 2000,  1999, and 1998. This represents  distributions of $0.090 per
Unit for each of the years ended  December 31, 2000,  1999, and 1998. No amounts
distributed to the Limited Partners for the years ended December 31, 2000, 1999,
and 1998 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.

         During 2000, the general  partners waived their right to receive future
distributions  from the Partnership,  including both  distributions of operating
cash flow and  distributions  of  liquidation  proceeds,  to the extent that the
cumulative amount of such distributions  would exceed the balance in the general
partners'  capital  account as of December  31, 1999.  Accordingly,  the general
partners were not allocated any net income and did not receive any distributions
during the year ended December 31, 2000.

         As of December 31, 2000,  1999, and 1998, the Partnership owed $67,815,
$59,131  and  $17,911,   respectively,   to  affiliates   for   accounting   and
administrative  services and other amounts.  As of March 15, 2001 $8,800 of such
amounts  had  been  reimbursed.  In  addition,  as of  December  31,  1998,  the
Partnership  owed $7,200 in real estate  disposition  fees to an  affiliate as a
result of its  services  in  connection  with the 1995 sale of the  Property  in
Jacksonville,  Florida.  Because the General Partners  initially  considered not
reinvesting  the sales  proceeds  in an  additional  Property,  the  Partnership
accrued  $7,200 of a real estate  disposition  fee and therefore  included these
amounts  in the  determination  of the  gain on  sale  for  financial  reporting
purposes  during 1995.  However,  during the year ended  December 31, 1999,  the
Partnership  reinvested  the  net  sales  proceeds  in an  additional  Property.
Accordingly,  the Partnership reversed this subordinated real estate disposition
fee  during the year ended  December  31,  1999.  Other  liabilities,  including
distributions  payable, of the Partnership decreased to $714,730 at December 31,
2000,  from  $782,001  at  December  31,  1999  primarily  as a  result  of  the
Partnership paying amounts accrued at December 31, 2000 relating to the proposed
and  terminated  Merger with APF, as described in  "Termination  of Merger." The
General  Partners  believe that the  Partnership  has sufficient cash on hand to
meet its current working capital needs.

Long-Term Liquidity

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

Results of Operations

         During 1999,  and 1998,  the  Partnership  and its  consolidated  joint
venture,  San  Antonio  #849 Joint  Venture,  owned and  leased 29 wholly  owned
Properties (including one Property which was sold in June 1999) and during 2000,
the Partnership and its consolidated  joint venture,  owned and leased 27 wholly
owned Properties  (including  seven Properties which were sold in 2000).  During
1998, the Partnership and its consolidated  joint venture,  was a co-venturer in
four  separate  unconsolidated  joint  ventures  which  owned  and  leased  nine
Properties,   and  owned  and  leased  two   Properties   with   affiliates   as
tenants-in-common.  During 1999,  the  Partnership  and its  consolidated  joint
venture, was a co-venturer in five, separate unconsolidated joint ventures which
owned and leased ten  Properties  (including one Property which was sold in June
1999),   and   owned  and   leased   three   Properties   with   affiliates   as
tenants-in-common.  During 2000,  the  Partnership  and its  consolidated  joint
venture,  was a co-venturer in six separate  unconsolidated joint ventures which
owned and  leased ten  Properties,  and owned and leased  four  Properties  with
affiliates as  tenants-in-common.  As of December 31, 2000, the  Partnership and
its consolidated  joint venture,  owned (either directly,  as  tenants-in-common
with an affiliate or through joint venture arrangements) 35 Properties which are
generally subject to long-term,  triple-net leases. The leases of the Properties
provide for minimum base annual rental amounts (payable in monthly installments)
ranging from approximately $21,600 to $259,900.  Substantially all of the leases
provide for percentage rent based on sales in excess of a specified  amount.  In
addition,  some of the leases  provide that,  commencing in the specified  lease
years (generally  ranging from the sixth to the eleventh lease year), the annual
base rent  required  under the terms of the lease  will  increase.  For  further
description of the Partnership's  leases and Properties,  see Item 1. Business -
Leases and Item 2. Properties, respectively.

         During  the  years  ended  December  31,  2000,  1999,  and  1998,  the
Partnership and its consolidated joint venture,  earned $2,145,945,  $2,318,042,
and $2,390,557,  respectively, in rental income from operating leases and earned
income from direct  financing  leases.  The decrease in rental and earned income
during 2000 and 1999,  each as compared to the previous  year,  was  primarily a
result of the sale of several Properties,  as described in "Capital  Resources."
Rental and earned  income are  expected  to remain at reduced  amounts in future
years as a result of the Partnership  reinvesting the proceeds from the sales of
several Properties in joint ventures and in Properties owned with affiliates, as
tenants-in-common,  as described in "Capital Resources." However, as a result of
the  Partnership  reinvesting  in joint  ventures and in  Properties  owned with
affiliates  as  tenants-in-common,  net income  earned by  unconsolidated  joint
ventures increased in 1999 and 2000, as described below.

         For the years ended December 31, 2000,  1999, and 1998, the Partnership
also earned  $91,842,  $76,601,  $93,906,  respectively,  in  contingent  rental
income.  Contingent  rental  income  was lower  during  1999 than 2000 and 1998,
primarily due to the fact that during 1999, the Partnership  adjusted  estimated
contingent rental amounts accrued at December 31, 1998, to actual amounts.

         For the years ended December 31, 2000,  1999, and 1998, the Partnership
also earned $456,050, $429,997, and $311,081, respectively,  attributable to net
income earned by  unconsolidated  joint  ventures in which the  Partnership is a
co-venturer    and   Properties    owned    indirectly    with   affiliates   as
tenants-in-common.  The increase in net income  earned by  unconsolidated  joint
ventures  during 2000 as compared to 1999 is  primarily  due to the  Partnership
investing in TGIF  Pittsburgh  Joint  Venture,  in June 2000,  and Properties in
Colorado  Springs,  Colorado and  Montgomery,  Alabama,  with  affiliates of the
General  Partners  as  tenants-in-common  in  August  2000  and  November  1999,
respectively,  as described  above in "Capital  Resources."  The increase in net
income earned by unconsolidated joint ventures during 1999, as compared to 1998,
was partially due to the fact that in June 1999,  Halls Joint Venture,  in which
the  Partnership  owned a 51.1%  interest,  recognized  a gain of  approximately
$239,300,  approximately  $122,000 of which was allocated to the Partnership for
financial reporting purposes as a result of the sale of its Property.

         During  the  year  ended  December  31,  2000,  three  lessees  of  the
Partnership  and its  consolidated  joint  venture,  Golden Corral  Corporation,
Restaurant Management Services,  Inc., and Waving Leaves, Inc., each contributed
more than ten percent of the  Partnership's  total  rental,  earned and mortgage
interest income  (including  rental income from the  Partnership's  consolidated
joint venture and the  Partnership's  share of rental and earned income from ten
Properties owned by unconsolidated joint ventures and four Properties owned with
affiliates  of the General  Partners as  tenants-in-common).  As of December 31,
2000,  Golden Corral  Corporation  was the lessee under a lease relating to five
restaurants,  Restaurant Management Services,  Inc. was the lessee under a lease
relating to one site currently  consisting of land only, and Waving Leaves, Inc.
was the lessee  under leases  relating to four  restaurants.  It is  anticipated
that, based on the minimum rental payments required by the leases, Golden Corral
Corporation  and Waving Leaves,  Inc. will continue to contribute  more than ten
percent of the Partnership's  total rental,  earned and mortgage interest income
during  2001.  In  addition,  during the year ended  December  31,  2000,  three
Restaurant Chains, Golden Corral,  Hardee's, and Burger King, each accounted for
more than ten percent of the  Partnership's  total  rental,  earned and mortgage
interest income  (including  rental income from the  Partnership's  consolidated
joint venture and the  Partnership's  share of rental and earned income from ten
Properties owned by unconsolidated joint ventures and four Properties owned with
affiliates  of the  General  Partners  as  tenants-in-common).  In  2001,  it is
anticipated that these three Restaurant Chains each will continue to account for
more than ten percent of the  Partnership's  total  rental,  earned and mortgage
interest  income to which the  Partnership  is  entitled  under the terms of the
leases.  Any failure of these  lessees or  Restaurant  Chains  could  materially
affect the  Partnership's  income if the Partnership is not able to re-lease the
Properties in a timely manner.

         During  the  years  ended  December  31,  2000,  1999,  and  1998,  the
Partnership earned $166,946, $186,933, and $171,263,  respectively,  in interest
and other  income.  The decrease in interest and other  income  during 2000,  as
compared  to  1999,  is  primarily  attributable  to  the  Partnership  in  1999
collecting the outstanding balance of the mortgage note related to the 1995 sale
of the Property in Jacksonville,  Florida, as described in "Capital  Resources."
The  decrease  in interest  and other  income was  partially  offset by, and the
increase during 1999, was primarily due to an increase in interest income earned
on the net sales proceeds relating to the sale of several Properties pending the
reinvestment  of the net sales  proceeds in additional  Properties.  In November
1999,  the net sales  proceeds  from the 1999 sale of the Property in Maryville,
Tennessee were invested in an IHOP Property in Montgomery, Alabama, as described
above in "Capital Resources."

         Operating expenses,  including  depreciation and amortization  expense,
were $498,933,  $637,069,  and $483,224,  for the years ended December 31, 2000,
1999, and 1998, respectively. The decrease in operating expenses during 2000, as
compared  to 1999 and the  increase  during  1999,  as  compared  to  1998,  was
partially due to the fact that the Partnership incurred $35,134,  $160,426,  and
$18,781 during 2000, 1999 and 1998,  respectively,  in transaction costs related
to the General Partners retaining financial and legal advisors to assist them in
evaluating  and  negotiating  the  purposed and  terminated  merger with APF, as
described in  "Termination  of Merger." In  addition,  the increase in operating
expenses  during 1999, as compared to 1998, was partially due to the Partnership
incurring  additional state taxes due to changes in tax laws of a state in which
the Partnership conducts business.

         In  connection  with  the  sale  of its  Property  in  Florence,  South
Carolina, during 1995, the Partnership recognized a gain for financial reporting
purposes of $1,147,  $1,135,  and $1,025, for the years ended December 31, 2000,
1999,  and  1998,  respectively.  In  accordance  with  Statement  of  Financial
Accounting  Standards  No.  66,  "Accounting  for  Sales  of Real  Estate,"  the
Partnership  recorded the sale using the installment  sales method. As such, the
gain on sale was deferred and is being recognized as income  proportionately  as
payments  under the mortgage note are collected.  Therefore,  the balance of the
deferred gain of $122,996 at December 31, 2000 is being  recognized as income in
future  periods as payments are collected.  For federal  income tax purposes,  a
gain of  approximately  $93,421 from the sale of this Property was also deferred
during 1995 and is being  recognized  as payments  under the  mortgage  note are
collected. In February,  2001, the Partnership collected the outstanding balance
relating to the promissory  note  collateralized  by the Property.  As a result,
during 2001, the Partnership recognized the remaining deferred gain of $122,996.

         As a  result  of the  sales  of  several  Properties  during  2000,  as
described  above  in  "Capital  Resources,"  the  Partnership  recognized  gains
totaling $877,200 for financial reporting  purposes.  As a result of the sale of
the  Property in  Maryville,  Tennessee,  during  1999,  as  described  above in
"Capital Resources" the Partnership  recognized a gain of $188,691 for financial
reporting purposes during the year ended December 31, 1999.

         The  Partnership's  leases  as of  December  31,  2000,  are  generally
triple-net  leases and  contain  provisions  that the General  Partners  believe
mitigate  the adverse  effect of  inflation.  Such  provisions  include  clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified  level and/or  automatic  increases in base rent at specified  times
during the term of the lease.  Inflation has had a minimal effect on income from
operations. Management expects that increases in restaurant sales volumes due to
inflation  and real sales growth  should  result in an increase in rental income
over  time.  Continued  inflation  also may cause  capital  appreciation  of the
Partnership's Properties.  Inflation and changing prices, however, also may have
an  adverse  impact on the sales of the  restaurants  and on  potential  capital
appreciation of the Properties.

         In December 1999, the Securities and Exchange  Commission  released SAB
101, which provides the staff's view in applying generally  accepted  accounting
principles  to  selected  revenue  recognition  issues.  SAB  101  requires  the
Partnership  to defer  recognition  of certain  percentage  rental  income until
certain defined  thresholds are met. The  Partnership  adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
partnership's result of operations.

         In June 1998, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments and Hedging  Activities." The Statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments,   embedded  in  other  contracts   (collectively   referred  to  as
derivatives),  and for hedging activities. The Statement requires that an entity
recognize all  derivatives  as either assets or liabilities in the balance sheet
and  measure  those  instruments  at fair  value.  In June 1999,  the  Financial
Accounting  Standards Board issued Statement of Financial  Accounting  Standards
No. 137, "Accounting for Derivative Instruments and Hedging  Activities-Deferral
of the Effective  Date of FASB Statement No. 133, an Amendment of FASB Statement
No. 133." FAS 137 deferred the effective  date of FAS 133 for one year. FAS 133,
as  amended,  is now  effective  for all fiscal  quarters  of all  fiscal  years
beginning  after June 15, 2000. The partnership has reviewed both statements and
has determined  that both FAS 133 and FAS 137 do not apply to the Partnership as
of December 31, 2000.

Termination of Merger

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with APF,  pursuant to which the Partnership  would be merged with and
into a subsidiary of APF.  Under the  Agreement  and Plan of Merger,  APF was to
issue shares of its common stock as  consideration  for the Merger.  On March 1,
2000, the General  Partners and APF announced  that they had mutually  agreed to
terminate  the  Agreement  and Plan of Merger  entered  into in March 1999.  The
agreement  to terminate  the  Agreement  and Plan of Merger was based,  in large
part,  on the General  Partners'  concern  that,  in light of market  conditions
relating to publicly  traded real  estate  investment  trusts,  the value of the
transaction  had  diminished.  As a result  of such  diminishment,  the  General
Partners' ability to unequivocally recommend voting for the transaction,  in the
exercise  of their  fiduciary  duties,  had  become  questionable.  The  General
Partners are continuing to evaluate  strategic  alternatives for the Partnership
including alternatives to provide liquidity to the Limited Partners.

Interest Rate Risk

         The Partnership accepted a promissory note in conjunction with the sale
of a Property. The General Partners believe that the estimated fair value of the
mortgage  notes at December  31, 2000  approximated  the  outstanding  principal
amounts.  The  Partnership  is exposed to equity loss in the event of changes in
interest  rates.  The  following  table  presents  the  expected  cash  flows of
principal that are sensitive to these changes:



<PAGE>


                                                  Mortgage Notes
                                                   Fixed Rates
                                                 -----------------

                         2001                        $  1,101,865
                         2002                                  --
                         2003                                  --
                         2004                                  --
                         2005                                  --
                         Thereafter                            --
                                                 -----------------

                                                     $  1,101,865
                                                 =================


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         The information is described above in Item 7.  Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations - Interest Rate
Risk.


Item 8.  Financial Statements and Supplementary Data


<PAGE>


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

                                    CONTENTS

<TABLE>
<CAPTION>
<S><C>

                                                                                                           Page
Report of Independent Certified Public Accountants                                                              18
----------------------------------------------------------------------
Financial Statements:
----------------------------------------------------------------------
     Balance Sheets                                                                                             19
----------------------------------------------------------------------
     Statements of Income                                                                                       20
----------------------------------------------------------------------
     Statements of Partners' Capital                                                                            21
----------------------------------------------------------------------
     Statements of Cash Flows                                                                                22-23
----------------------------------------------------------------------
     Notes to Financial Statements                                                                           24-41
----------------------------------------------------------------------

</TABLE>


<PAGE>




               Report of Independent Certified Public Accountants






To the Partners
CNL Income Fund VII, Ltd..

In our opinion,  the financial  statements  listed in the index  appearing under
item 14(a)(1) present fairly, in all material  respects,  the financial position
of CNL Income Fund VII,  Ltd. (a Florida  limited  partnership)  at December 31,
2000 and 1999,  and the results of its operations and its cash flows for each of
the three  years in the  period  ended  December  31,  2000 in  conformity  with
accounting  principles  generally  accepted in the United States of America.  In
addition,  in our opinion, the financial statement schedules listed in the index
appearing under item 14(a)(2)  present  fairly,  in all material  respects,  the
information  set  forth  therein  when  read in  conjunction  with  the  related
financial  statement  statements.   These  financial  statements  and  financial
statements schedules are the responsibility of the Partnership's management; our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial  statement  schedules based on our audits.  We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United  States of America,  which  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP

Orlando, Florida
February 2, 2001, except for Note 12 for which the date is February 15, 2001


<PAGE>



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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
<S><C>


                                                                                     December 31,
                                                                              2000                  1999
                                                                         ----------------     -----------------

                                ASSETS

   Land and buildings on operating leases, less
        accumulated depreciation                                             $11,297,040           $13,984,334
   Net investment in direct financing leases                                   2,548,324             3,273,155
   Investment in joint ventures                                                6,452,604             4,605,906
   Mortgage note receivable, less deferred gain                                  994,593               994,408
   Cash and cash equivalents                                                   1,454,025               925,348
   Certificate of deposit                                                        103,500                    --
   Restricted cash                                                             1,503,929                    --
   Receivables, less allowance for doubtful accounts of
        $504 and $16,679, respectively                                            86,351                72,644
   Due from related parties                                                        1,256                    --
   Prepaid expenses                                                               27,108                14,220
   Accrued rental income, less allowance for doubtful
        accounts of $9,845 in 2000 and 1999                                    1,078,762             1,215,696
   Other assets                                                                   60,422                60,422
                                                                         ----------------     -----------------

                                                                             $25,607,914           $25,146,133
                                                                         ================     =================

                   LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                            $  31,415             $  96,894
   Distributions payable                                                         675,000               675,000
   Due to related parties                                                         67,815                59,131
   Rents paid in advance and deposits                                              8,315                10,107
                                                                         ----------------     -----------------
            Total liabilities                                                    782,545               841,132

   Minority interest                                                             144,368               145,515

   Partners' capital                                                          24,681,001            24,159,486
                                                                         ----------------     -----------------

                                                                             $25,607,914           $25,146,133
                                                                         ================     =================
See accompanying notes to financial statements.
</TABLE>



<PAGE>


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

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
<S><C>
                                                                                 Year Ended December 31,
                                                                      2000                 1999                1998
                                                                ------------------   ------------------   ---------------

Revenues:
     Rental income from operating leases                            $   1,765,623        $   1,914,671      $  1,976,709
     Earned income from direct financing leases                           380,322              403,371           413,848
     Contingent rental income                                              91,842               76,601            93,906
     Interest and other income                                            166,946              186,933           171,263
                                                                ------------------   ------------------   ---------------
                                                                        2,404,733            2,581,576         2,655,726
                                                                ------------------   ------------------   ---------------
Expenses:
     General operating and administrative                                 162,242              139,519           133,915
     Professional services                                                 24,451               28,903            23,443
     State and other taxes                                                 14,209               14,422             2,729
     Depreciation                                                         262,897              293,799           304,356
     Transaction costs                                                     35,134              160,426            18,781
                                                                ------------------   ------------------   ---------------
                                                                          498,933              637,069           483,224
                                                                ------------------   ------------------   ---------------

Income Before Minority Interest in Income
     of Consolidated Joint Venture, Equity in
     Earnings of Unconsolidated Joint Ventures and
     Gain on Sale of Assets                                             1,905,800            1,944,507         2,172,502

Minority Interest in Income of Consolidated
     Joint Venture                                                        (18,682 )            (18,640 )         (18,590  )

Equity in Earnings of Unconsolidated Joint
     Ventures                                                             456,050              429,997           311,081

Gain on Sale of Assets                                                    878,347              189,826             1,025
                                                                ------------------   ------------------   ---------------

Net Income                                                          $   3,221,515        $   2,545,690      $  2,466,018
                                                                ==================   ==================   ===============

Allocation of Net Income
     General partners                                                   $      --          $    25,187        $   24,659
     Limited partners                                                   3,221,515            2,520,503         2,441,359
                                                                ------------------   ------------------   ---------------

                                                                    $   3,221,515        $   2,545,690      $  2,466,018
                                                                ==================   ==================   ===============

Net Income Per Limited Partner Unit                                   $     0.107          $     0.084        $    0.081
                                                                ==================   ==================   ===============

Weighted Average Number of
     Limited Partner Units Outstanding                                 30,000,000           30,000,000        30,000,000
                                                                ==================   ==================   ===============
See accompanying notes to financial statements
</TABLE>





<PAGE>


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

                         STATEMENTS OF PARTNERS' CAPITAL

                    Years Ended December 31, 2000, 1999, 1998

<TABLE>
<CAPTION>
<S><C>
                                                   General Partners
                                        ---------------------------------------
                                                                Accumulated
                                           Contributions          Earnings
                                         ------------------   -----------------   -

   Balance, December 31, 1997                  $     1,000         $   180,085

       Distributions to limited
         partners ($0.090 per
         limited partner unit)                          --                  --
       Net income                                       --              24,659
                                         ------------------   -----------------   -

   Balance, December 31, 1998                        1,000             204,744

       Distributions to limited
         partners ($0.090 per
         limited partner unit)                          --                  --
       Net income                                       --              25,187
                                         ------------------   -----------------   -

   Balance, December 31, 1999                        1,000             229,931

       Distributions to limited
         partners ($0.090 per
         limited partner unit)                          --                  --
       Net income                                       --                  --
                                         ------------------   -----------------   -

   Balance, December 31, 2000                  $     1,000         $   229,931
                                         ==================   =================   =


                           Limited Partners
-----------------------------------------------------------------------
                                       Accumulated        Syndication
Contributions      Distributions         Earnings            Costs            Total
---------------   ----------------   -----------------   --------------   --------------

 $  30,000,000      $ (20,177,623 )     $  17,984,316     $ (3,440,000 )    $24,547,778



            --         (2,700,000 )                --               --       (2,700,000 )
            --                 --           2,441,359               --        2,466,018
---------------   ----------------   -----------------   --------------   --------------

    30,000,000        (22,877,623 )        20,425,675       (3,440,000 )     24,313,796



            --         (2,700,000 )                --               --       (2,700,000 )
            --                 --           2,520,503               --        2,545,690
---------------   ----------------   -----------------   --------------   --------------

    30,000,000        (25,577,623 )        22,946,178       (3,440,000 )     24,159,486



            --         (2,700,000 )                --               --       (2,700,000 )
            --                 --           3,221,515               --        3,221,515
---------------   ----------------   -----------------   --------------   --------------

 $  30,000,000      $ (28,277,623 )     $  26,167,693     $ (3,440,000 )    $24,681,001
===============   ================   =================   ==============   ==============

See accompanying notes to financial statements.

</TABLE>












<PAGE>



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

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
<S><C>
                                                                                   Year Ended December 31,
                                                                       2000                  1999                1998
                                                                  ----------------    -------------------    ---------------

Increase (Decrease) in Cash and Cash Equivalents:

   Cash Flows from Operating Activities:
      Cash received from tenants                                      $  2,266,898         $   2,369,760         $  2,435,937
      Distributions from unconsolidated joint ventures                     508,532               348,952              376,557
      Cash paid for expenses                                              (303,954 )            (217,856 )           (187,925 )
      Interest received                                                    148,533               178,637              166,406
                                                                  -----------------   -------------------   ------------------
         Net cash provided by operating
             activities                                                  2,620,009             2,679,493            2,790,975
                                                                  -----------------   -------------------   ------------------

   Cash Flows from Investing Activities:
      Proceeds from sale of assets                                       4,122,336             1,059,954                   --
      Investment in certificate of deposit                                (100,000 )                  --                   --
      Investment in joint ventures                                      (2,361,644 )          (1,196,927 )                 --
      Return of capital from joint venture                                 461,208                    --                   --
      Increase in restricted cash                                       (1,503,682 )                  --                   --
      Collections on mortgage notes receivable                              10,279               245,733               10,811
      Other                                                                     --                    --               13,221
                                                                                      -------------------   ------------------
                                                                  -----------------   -------------------   ------------------
         Net cash provided by investing activities                         628,497               108,760               24,032
                                                                  -----------------   -------------------   ------------------

   Cash Flows from Financing Activities:
      Distributions to limited partners                                 (2,700,000 )          (2,700,000 )         (2,700,000 )
      Distributions to holders of minority interest                        (19,829 )             (19,730 )            (19,499 )
                                                                                      -------------------
                                                                  -----------------                         ------------------
      Net cash used in financing activities                             (2,719,829 )          (2,719,730 )         (2,719,499 )
                                                                  -----------------   -------------------   ------------------

Net Increase (Decrease) in Cash and Cash
   Equivalents                                                             528,677                68,523               95,508

Cash and Cash Equivalents at Beginning of Year                             925,348               856,825              761,317
                                                                  -----------------   -------------------   ------------------

Cash and Cash Equivalents at End of Year                              $  1,454,025          $    925,348          $   856,825
                                                                  =================   ===================   ==================

</TABLE>




<PAGE>


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

                      STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>
<S><C>
                                                                             Year Ended December 31,
                                                                    2000               1999              1998
                                                              -----------------   ---------------    --------------

Reconciliation of Net Income to Net Cash Provided
    by Operating Activities:

      Net Income                                                   $ 3,221,515        $2,545,690        $2,466,018
                                                              -----------------   ---------------    --------------

      Adjustments to reconcile  net income to net cash
         provided by operating activities:
             Depreciation                                              262,897           293,799           304,356
             Minority interest in income of
                consolidated joint venture                              18,682            18,640            18,590
             Gain on sale of assets                                   (878,347 )        (189,826 )          (1,025 )
             Equity in earnings of unconsolidated joint
                ventures, net of distributions                          53,738           (81,045 )          65,476
             Decrease (increase) in receivables                        (13,707 )           5,834           (27,330 )
             Increase in due from related parties                       (1,256 )              --                --
             Decrease (increase) in interest receivable                (13,064 )           2,050                --
             Decrease (increase) in prepaid expenses                   (12,888 )         (10,104 )             639
             Decrease in net investment in direct
                financing leases                                       100,821            92,237            81,760
             Increase in accrued rental income                         (59,795 )         (81,057 )         (90,896 )
             Increase (decrease) in accounts payable and
                accrued expenses                                       (65,479 )          88,175            (5,197 )
             Increase (decrease) in due to related
                parties                                                  8,684            34,020            (9,772 )
             Decrease in rents paid in advance and
                deposits                                                (1,792 )         (38,920 )         (11,644 )
                                                              -----------------   ---------------    --------------
                  Total adjustments                                   (601,506 )         133,803           324,957
                                                              -----------------   ---------------    --------------

Net Cash Provided by Operating Activities                          $ 2,620,009        $2,679,493        $2,790,975
                                                              =================   ===============    ==============

Supplemental Schedule of Non-Cash Financing Activities:

         Distributions declared and unpaid at
             December 31                                            $  675,000         $ 675,000         $ 675,000
                                                              =================   ===============    ==============
See accompanying notes to financial statements.
</TABLE>





<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2000, 1999, and 1998


1.       Significant Accounting Policies:
----------------------------------------

         Organization  and Nature of Business - CNL Income Fund VII,  Ltd.  (the
         "Partnership") is a Florida limited  partnership that was organized for
         the purpose of acquiring both newly constructed and existing restaurant
         properties,  as well as properties  upon which  restaurants  were to be
         constructed,  which are leased  primarily  to operators of national and
         regional fast-food and family-style restaurant chains.

         The general partners of the Partnership are CNL Realty Corporation (the
         "Corporate  General  Partner"),  James M.  Seneff,  Jr.  and  Robert A.
         Bourne.  Mr. Seneff and Mr. Bourne are also 50 percent  shareholders of
         the Corporate General Partner. The general partners have responsibility
         for managing the day-to-day operations of the Partnership.

         Real  Estate  and  Lease  Accounting  -  The  Partnership  records  the
         acquisition of land and buildings at cost,  including  acquisition  and
         closing costs. Land and buildings are leased to unrelated third parties
         generally  on a  triple-net  basis,  whereby  the  tenant is  generally
         responsible  for  all  operating  expenses  relating  to the  property,
         including  property  taxes,  insurance,  maintenance  and repairs.  The
         leases are  accounted  for using  either the  direct  financing  or the
         operating methods. Such methods are described below:

                  Direct  financing  method - The leases accounted for using the
                  direct  financing  method are recorded at their net investment
                  (which at the inception of the lease generally  represents the
                  cost of the asset) (Note 4).  Unearned  income is deferred and
                  amortized  to income  over the lease  terms so as to produce a
                  constant  periodic  rate of  return on the  Partnership's  net
                  investment in the leases.

                  Operating  method - Land and  building  leases  accounted  for
                  using the  operating  method are recorded at cost,  revenue is
                  recognized as rentals are earned and  depreciation  is charged
                  to operations as incurred.  Buildings are  depreciated  on the
                  straight-line  method over their estimated  useful lives of 30
                  years.  When  scheduled  rentals  vary  during the lease term,
                  income is recognized on a straight-line basis so as to produce
                  a constant periodic rent over the lease term commencing on the
                  date the property is placed in service.


<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2000, 1999, and 1998


1.       Significant Accounting Policies - Continued:

                  Accrued  rental  income  represents  the  aggregate  amount of
                  income  recognized  on a  straight-line  basis  in  excess  of
                  scheduled rental payments to date.  Whenever a tenant defaults
                  under  the  terms  of its  lease,  or  events  or  changes  in
                  circumstance  indicate  that the  tenant  will not  lease  the
                  property  through the end of the lease term,  the  Partnership
                  either  reserves or reverses  the  cumulative  accrued  rental
                  income balance.

         When  the  properties  are  sold,  the  related  cost  and  accumulated
         depreciation  for operating  leases and the net  investment  for direct
         financing leases,  plus any accrued rental income, are removed from the
         accounts and gains or losses from sales are  reflected  in income.  The
         general  partners of the Partnership  review  properties for impairment
         whenever events or changes in circumstances  indicate that the carrying
         amount of the assets may not be  recoverable  through  operations.  The
         general partners  determine whether an impairment in value has occurred
         by comparing the estimated future  undiscounted  cash flows,  including
         the  residual  value of the  property,  with the  carrying  cost of the
         individual  property.  If an impairment  is  indicated,  the assets are
         adjusted to their fair value.  Although the general  partners have made
         their best estimate of these factors based on current conditions, it is
         reasonably  possible  that  changes  could occur in the near term which
         could adversely affect the general partners' estimate of net cash flows
         expected to be  generated  from its  properties  and the need for asset
         impairment write-downs.

         When the  collection  of amounts  recorded as rental or other income is
         considered  to be  doubtful,  an  adjustment  is made to  increase  the
         allowance for doubtful accounts,  which is netted against  receivables,
         and to decrease rental or other income or increase bad debt expense for
         the  current  period,  although  the  Partnership  continues  to pursue
         collection of such amounts.  If amounts are subsequently  determined to
         be  uncollectible,  the  corresponding  receivable  and  allowance  for
         doubtful accounts are decreased accordingly.

         Investment in Joint Ventures - The  Partnership  accounts for its 83.3%
         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.


<PAGE>


                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


1.       Significant Accounting Policies - Continued:
----------------------------------------------------

         The  Partnership's  investments in CNL Restaurant  Investments  II, Des
         Moines Real Estate Joint Venture,  CNL Mansfield Joint Venture,  Duluth
         Joint Venture,  and TGIF  Pittsburgh  Joint Venture,  and a property in
         Smithfield, North Carolina, a property in Miami, Florida, a property in
         Montgomery,  Alabama, and a property in Colorado Springs, Colorado, for
         which each of the four  properties  is held as  tenants-in-common  with
         affiliates of the general partners,  are accounted for using the equity
         method since the Partnership  shares control with affiliates which have
         the same general partners.

         Cash and Cash Equivalents - The Partnership considers all highly liquid
         investments  with a maturity of three months or less when  purchased to
         be cash  equivalents.  Cash  and cash  equivalents  consist  of  demand
         deposits at commercial  banks and money market funds (some of which are
         backed by government  securities).  Cash equivalents are stated at cost
         plus accrued interest, which approximates market value.

         Cash  accounts  maintained  on  behalf  of the  Partnership  in  demand
         deposits  at  commercial  banks  and  money  market  funds  may  exceed
         federally insured levels;  however, the Partnership has not experienced
         any losses in such accounts.

         Income Taxes - Under  Section 701 of the  Internal  Revenue  Code,  all
         income,  expenses and tax credit items flow through to the partners for
         tax  purposes.  Therefore,  no  provision  for federal  income taxes is
         provided in the accompanying  financial statements.  The Partnership is
         subject to certain state taxes on its income and property.

         Additionally,  for tax  purposes,  syndication  costs are  included  in
         Partnership equity and in the basis of each partner's  investment.  For
         financial  reporting  purposes  syndication  costs are  netted  against
         partners' capital and represent a reduction of Partnership equity and a
         reduction in the basis of each partner's investment.

         Use of Estimates - The general  partners of the Partnership have made a
         number of estimates and assumptions relating to the reporting of assets
         and liabilities and the disclosure of contingent assets and liabilities
         to prepare these  financial  statements in  conformity  with  generally
         accepted  accounting  principles.  The more significant areas requiring
         the use of  management  estimates  relate to the allowance for doubtful
         accounts  and future  cash flows  associated  with  long-lived  assets.
         Actual results could differ from those estimates.


<PAGE>


                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998

1.       Significant Accounting Policies - Continued:
         -------------------------------------------

         Staff Accounting Bulletin No. 101 ("SAB 101")

         In December 1999, the Securities and Exchange  Commission  released SAB
         101,  which  provides the staff's view in applying  generally  accepted
         accounting  principles to selected revenue  recognition issues. SAB 101
         requires the  Partnership to defer  recognition  of certain  percentage
         rental income until certain defined thresholds are met. The Partnership
         adopted SAB 101 beginning  January 1, 2000.  Implementation  of SAB 101
         did  not  have a  material  impact  on  the  Partnership's  results  of
         operations.

         Statement of Financial  Accounting  Standards No. 133 ("FAS 133")
         and  Statement of Financial  Accounting Standards No. 137 (FAS 137")


         In June 1998, the Financial Accounting Standards Board issued Statement
         of Financial  Accounting  Standards No. 133, "Accounting for Derivative
         Instruments  and  Hedging   Activities."   The  Statement   establishes
         accounting  and  reporting   standards  for   derivative   instruments,
         including certain derivative  instruments,  embedded in other contracts
         (collectively referred to as derivatives),  and for hedging activities.
         The Statement  requires that an entity  recognize  all  derivatives  as
         either  assets or  liabilities  in the balance  sheet and measure those
         instruments  at fair  value.  In June 1999,  the  Financial  Accounting
         Standards Board issued Statement of Financial  Accounting Standards No.
         137,    "Accounting    for   Derivative    Instruments    and   Hedging
         Activities-Deferral of the Effective Date of FASB Statement No. 133, an
         Amendment of FASB  Statement  No. 133." FAS 137 deferred the  effective
         date of FAS 133 for one year. FAS 133, as amended, is now effective for
         all fiscal  quarters of all fiscal years beginning after June 15, 2000.
         The  partnership  has reviewed both  statements and has determined that
         both FAS 133 and FAS 137 do not apply to the Partnership as of December
         31, 2000.

2.       Leases:
---------------

         The  Partnership  leases its land or land and  buildings  primarily  to
         operators  of  national  and  regional   fast-food   and   family-style
         restaurants.  The  leases are  accounted  for under the  provisions  of
         Statement of Financial  Accounting  Standards No. 13,  "Accounting  for
         Leases." The leases  generally  are  classified  as  operating  leases;
         however,  some leases have been classified as direct financing  leases.
         For the leases  classified  as direct  financing  leases,  the building
         portions of the property  leases are accounted for as direct  financing
         leases  while the land  portions of the  majority  of these  leases are
         operating  leases.  Substantially all leases are for 15 to 20 years and
         provide for minimum and  contingent  rentals.  In addition,  the tenant
         generally pays all property taxes and assessments,  fully maintains the
         interior and exterior of the building and carries insurance

                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


2.       Leases-Continued:

         coverage  for public  liability,  property  damage,  fire and  extended
         coverage. The lease options generally allow tenants to renew the leases
         for two to four successive  five-year periods subject to the same terms
         and conditions as the initial lease.  Most leases also allow the tenant
         to purchase the property at fair market value after a specified portion
         of the lease has elapsed.

3.       Land and Buildings on Operating Leases:
         --------------------------------------

         Land and  buildings on operating  leases  consisted of the following at
December 31:

<TABLE>
<CAPTION>
<S><C>
                                                                          2000                 1999
                                                                  ------------------    -----------------



                   Land                                                  $ 6,850,655          $ 8,010,699
                   ---------------------------------
                   Buildings                                               6,671,945            8,576,088
                                                                    -----------------    -----------------
-
                                                                          13,522,600           16,586,787


                   Less accumulated depreciation                          (2,225,560 )         (2,602,453 )
                                                                     ----------------   -----------------


                                                                        $ 11,297,040         $ 13,984,334
                   -------------------------------------------------=================    =================

</TABLE>



<PAGE>


                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


3.       Land and Buildings on Operating Leases - Continued:
         ---------------------------------------------------

         In June 1999, the Partnership sold its property in Maryville, Tennessee
         to the tenant in  accordance  with the purchase  option under the lease
         agreement for $1,068,802 and received net sales proceeds of $1,059,954,
         resulting in a gain of $188,691 for financial reporting purposes.  This
         property was originally  acquired by the  Partnership in 1990 at a cost
         of approximately $890,700, excluding acquisition fees and miscellaneous
         acquisition expenses; therefore, the Partnership sold this property for
         a total of  approximately  $169,300 in excess of its original  purchase
         price.  The  Partnership  reinvested  the  net  sales  proceeds  in  an
         additional property as tenants-in-common with CNL Income Fund IX, Ltd.,
         a Florida  limited  partnership  and affiliate of the general  partners
         (see Note 5).

         In June 2000, the Partnership sold its property in Pueblo, Colorado, to
         an unrelated third party and received net sales proceeds of $1,005,000,
         resulting in a gain of $97,056 for financial reporting  purposes.  This
         property was originally  acquired by the  Partnership in 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 the
         net sales  proceeds in an  additional  Property  in  Colorado  Springs,
         Colorado  as  tenants-in-common  with CNL  Income  Fund XII,  Ltd.,  an
         affiliate of the general partners (see Note 5).

         In September  2000,  the  Partnership  sold its property in  Brunswick,
         Georgia,  its property in Lake City,  Florida,  and three properties in
         Jacksonville,  Florida,  for which the land and  building of one of the
         properties was classified as a direct  financing  lease (see Note 4) to
         unrelated  third parties for a total of  approximately  $2,404,800  and
         received net sales proceeds of approximately $2,392,300, resulting in a
         total  gain  of  $619,495  for  financial  reporting  purposes.   These
         properties were originally  acquired by the Partnership in 1990 and had
         costs totaling approximately  $2,055,900 excluding acquisition fees and
         miscellaneous  acquisition  expenses;  therefore,  the Partnership sold
         these properties for approximately $336,400 in excess of their original
         purchase prices.

         In addition,  in December  2000, the  Partnership  sold its property in
         Friendswood,  Texas for which the building was  classified  as a direct
         financing  lease  (see  Note 4) to the  tenant in  accordance  with the
         purchase option under the lease  agreement for $725,000  resulting in a
         gain of $160,649 for financial  reporting  purposes.  This property was
         originally  acquired  by the  Partnership  in  1990  and  had a cost of
         approximately  $485,900;  therefore,  the Partnership sold the property
         for approximately $239,100 in excess of its original purchase price.

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                    Years Ended December 31, 2000, 1999, 1998


3.       Land and Buildings on Operating Leases - Continued:
         ---------------------------------------------------

         Some leases provide for escalating  guaranteed minimum rents throughout
         the  lease  terms.  Income  from  these  scheduled  rent  increases  is
         recognized on a straight-line  basis over the terms of the leases.  For
         the years ended  December 31, 2000,  1999,  and 1998,  the  Partnership
         recognized $59,795, $81,057, and $90,896,  respectively, of such rental
         income.

         The following is a schedule of the future  minimum lease payments to be
         received on noncancellable operating leases at December 31, 2000:

                        2001                            $  1,539,884
                        -----------------------
                        2002                               1,543,382
                        -----------------------
                        2003                               1,523,978
                        -----------------------
                        2004                               1,522,961
                        -----------------------
                        2005                               1,214,804
                        -----------------------
                        Thereafter                         5,143,632
                        ----------------------- ---------------------
                                                       $  12,488,641
                        ----------------------- =====================

         Since  lease  renewal  periods  are  exercisable  at the  option of the
         tenant, the above table only presents future minimum lease payments due
         during  the  initial  lease  terms.  In  addition,  this table does not
         include any amounts for future contingent rentals which may be received
         on the leases based on a percentage of the tenant's gross sales.

4.       Net Investment in Direct Financing Leases:
         -----------------------------------------

         The  following  lists the  components  of the net  investment in direct
financing leases at December 31:

<TABLE>
<CAPTION>
<S><C>

                                                            2000                 1999
          -------------------------------------------------------------    -----------------


          Minimum lease payments receivable                 $4,028,512          $ 5,419,945
          Estimated residual values                            768,233            1,008,935
           Less unearned income                              (2,248,421 )         (3,155,725 )
                                                           -----------------  -----------------

          Net investment in direct financing leases        $ 2,548,324          $ 3,273,155
                                                         =================    =================
</TABLE>



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                    Years Ended December 31, 2000, 1999, 1998


4.       Net Investment in Direct Financing Leases - Continued:
         -----------------------------------------------------

         The  following  is a schedule of future  minimum  lease  payments to be
         received on direct financing leases at December 31, 2000:

<TABLE>
<CAPTION>
<S><C>

                             2001                                                       $  402,336
                             -------------------------------------------
                             2002                                                          402,336
                             -------------------------------------------
                             2003                                                          402,336
                             -------------------------------------------
                             2004                                                          402,336
                             -------------------------------------------
                             2005                                                          402,336
                             -------------------------------------------
                             Thereafter                                                  2,016,832
                             -------------------------------------------        -------------------

                                                                                       $ 4,028,512
                                                                                ===================
</TABLE>


         The above table does not include  future  minimum  lease  payments  for
         renewal  periods or for contingent  rental payments that may become due
         in future periods ( see Note 3).

         During 2000, the Partnership  sold two of its properties for which land
         and buildings were classified as direct financing leases. In connection
         with the sale, the gross investment  (minimum lease payments receivable
         and the estimated  residual  value) and unearned income relating to the
         assets  classified as a direct financing  lease,  were removed from the
         accounts (see Note 3).

5.       Investment in Joint Ventures:
         ----------------------------

         The Partnership has an 18 percent interest, a 4.79% interest , and a 79
         percent   interest  in  the  profits  and  losses  of  CNL   Restaurant
         Investments II, Des Moines Real Estate Joint Venture, and CNL Mansfield
         Joint  Venture,  respectively.  The remaining  interests in these joint
         ventures are held by affiliates of the Partnership  which have the same
         general  partners.  The Partnership also has a 53 percent interest in a
         property  in  Smithfield,  North  Carolina,  with an  affiliate  of the
         general  partners,  as  tenants-in-common  and a 35.64%  interest  in a
         property in Miami,  Florida,  with an affiliate of the general partners
         as  tenants-in-common.  Amounts relating to its investment are included
         in investment in joint ventures.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


5.       Investment in Joint Ventures - Continued:
-------------------------------------------------

         In  December  1999,  the  Partnership  entered  into  a  joint  venture
         arrangement,  Duluth Joint  Venture,  with CNL Income Fund V, Ltd., CNL
         Income Fund XIV,  Ltd.,  and CNL Income Fund XV,  Ltd.,  each a Florida
         limited partnership and affiliate of the general partners, to construct
         and hold one restaurant property in Duluth, Georgia. As of December 31,
         2000 and 1999, the Partnership  contributed  approximately $969,299 and
         $119,100, respectively, to purchase land and pay for construction costs
         relating  to the  joint  venture.  In  October  2000,  the  Partnership
         acquired an  additional  45 percent  interest in Duluth Joint  Venture,
         from CNL  Income  Fund V, Ltd.  and CNL  Income  Fund XV,  Ltd.  for an
         aggregate  purchase price of approximately  $610,000 As of December 31,
         2000, the  Partnership  owned a 56 percent  interest in the profits and
         losses of the joint venture.

         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 for $891,915,  resulting in a
         gain to the joint  venture  of  approximately  $239,300  for  financial
         reporting  purposes.  The property was originally  contributed to Halls
         Joint Venture in 1990 and had a total cost of  approximately  $672,000,
         excluding  acquisition  fees and  miscellaneous  acquisition  expenses;
         therefore,  the  joint  venture  sold the  property  for  approximately
         $219,900 in excess of it original  purchase  price.  During  2000,  the
         Partnership  and the  joint  venture  partner  liquidated  Halls  Joint
         Venture   and  the   Partnership   received   approximately   $460,900,
         representing  its pro rata share of the liquidation  proceeds.  In June
         2000,  the  Partnership  reinvested  approximately  $195,107  of  these
         proceeds  and  approximately   $240,000  from  the  payoff  of  a  note
         receivable  related  to the 1995 sale of a  property  in  Jacksonville,
         Florida, in 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 of which is a Florida limited partnership
         and an  affiliate  of the general  partners  to  purchase  and hold one
         restaurant property.  The Partnership accounts for its investment using
         the  equity  method  since it shares  control  with  affiliates.  As of
         December  31,  2000,  the  Partnership  owned a 17.16%  interest in the
         profits and losses of the joint venture.

         In  November  1999,  the  Partnership  used a portion  of the net sales
         proceeds from the 1998 sale of the property in Maryville,  Tennessee to
         acquire a property in Montgomery, Alabama as tenants in common with CNL
         Income Fund IX, ltd. a Florida limited partnership and affiliate of the
         general  partners.  Amounts  relating to its investment are included in
         investment in joint ventures.  As of December 31, 1999, the Partnership
         owned a 71 percent interest in this property.

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


5.       Investment in Joint Ventures - Continued:
-------------------------------------------------

         In August 2000,  the  Partnership  used the net sales proceeds from the
         sale of the  property  in Pueblo,  Colorado  to  acquire a property  in
         Colorado  Springs,  Colorado  as tenants in common with CNL Income Fund
         XII, Ltd.,  ("CNL XII") a Florida limited  partnership and affiliate of
         the general partners. In connection therewith,  the Partnership and the
         affiliate  entered into an agreement  whereby each co-tenant 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.
         As of December 31, 2000, the Partnership owned a 43 percent interest in
         the property in Colorado Springs, Colorado (see Note 9).

         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,  TGIF Pittsburgh Joint Venture,  and the Partnership and
         affiliates  as  tenants  in common in four  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 December 31:

<TABLE>
<CAPTION>
<S><C>

                                                                                2000                  1999
             --------------------------------------------------------      ----------------      ----------------
             Land and buildings on operating leases,
                 less accumulated depreciation                                 $16,729,763           $11,427,388

             Net investment in direct financing lease                              922,091               932,696
             --------------------------------------------------------
             Cash                                                                  153,432               962,409
             --------------------------------------------------------
             Receivables                                                             8,444                39,213
             --------------------------------------------------------
             Prepaid expenses                                                          810                    --
             --------------------------------------------------------
             Accrued rental income                                                 236,243               148,868
             --------------------------------------------------------
             Other assets                                                               --                 1,917
             --------------------------------------------------------
             Liabilities                                                           172,475                68,783
             --------------------------------------------------------
             Partners' capital                                                  17,878,308            13,443,708
             --------------------------------------------------------
             Revenues                                                            1,661,292             1,297,799
             --------------------------------------------------------
             Gain on sale of assets                                                     --               239,336
             --------------------------------------------------------
             Net income                                                          1,326,080             1,246,689

</TABLE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


5.       Investment in Joint Ventures - Continued:
-------------------------------------------------

         The Partnership  recognized  income totaling  $456,050,  $429,997,  and
         $311,081  for the  years  ended  December  31,  2000,  1999,  and 1998,
         respectively, from these joint ventures and the four properties held as
         tenants in common with affiliates.

6.       Restricted Cash:
------------------------

         As of December 32, 2000,  total net sales  proceeds of $1,503,682  from
         the sale of the Partnership's properties in Jacksonville and Lake City,
         Florida and Brunswick, Georgia plus accrued interest of $247 were being
         held in an  interest  bearing  account  pending the release of funds to
         acquire additional properties.

7.       Mortgage Notes Receivable:
         -------------------------

         In connection with the sale of its property in Florence, South Carolina
         during  1995,  the  Partnership  accepted  a  promissory  note  in  the
         principal  sum  of  $1,160,000,  collateralized  by a  mortgage  on the
         property.  The  promissory  note bears interest at a rate of 10.25% per
         annum  and is being  collected  in 59  equal  monthly  installments  of
         $10,395,  including interest.  As a result of this sale being accounted
         for using the installment sales method for financial reporting purposes
         as required by  Statement  of Financial  Accounting  Standards  No. 66,
         "Accounting  for Sales of Real  Estate," the  Partnership  recognized a
         gain of $1,147,  $1,135,  and $1,025,  for the years ended December 31,
         2000, 1999, and 1998,  respectively.  In February 2001, the Partnership
         received a balloon payment of $1,115,301 which included the outstanding
         principal balance and $14,419 of accrued interest (see Note 12).

         In  addition,  the  Partnership  accepted  a  promissory  note  in  the
         principal  sum of  $240,000 in  connection  with the sale of one of its
         properties  in  Jacksonville,  Florida in December  1995.  The note was
         collateralized by a mortgage on the property.  The promissory note bore
         interest at a rate of ten percent per annum and was to be  collected in
         119 equal monthly  installments  of $2,106,  with a balloon  payment of
         $218,252 due in December 2005. During the year ended December 31, 1999,
         the Partnership collected the outstanding principal balance of $235,564
         (plus accrued interest) relating to the promissory note.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


7.       Mortgage Notes Receivable - Continued:
         -------------------------------------

         The mortgage  notes  receivable  consisted of the following at December
31:

<TABLE>
<CAPTION>
<S><C>

                                                                  2000                      1999
                                                            -----------------         ------------------

               Principal balance                                 $ 1,101,865                $ 1,112,144
               Accrued interest receivable                            15,724                      6,407
               Less deferred gain on sale of
               land and building                                    (122,996 )                 (124,143 )
                                                            -----------------         ------------------

                                                                  $  994,593                 $  994,408
                                                            =================         ==================
</TABLE>


         The general partners believe that the estimated fair values of mortgage
         notes  receivable  at  December  31,  2000 and  1999,  approximate  the
         outstanding  principal amount based on estimated current rates at which
         similar  loans would be made to borrowers  with similar  credit and for
         similar maturities.

8.       Allocations and Distributions:
         -----------------------------

         From inception through December 31, 1999, all net income and net losses
         of the  Partnership,  excluding  gains  and  losses  from  the  sale of
         properties,  were allocated 99 percent to the limited  partners and one
         percent to the general  partners.  From inception  through December 31,
         1999,  distributions  of net cash  flow  were  made 99  percent  to the
         limited  partners  and one percent to the general  partners;  provided,
         however, that the one percent of net cash flow to be distributed to the
         general partners was subordinated to receipt by the limited partners of
         an aggregate, ten percent,  cumulative,  noncompounded annual return on
         their adjusted capital contributions (the "10% Preferred Return").

         From inception through December 31, 1999, generally, net sales proceeds
         from the sale of properties not in liquidation of the  Partnership,  to
         the extent distributed,  were distributed first to the limited partners
         in an  amount  sufficient  to  provide  them with  their 10%  Preferred
         Return,  plus the return of their adjusted capital  contributions.  The
         general partners then received,  to the extent previously  subordinated
         and unpaid,  a one percent  interest in all prior  distributions of net
         cash flow and a return of their  capital  contributions.  Any remaining
         sales proceeds were  distributed 95 percent to the limited partners and
         five  percent  to the  general  partners.  Any gain  from the sale of a
         property  not  in  liquidation  of the  Partnership  was,  in  general,
         allocated in the same manner as net sales  proceeds are  distributable.
         Any loss from the sale of a property not in liquidation of the

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


8.       Allocations and Distributions - Continued:
         -----------------------------------------

         Partnership  was, in general,  allocated first, on a pro rata basis, to
         partners  with  positive  balances  in  their  capital  accounts;   and
         thereafter,  95 percent to the limited partners and five percent to the
         general partners.

         Generally,  net sales  proceeds from a liquidating  sale of properties,
         will be used in the following order: (i) first to pay and discharge all
         of  the  Partnership's   liabilities  to  creditors,  (ii)  second,  to
         establish  reserves that may be deemed necessary for any anticipated or
         unforeseen liabilities or obligations of the Partnership,  (iii) third,
         to pay all of the Partnership's liabilities, if any, to the general and
         limited partners, (iv) fourth, after allocations,  of net income, gains
         and/or  losses,  to distribute  to the partners  with positive  capital
         accounts  balances,  in  proportion  to such  balances,  up to  amounts
         sufficient  to  reduce  such  positive   balances  to  zero,   and  (v)
         thereafter, any funds remaining shall then be distributed 95 percent to
         the limited partners and five percent to the general partners.

         Effective  January  2000,  the general  partners  waived their right to
         receive  future  distributions  from the  Partnership,  including  both
         distributions  of operating cash flow and  distributions of liquidation
         proceeds,   to  the  extent   that  the   cumulative   amount  of  such
         distributions would exceed the balance in the general partners' capital
         account as of December  31,  1999.  Accordingly,  for years  commencing
         January  1,  2000 and  after,  the  Partnership's  net  income  will be
         allocated entirely among the limited partners.  However,  if losses are
         allocated to the general  partners in a year, an amount of income equal
         to the sum of such losses may be allocated  to the general  partners in
         succeeding years. Accordingly,  the general partners were not allocated
         any net income and did not  receive  any  distribution  during the year
         ended December 31, 2000.

         During each of the years ended  December 31, 2000,  1999, and 1998, the
         Partnership   declared   distributions   to  the  limited  partners  of
         $2,700,000.  No distributions have been made to the general partners to
         date.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


9.       Income Taxes:
---------------------

         The following is a reconciliation of net income for financial reporting
         purposes to net income for federal  income tax  purposes  for the years
         ended December 31:

<TABLE>
<CAPTION>
<S><C>
                                                                   2000               1999             1998
                                                               -------------      -------------     ------------

           Net income for financial reporting purposes          $ 3,221,515         $2,545,690      $ 2,466,018

           Depreciation for tax reporting purposes in excess
               of depreciation for financial reporting
               purposes                                             (19,345 )          (19,957 )        (16,795 )

           Gain on sale of assets for financial reporting
               purposes in excess of gain for tax
               reporting purposes                                  (832,083 )         (188,377 )           (246 )

           Direct financing leases recorded as operating
               leases for tax reporting purposes                    100,821             92,237           81,760

            Equity in  earnings of  unconsolidated  joint
                ventures  for tax  reporting  purposes in
                excess of (less than)  equity in earnings
                of  unconsolidated   joint  ventures  for
                financial
                reporting purposes                                   (6,585 )           54,093           11,026

           Accrued rental income                                    (59,795 )          (81,057 )        (90,896 )

           Rents paid in advance                                     (1,792 )          (48,027 )        (12,644 )

           Minority interest in timing differences of
               unconsolidated joint venture                             981                981              982

           Allowance for uncollectible accounts                     (16,175 )          (12,174 )         (4,106 )

           Capitalization  (Deduction) of transaction  costs
              for tax reporting purposes                           (179,206 )          160,425           18,781
                                                               -------------      -------------     ------------

           Net income for federal income tax purposes           $ 2,208,336         $2,503,834      $ 2,453,880
                                                               =============      =============     ============

</TABLE>


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                   Years Ended December 31, 2000, 1999, and 1998


10.      Related Party Transactions:
         --------------------------

         One of the individual general partners, James M. Seneff, Jr., is one of
         the principal  shareholders of CNL Holdings,  Inc. The other individual
         general partner, Robert A. Bourne, serves as President and Treasurer of
         CNL Financial  Group,  Inc., a wholly owned subsidiary of CNL Holdings,
         Inc.,  CNL Fund  Advisors,  Inc. (the  "Advisor")  was a majority owned
         subsidiary  of CNL  Financial  Group,  Inc.  until it  merged  with CNL
         American  Properties Fund, Inc. ("APF"),  effective  September 1, 1999.
         The individual general partners are stockholders and directors of APF.

         In connection therewith,  the Partnership has agreed to pay the Advisor
         an annual, noncumulative, subordinated management fee of one percent of
         the  sum  of  gross  revenues  from  properties  wholly  owned  by  the
         Partnership  and the  Partnership's  allocable  share of gross revenues
         from joint ventures and the properties held as  tenants-in-common  with
         affiliates,  but not in  excess  of  competitive  fees  for  comparable
         services.  These fees will be incurred  and will be payable  only after
         the limited  partners  receive their 10% Preferred  Return.  Due to the
         fact that these fees are  noncumulative,  if the limited  partners have
         not received  their 10%  Preferred  Return in any  particular  year, no
         management  fee will be due or payable  for such  year.  As a result of
         such threshold, no management fees were incurred during the years ended
         December 31, 2000, 1999, and 1998.

         The Advisor is also entitled to receive a deferred,  subordinated  real
         estate disposition fee, payable upon the sale of one or more properties
         based on the lesser of one-half of a competitive real estate commission
         or  three  percent  of the  sales  price  if  the  Advisor  provides  a
         substantial amount of services in connection with the sale. However, if
         the net sales  proceeds are  reinvested in a replacement  property,  no
         such  real  estate   disposition  fees  will  be  incurred  until  such
         replacement   property  is  sold  and  the  net  sales   proceeds   are
         distributed.  The  payment  of  the  real  estate  disposition  fee  is
         subordinated to the receipt by the limited  partners of their aggregate
         10% Preferred  Return,  plus their adjusted capital  contributions.  No
         deferred,  subordinated real estate  disposition fees were incurred for
         the years ended December 31, 2000, 1999, and 1998.

         During the years ended  December 31, 2000,  1999, and 1998, the Advisor
         and its affiliate provided  accounting and  administrative  services to
         the Partnership on a day-to-day  basis including  services  relating to
         the proposed and terminated merger.  The Partnership  incurred $91,926,
         $102,417,  and $87,256 for the years ended December 31, 2000, 1999, and
         1998, respectively, for such services.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


10.      Related Party Transactions - Continued:
         --------------------------------------

         During  2000,  the  Partnership  and CNL XII,  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 the Partnership represents the
         costs  incurred  by CNL BB Corp.  to  acquire  and carry the  property,
         including closing costs. In accordance with the State 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 year ended December 31, 2000, other income of the
         tenants in common included $3,693 of such amounts.

         The  amounts  due to related  parties  totaled  $67,815  and $59,131 at
         December 31, 2000 and 1999, respectively.

11.      Concentration of Credit Risk:
         ----------------------------

         The  following  schedule  presents  total  rental,  earned and mortgage
         interest income from individual  lessees,  each  representing more than
         ten percent of the  Partnership's  total  rental,  earned and  mortgage
         interest income (including the Partnership's  share of total rental and
         earned  income  from the  unconsolidated  joint  ventures  and the four
         properties  held as  tenants-in-common  with  affiliates of the general
         partners) for each of the years ended December 31:

<TABLE>
<CAPTION>
<S><C>

                                                                2000              1999               1998
                                                            -------------     -------------      -------------

                  Golden Corral Corporation                    $ 732,948          $712,877           $732,650
                  Restaurant Management
                      Services, Inc.                             328,244           456,440            448,691
                  Waving Leaves, Inc.                            289,268           295,176            300,546

</TABLE>

         In addition,  the following schedule presents total rental,  earned and
         mortgage  interest  income  from  individual  restaurant  chains,  each
         representing more than ten percent of the  Partnership's  total rental,
         earned and mortgage interest income (including the Partnership's  share
         of  total  rental  and  earned  income  from the  unconsolidated  joint
         ventures  and  the  four  properties  held  as  tenants-in-common  with
         affiliates) for each of the years ended December 31:


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


11.      Concentration of Credit Risk - Continued:
         ----------------------------------------
<TABLE>
<CAPTION>
<S><C>
                                                                 2000              1999               1998
                                                             -------------     --------------     -------------

             Golden Corral Family
                 Steakhouse Restaurants                         $ 732,948          $ 712,877         $ 732,650
             Burger King                                          313,857            380,586           469,984
             Hardees                                              544,275            443,819           451,348
</TABLE>


         Although  the  Partnership's   properties  are  geographically  diverse
         throughout the United States and the  Partnership's  lessees  operate a
         variety of restaurant concepts,  default by any one of these lessees or
         restaurant chains could significantly  impact the results of operations
         of the  Partnership  if the  Partnership  is not able to  re-lease  the
         properties in a timely manner.

12.      Subsequent Events:
         -----------------

         In January 2001, the Partnership  used $1,495,700 in net sales proceeds
         received from the sale of three of its properties (two in Jacksonville,
         Florida and one in Lake City, Florida) to acquire a property located in
         Baton Rouge, Louisiana from CNL Funding 2001-A, LP, an affiliate of the
         general partners.  CNL Funding 2001-A, LP had purchased and temporarily
         held title to this property in order to facilitate  the  acquisition of
         the property by the Partnership.

         On  February  15,  2001,  the  Partnership  collected  the  outstanding
         principal  balance and $14,419 of accrued  interest in connection  with
         the sale of the Partnership's  property in Florence,  South Carolina to
         the  tenant  in  August  1995 for  which  the  Partnership  accepted  a
         promissory note collateralized by a mortgage on the property.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2000, 1999, and 1998


13.      Selected Quarterly Financial Data:
         ---------------------------------

         The following table presents  selected  unaudited  quarterly  financial
         data for each full  quarter  during they years ended  December 31, 2000
         and 1999:

<TABLE>
<CAPTION>
<S><C>

        2000 Quarter              First              Second               Third               Fourth             Year
   -----------------------    ---------------    ----------------    -----------------    ---------------    -------------

   Revenues (1)                    $ 717,803           $ 679,982            $ 701,529           $742,787      $ 2,842,101
   Net Income                        537,436             631,366            1,202,585            850,128        3,221,515
   Net income per
       limited partner                 0.018               0.021                0.040              0.028            0.107
       unit

   1999 Quarter                   First              Second               Third               Fourth             Year
   -----------------------    ---------------    ----------------    -----------------    ---------------    -------------

   Revenues (1)                    $ 704,314           $ 828,853            $ 689,441           $770,325      $ 2,992,933
   Net Income                        542,415             828,713              522,774            651,788        2,545,690
   Net income per
       limited partner
       unit                            0.018               0.027                0.017              0.022            0.084

</TABLE>


         (1)      Revenues  include equity in earnings of  unconsolidated  joint
                  ventures and minority  interest in income of the  consolidated
                  joint venture.


<PAGE>



Item     9. Changes in and  Disagreements  with  Accountants  on Accounting  and
         Financial Disclosure

         None


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

         The General Partners of the Registrant are James M. Seneff, Jr., Robert
A.  Bourne  and CNL  Realty  Corporation,  a Florida  corporation.  The  General
Partners  manage  and  control  the  Partnership's   affairs  and  have  general
responsibility   and  the  ultimate  authority  in  all  matters  affecting  the
Partnership's  business.  The  Partnership  has  available  to it the  services,
personnel and experience of CNL Fund Advisors,  Inc., CNL Financial Group,  Inc.
and their affiliates, all of which are affiliates of the General Partners.

         James M. Seneff, Jr., age 54. Since 1971, Mr. Seneff has been active in
the  acquisition,  development,  and  management  of real estate  projects  and,
directly or through an  affiliated  entity,  has served as a general  partner or
co-venturer in over 100 real estate  ventures.  These ventures have involved the
financing,  acquisition,   construction,  and  leasing  of  restaurants,  office
buildings,  apartment  complexes,  hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL  American  Properties  Fund,
Inc. ("APF"),  a public,  unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief  Executive  Officer of APF from 1994 through  August 1999
and has served as Co-Chief  Executive  Officer of APF since  December  2000. Mr.
Seneff served as Chairman of the Board and Chief  Executive  Officer of CNL Fund
Advisors (the "Advisor") until it merged with APF in September 1999, and in June
2000,  was  re-elected  to those  positions  of the  Advisor.  Mr.  Seneff  is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc. (formerly CNL Group,  Inc.), a diversified real estate company,  and
has served as a director,  Chairman of the Board and Chief Executive  Officer of
CNL Financial Group, Inc. since its formation in 1980. CNL Financial Group, Inc.
is the parent company,  either directly or indirectly through  subsidiaries,  of
CNL Real Estate  Services,  Inc.,  CNL Capital  Markets,  Inc.,  CNL  Investment
Company and CNL Securities Corp. Mr. Seneff also serves as a Director,  Chairman
of the Board and Chief Executive Officer of CNL Hospitality Properties,  Inc., a
public,  unlisted  real estate  investment  trust,  as well as, CNL  Hospitality
Corp., its advisor. In addition, he serves as a Director,  Chairman of the Board
and Chief  Executive  Officer  of CNL  Retirement  Properties,  Inc.,  a public,
unlisted real estate  investment  trust and its advisor,  CNL  Retirement  Corp.
Since 1992, Mr. Seneff has also served as a Director,  Chairman of the Board and
Chief  Executive  Officer of Commercial  Net Lease  Realty,  Inc., a public real
estate  investment  trust  that is listed on the New York  Stock  Exchange.  Mr.
Seneff has also served as a Director,  Chairman of the Board and Chief Executive
Officer of CNL Securities Corp.  since 1979; CNL Investment  Company since 1990;
and CNL  Institutional  Advisors,  Inc.,  a  registered  investment  advisor for
pension  plans,  since 1990. Mr. Seneff  formerly  served as a Director of First
Union National Bank of Florida,  N.A.,  and currently  serves as the Chairman of
the  Board of CNL Bank.  Mr.  Seneff  previously  served  on the  Florida  State
Commission  on Ethics and is a former  member and past  Chairman of the State of
Florida  Investment  Advisory Council,  which recommends to the Florida Board of
Administration  investments for various Florida employee  retirement  funds. The
Florida Board of Administration,  Florida's  principal  investment  advisory and
money  management  agency,  oversees the  investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration from
Florida State University in 1968.

         Robert A.  Bourne,  age 53. Mr.  Bourne has  participated  as a general
partner  or  co-venturer  in over  100  real  estate  ventures  involved  in the
financing,  acquisition,   construction,  and  leasing  of  restaurants,  office
buildings,  apartment  complexes,  hotels,  and other real estate. Mr. Bourne is
Director and Vice  Chairman of the Board of Directors of APF. Mr.  Bourne served
as President of APF from 1994 through February 1999. He also served as Treasurer
from February 1999 through August 1999 and from May 1994 through  December 1994.
He also served in various  executive  positions  with the  Advisor  prior to its
merger with APF  including,  President  from 1994 through  September  1997,  and
Director  from 1994 through  August 1999.  Mr.  Bourne  serves as President  and
Treasurer of CNL Financial Group,  Inc.  (formerly CNL Group,  Inc.);  Director,
Vice Chairman of the Board and President of CNL Hospitality Properties,  Inc., a
public,  unlisted  real  estate  investment  trust;  as well  as,  Director  and
President of CNL Hospitality Corp., its advisor. In addition,  Mr. Bourne serves
as Director and President of CNL Retirement Properties, Inc., a public, unlisted
real  estate  investment  trust;  as well as, a Director  and  President  of its
advisor,  CNL Retirement Corp. Mr. Bourne also serves as a Director of CNL Bank.
He has  served as a  Director  since  1992,  Vice  Chairman  of the Board  since
February  1996,  Secretary  and Treasurer  from February 1996 through 1997,  and
President from July 1992 through  February 1996, of Commercial Net Lease Realty,
Inc.,  a public  real  estate  investment  trust  listed  on the New York  Stock
Exchange.  Mr.  Bourne also serves as  Director,  President  and  Treasurer  for
various  affiliates of CNL  Financial  Group,  Inc.  including,  CNL  Investment
Company, CNL Securities Corp. and CNL Institutional Advisors, Inc., a registered
investment advisor for pension plans. Mr. Bourne began his career as a certified
public accountant  employed by Coopers & Lybrand,  Certified Public Accountants,
from 1971 through  1978,  where he attained the position of Tax Manager in 1975.
Mr. Bourne  graduated from Florida State  University in 1970 where he received a
B.A. in Accounting, with honors.

         Curtis B.  McWilliams,  age 45. Mr.  McWilliams  has served as Co-Chief
Executive  Officer of APF since  December  2000 and  previously  served as Chief
Executive  Officer from  September  1999  through  December  2000.  Prior to the
acquisition  of the  Advisor,  Mr.  McWilliams  served as  President of APF from
February 1999 until  September 1999. From April 1997 to February 1999, he served
as Executive Vice President of APF. Mr.  McWilliams  joined CNL Financial Group,
Inc.  (formerly CNL Group,  Inc.) in April 1997 and served as an Executive  Vice
President until September 1999. In addition,  Mr. McWilliams served as President
of the  Advisor  and CNL  Financial  Services,  Inc.  from  April 1997 until the
acquisition  of such  entities by APF in September  1999.  From  September  1983
through  March 1997,  Mr.  McWilliams  was  employed by Merrill  Lynch & Co. The
majority  of his career at Merrill  Lynch & Co.  was in the  Investment  Banking
division  where he served as a  Managing  Director.  Mr.  McWilliams  received a
B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master of
Business  Administration  degree  with  a  concentration  in  finance  from  the
University of Chicago in 1983.

         John T. Walker, age 42. Mr. Walker has served as President of APF since
September 1999 and as Chief Operating  Officer since March 1995. Mr. Walker also
served as a board member of CNL Restaurant Property Services, Inc., a subsidiary
of APF from  December  1999  until  December  2000.  Previously,  he  served  as
Executive Vice President of APF from January 1996 to September  1999. Mr. Walker
joined the Advisor in September  1994, as Senior Vice President  responsible for
Research  and  Development.  He  served as the Chief  Operating  Officer  of the
Advisor from April 1995 until  September  1999 and as Executive  Vice  President
from January 1996 until  September  1999,  at which time it merged with APF. Mr.
Walker also served as Executive  Vice President of CNL  Hospitality  Properties,
Inc. and CNL Hospitality Corp.  (formerly CNL Hospitality  Advisors,  Inc.) from
1997 to October 1998. From May 1992 to May 1994, he was Executive Vice President
for Finance and  Administration  and Chief Financial Officer of Z Music, Inc., a
cable   television   network   which  was   subsequently   acquired  by  Gaylord
Entertainment, where he was responsible for overall financial and administrative
management  and planning.  From January 1990 through April 1992,  Mr. Walker was
Chief Financial  Officer of the First Baptist Church in Orlando,  Florida.  From
April 1984 through  December  1989, he was a partner in the  accounting  firm of
Chastang,  Ferrell & Walker,  P.A.,  where he was the partner in charge of audit
and  consulting  services,  and  from  1981 to  1984,  Mr.  Walker  was a Senior
Consultant/Audit Senior at Price Waterhouse.  Mr. Walker is a cum laude graduate
of Wake Forest  University  with a Bachelor of Science degree in Accountancy and
is a certified public accountant.

         Steven  D.  Shackelford,  age  37.  Mr.  Shackelford  was  promoted  to
Executive  Vice  President and Chief  Financial  Officer of APF in July 2000. He
served as Senior Vice President and Chief Financial Officer of APF since January
1997.  Mr.  Shackelford  also served as  Secretary  and  Treasurer  of APF since
September  1999. He also served as Chief  Financial  Officer of the Advisor from
September 1996 to September 1999. From March 1995 to July 1996, Mr.  Shackelford
was a senior manager in the national office of Price Waterhouse LLP where he was
responsible  for advising  foreign clients seeking to raise capital and a public
listing in the United  States.  From August 1992 to March 1995, he was a manager
in the Paris, France office of Price Waterhouse,  serving several multi-national
clients.  Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of  Arts  degree  in  Accounting,   with  honors,   and  a  Master  of  Business
Administration  degree from Florida State  University and is a certified  public
accountant.


Item 11.  Executive Compensation

         Other than as  described in Item 13, the  Partnership  has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates.  There are no compensatory plans or arrangements  regarding
termination of employment or change of control.
Item 12.  Security Ownership of Certain Beneficial Owners and Management

         As of March 15,  2001,  no person was known to the  Registrant  to be a
beneficial owner of more than five percent of the Units.

         The following  table sets forth,  as of March 15, 2001,  the beneficial
ownership interests of the General Partners in the Registrant.

<TABLE>
<CAPTION>
<S><C>


                    Title of Class                           Name of Partner                 Percent of Class
                    --------------                           ---------------                 ----------------

           General Partnership Interests                James M. Seneff, Jr.                           45%
                                                        Robert A. Bourne                               45%
                                                        CNL Realty Corporation                         10%
                                                                                                   --------
                                                                                                      100%
                                                                                                   ========
</TABLE>

         Neither the General  Partners,  nor any of their  affiliates,  owns any
interest in the Registrant, except as noted above.




<PAGE>



Item 13.  Certain Relationships and Related Transactions

         The  table  below   summarizes  the  types,   recipients,   methods  of
computation and amounts of compensation,  fees and distributions paid or payable
by the  Partnership  to the General  Partners and their  affiliates for the year
ended  December 31, 2000,  exclusive of any  distributions  to which the General
Partners or their  affiliates  may be entitled by reason of their  purchase  and
ownership of Units.

<TABLE>
<CAPTION>
<S><C>
                                                                                                 Amount Incurred
       Type of Compensation                                                                       For the Year
            and Recipient                            Method of Computation                   Ended December 31, 2000
     -------------------------                       ---------------------                   -----------------------

Reimbursement     to    affiliates    for     Operating  expenses  are  reimbursed     Accounting    and     administrative
operating expenses                            at the  lower of cost or 90  percent     services: $91,926
                                              of the  prevailing  rate at  which
                                              comparable   services  could  have
                                              been    obtained   in   the   same
                                              geographic area. Affiliates of the
                                              General Partners from time to time
                                              incur certain  operating  expenses
                                              on behalf of the  Partnership  for
                                              which the  Partnership  reimburses
                                              the affiliates without interest.

Annual,  subordinated  manage-ment fee to     One  percent  of the  sum  of  gross     $ - 0 -
affiliates                                    operating  revenues from  Properties
                                              wholly  owned  by the  Partnership
                                              plus the  Partnership's  allocable
                                              share of gross  revenues  of joint
                                              ventures in which the  Partnership
                                              is   a    co-venturer    and   the
                                              Properties  owned with  affiliates
                                              as tenants-in-common, subordinated
                                              to certain  minimum returns to the
                                              Limited  Partners.  The management
                                              fee  will not  exceed  competitive
                                              fees for comparable services.  Due
                                              to the fact  that  these  fees are
                                              non-cumulative,   if  the  Limited
                                              Partners  have not received  their
                                              10%   Preferred   Return   in  any
                                              particular   year,  no  management
                                              fees  will be due or  payable  for
                                              such year.




<PAGE>



                                                                                                 Amount Incurred
       Type of Compensation                                                                       For the Year
            and Recipient                            Method of Computation                   Ended December 31, 2000
     -------------------------                       ---------------------                   -----------------------

Deferred,    subordinated   real   estate     A   deferred,    subordinated   real     $ - 0 -
disposition fee payable to affiliates         estate   disposition   fee,  payable
                                              upon   sale   of   one   or   more
                                              Properties,  in an amount equal to
                                              the  lesser of (i)  one-half  of a
                                              competitive       real      estate
                                              commission,  or (ii) three percent
                                              of  the   sales   price   of  such
                                              Property or Properties. Payment of
                                              such  fee  shall  be made  only if
                                              affiliates of the General Partners
                                              provide  a  substantial  amount of
                                              services  in  connection  with the
                                              sale of a Property  or  Properties
                                              and  shall  be   subordinated   to
                                              certain  minimum  returns  to  the
                                              Limited Partners.  However, if the
                                              net sales  proceeds are reinvested
                                              in a replacement Property, no such
                                              real estate  disposition  fee will
                                              be incurred until such replacement
                                              Property is sold and the net sales
                                              proceeds are distributed.

General        Partners'        deferred,     A   deferred,   subordinated   share     $ - 0 -
sub-ordinated  share of  Partnership  net     equal to one percent of  Partnership
cash flow                                     distributions   of  net  cash  flow,
                                              subordinated   to  certain   minimum
                                              returns to the Limited Partners.

General        Partners'        deferred,     A   deferred,   subordinated   share     $ - 0 -
sub-ordinated  share of  Partnership  net     equal    to    five    percent    of
sales  proceeds  from a sale or sales not     Partnership  distributions  of  such
in liquidation of the Partnership             net sales proceeds,  subordinated to
                                              certain   minimum   returns  to  the
                                              Limited Partners.



<PAGE>



                                                                                                 Amount Incurred
       Type of Compensation                                                                       For the Year
            and Recipient                            Method of Computation                   Ended December 31, 2000
     -------------------------                       ---------------------                   -----------------------

General  Partners'  share of  Partnership     Distributions  of net sales proceeds     $ - 0 -
net sales  proceeds  from a sale or sales     from   a   sale    or    sales    of
in liquidation of the Partnership             substantially     all     of     the
                                              Partnership's   assets   will   be
                                              distributed in the following order
                                              or priority: (i) first, to pay all
                                              debts  and   liabilities   of  the
                                              Partnership   and   to   establish
                                              reserves; (ii) second, to Partners
                                              with  positive   capital   account
                                              balances,   determined  after  the
                                              allocation  of  net  income,   net
                                              loss, gain and loss, in proportion
                                              to such  balances,  up to  amounts
                                              sufficient to reduce such balances
                                              to zero; and (iii) thereafter, 95%
                                              to the Limited  Partners and 5% to
                                              the General Partners.

</TABLE>


In addition, the Partnership acquired an additional 45% interest in Duluth Joint
Venture  from CNL Income Fund,  V, Ltd.  and CNL Income Fund XV,  Ltd.,  each an
affiliate  of  the  general  partners,   for  an  aggregate  purchase  price  of
approximately $610,000.

The  Partnership,  with CNL Income Fund XII,  Ltd.,  an affiliate of the general
partners  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 the  Partnership  represents the costs incurred by CNL BB Corp. to
acquire and carry the property, including closing costs.



<PAGE>


                                     PART IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)       The following documents are filed as part of this report.

          1.  Financial Statements

                  Report of Independent Certified Public Accountants

                  Balance Sheets at December 31, 2000 and 1999

                  Statements  of Income for the years ended  December  31, 2000,
                  1999, and 1998

                  Statements of Partners'  Capital for the years ended  December
                  31, 2000, 1999, and 1998

                  Statements  of Cash  Flows for the years  ended  December  31,
                  2000, 1999, and 1998

                  Notes to Financial Statements

          2.  Financial Statement Schedules

                  Schedule II - Valuation and Qualifying  Accounts for the years
                  ended December 31, 2000, 1999 and 1998

                  Schedule  III - Real Estate and  Accumulated  Depreciation  at
                  December 31, 2000

                  Notes  to  Schedule   III  -  Real   Estate  and   Accumulated
                  Depreciation at December 31, 2000

                  Schedule IV - Mortgage  Loans on Real  Estate at December  31,
                  2000

                  All other Schedules are omitted as the required information is
                  inapplicable  or is presented in the  financial  statements or
                  notes thereto.

          3.  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)     The Registrant  filed no reports on Form 8-K during the period
                  from October 1, 2000 through December 31, 2000.



<PAGE>






                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 28th day of
March, 2001.

                                     CNL INCOME FUND VII, LTD.

                                     By:      CNL REALTY CORPORATION
                                              General Partner

                                              /s/  Robert A.Bourne
                                              ----------------------------------
                                              ROBERT A. BOURNE, President


                                     By:      ROBERT A. BOURNE
                                              General Partner

                                              /s/   Robert A. Bourne
                                              ----------------------------------
                                              ROBERT A. BOURNE

                                     By:      JAMES M. SENEFF, JR.
                                              General Partner

                                              /s/    James  M. Seneff, Jr.
                                              ----------------------------------
                                              JAMES M. SENEFF, JR.


<PAGE>


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
<S><C>

              Signature                                    Title                                   Date

/s/          Robert          A.            President,   Treasurer  and  Director              March  28, 2001
----------------------------------------
Bourne                                     (Principal        Financial       and
-----------------------------
Robert A. Bourne                           Accounting  Officer)

/s/      James     M.      Seneff,         Chief Executive  Officer and Director              March  28, 2001
----------------------------------------
Jr.                                        (Principal Executive  Officer)
----------------------
James M. Seneff, Jr.

</TABLE>
<TABLE>
<CAPTION>
<S><C>
                                                                                    Costs Capitalized
                                                                                    Subsequent To
                                                        Initial Cost                Acquisition
                                           ---------------------------  ---------------------
                             Encum-                      Buildings and   Improve-     Carrying
                            brances           Land        Improvements     ments      Costs
                           -----------     ------------  -------------  ------------  -------
Properties the Partnership
  has Invested in Under
  Operating Leases:

    Boston Market Restaurant:
      Marietta, Georgia        -              $534,421       $507,133             -        -

    Burger King Restaurants:
      Jefferson City, Tennessee-               216,633        546,967             -        -
      Sierra Vista, Arizona    -               421,170              -             -        -

    Checkers Drive-In Restaurant:
      Winter Springs, Florida  -               397,536              -             -        -

    Church's Fried Chicken
      Restaurants:
          Gainesville, Florida -h)              79,395        124,653             -        -
          Daytona Beach, Florid-               149,701              -             -        -

    Golden Corral Family
      Steakhouse Restaurants:
          Odessa, Texas        -               502,364        815,831             -        -
          Midland, Texas       -               481,748        857,185             -        -
          El Paso, Texas       -               745,506              -       802,132        -
          Harlingen, Texas     -               503,799              -       890,878        -

    Hardee's Restaurants:
      Akron, Ohio              -               198,086              -             -        -
      Dalton, Ohio             -               180,556              -             -        -
      Minerva, Ohio            -               143,775              -             -        -
      Orrville, Ohio           -               176,169              -             -        -
      Seville, Ohio            -               245,648              -             -        -
      Clinton, Tennessee       -               295,861              -             -        -

    Jack in the Box Restaurant:
      San Antonio, Texas       -               525,720              -       381,591        -

    KFC Restaurant:
      Arcadia, Florida         -               175,020        333,759             -        -

    Rally's Restaurant:
      Toledo, Ohio             -               281,880        196,608        47,002        -

    Shoney's Restaurants:
      Saddlebrook, Florida     -               427,238              -       765,532        -

    Taco Bell Restaurant:
      Detroit, Michigan        -               168,429              -       402,674        -
                                           ------------  -------------  ------------  -------

                                            $6,850,655     $3,382,136    $3,289,809        -
                                           ============  =============  ============  =======

Properties  of  Joint   Venture  in
   Which the Partnership has an 18%
   Interest  and  has  Invested  in
   Under Operating Leases:

    Burger King Restaurants:
      Columbus, Ohio           -              $345,696       $651,985             -        -
      San Antonio, Texas       -               350,479        623,615             -        -
      Pontiac, Michigan        -               277,192        982,200             -        -
      Raceland, Louisiana      -               174,019        986,879             -        -
      New Castle, Indiana      -               264,239        662,265             -        -
      Hastings, Minnesota      -               155,553        657,159             -        -
                                           ------------  -------------  ------------  -------

                                            $1,567,178     $4,564,103             -        -
                                           ============  =============  ============  =======
Property of Joint  Venture in Which
   the   Partnership  has  a  4.79%
   Interest  and  has  Invested  in
   Under an Operating Lease:

    Jack in the Box Restaurant:
      Des Moines, Washington   -              $322,726       $791,658             -        -
                                           ============  =============  ============  =======

Property of Joint  Venture in Which
   the   Partnership   has   a  79%
   Interest  and  has  Invested  in
   Under an Operating Lease:

    Jack in the Box Restaurant:
      Mansfield, Texas         -              $297,295       $482,914             -        -
                                           ============  =============  ============  =======

Property of Joint Venture in
   Which the Partnership has a 56%
   Interest and had Invested
   in Under an Operating Lease

    Roadhouse Grill Restaurant:
      Duluth, Georgia          -            $1,078,469              -      $865,185        -
                                           ============  =============  ============  =======

Property of Joint  Venture in Which
   the  Partnership  has  a  17.16%
   Interest  and  has  Invested  in
   Under an Operating Lease:

    TGI Friday's Restaurant:
      Homestead, Pennsylvania  -           $ 1,036,297    $ 1,499,296             -        -
                                           ============  =============  ============  =======

Property in which the
   Partnership has a 43%
   Interest  as   Tenants-in-Common
   and has  Invested  in  Under  an
   Operating Lease:

    Bennigan's Restaurant:
      Colorado Springs, Colorad-             $ 947,120    $ 1,279,013             -        -
                                           ============  =============  ============  =======

Property in Which  the  Partnership
   has a 53%  Interest  as Tenants-
   in-Common  and has  Invested  in
   Under an Operating Lease:

    Golden Corral Restaurant:
      Smithfield, North Carolin-              $264,272    $ 1,155,018             -        -
                                           ============  =============  ============  =======

Property in Which  the  Partnership
   has   a   35.64%   Interest   as
   Tenants-   in-Common   and   has
   Invested  in Under an  Operating
   Lease:

    Chevy's Fresh Mex Restaurant:
      Miami, Florida           -              $976,357       $974,016             -        -
                                           ============  =============  ============  =======

Property in Which the Partnership
   has a 71% Interest as Tenants-
   in-Common and has Invested
  in Under an Operating Lease:

    IHOP Restaurant:
      Montgomery, Alabama      -              $584,126              -             -        -
                                           ============  =============  ============  =======


Properties the Partnership has
   Invested in Under Direct
   Financing Leases:

    Burger King Restaurant:
      Sierra Vista, Arizona    -                     -              -      $333,212        -

    Hardee's Restaurants:
      Akron, Ohio              -                     -        540,215             -        -
      Dalton, Ohio             -                     -        490,656             -        -
      Minerva, Ohio            -                     -        436,663             -        -
      Orrville, Ohio           -                     -        446,337             -        -
      Seville, Ohio            -                     -        487,630             -        -
      Clinton Tennessee        -                     -        338,216             -        -

                                                     -     $2,739,717      $333,312        -
                                           ============  =============  ============  =======

Property in Which the Partnership has
    a 71% Interest as Tenants-in-Common
    and has Invested in Under a Direct
   Financing Lease:

    IHOP Restaurant:
      Montgomery, Alabama      -                     -       $933,873             -        -
                                           ============  =============  ============  =======


                                                                                    Life on Which
               Gross Amount at Which                                                Depreciation in
               Carried at Close of Period (c)                   Date                Latest Income
---------------------------------------------
               Buildings and                    Accumulated    of Con-    Date      Statement is
    Land       Improvements        Total        Depreciation   struction Acquired     Computed
-------------  -------------   --------------   ------------   -------   -------    ------------





    $534,421       $507,133       $1,041,554        $70,481     1994     10/96          (b)


     216,633        546,967          763,600        193,062     1988     01/90          (b)
     421,170             (f)         421,170              -     1990     06/90          (d)


     397,536              -          397,536             (g)     -       07/94          (g)



      79,395        124,653          204,048         41,380     1983     01/91          (b)
     149,701              -          149,701              -     1985     01/91          (i)



     502,364        815,831        1,318,195        292,581     1990     03/90          (b)
     481,748        857,185        1,338,933        306,864     1990     04/90          (b)
     745,506        802,132        1,547,638        274,996     1990     05/90          (b)
     503,799        890,878        1,394,677        307,861     1990     06/90          (b)


     198,086             (f)         198,086              -     1990     11/90          (d)
     180,556             (f)         180,556              -     1990     11/90          (d)
     143,775             (f)         143,775              -     1990     11/90          (d)
     176,169             (f)         176,169              -     1990     11/90          (d)
     245,648             (f)         245,648              -     1990     11/90          (d)
     295,861             (f)         295,861              -     1992     09/92          (d)


     525,720        381,591          907,311        132,669     1990     05/90          (b)


     175,020        333,759          508,779        115,764     1985     08/90          (b)


     281,880        243,610          525,490         81,136     1990     01/91          (b)


     427,238        765,532        1,192,770        269,650     1990     04/90          (b)


     168,429        402,674          571,103        139,116     1990     06/90          (b)
-------------  -------------   --------------   ------------

  $6,850,655     $6,671,945      $13,522,600     $2,225,560
=============  =============   ==============   ============









    $345,696       $651,985         $997,681       $201,312     1986     09/91          (b)
     350,479        623,615          974,094        192,552     1986     09/91          (b)
     277,192        982,200        1,259,392        303,271     1987     09/91          (b)
     174,019        986,879        1,160,898        304,716     1988     09/91          (b)
     264,239        662,265          926,504        204,486     1988     09/91          (b)
     155,553        657,159          812,712        202,909     1990     09/91          (b)
-------------  -------------   --------------   ------------

  $1,567,178     $4,564,103       $6,131,281     $1,409,246
=============  =============   ==============   ============






    $322,726       $791,658       $1,114,384       $216,673     1992     10/92          (b)
=============  =============   ==============   ============







    $297,295       $482,914         $780,209        $61,158     1997     02/97          (b)
=============  =============   ==============   ============







  $1,078,469       $865,185       $1,943,654         $7,210     1999     12/99          (k)
=============  =============   ==============   ============







 $ 1,036,297    $ 1,499,296      $ 2,535,593       $ 29,288     2000     06/00          (b)
=============  =============   ==============   ===============








   $ 947,120    $ 1,279,013      $ 2,226,133       $ 17,765     2000     08/00          (b)
=============  =============   ==============   ============







   $ 264,272    $ 1,155,018      $ 1,419,290      $ 116,452     1996     12/97          (b)
=============  =============   ==============   ============







    $976,357       $974,016       $1,950,373        $97,490     1995     12/97          (b)
=============  =============   ==============   ============







    $584,126             (f)        $584,126              -     1998     11/99          (d)
=============                  ==============







           -             (f)              (f)            (d)    1990     06/90          (d)


           -             (f)              (f)            (d)    1990     11/90          (d)
           -             (f)              (f)            (d)    1990     11/90          (d)
           -             (f)              (f)            (d)    1990     11/90          (d)
           -             (f)              (f)            (d)    1990     11/90          (d)
           -             (f)              (f)            (d)    1990     11/90          (d)
           -             (f)              (f)            (d)    1992     09/92          (d)









          (f)            (f)              (f)            (d)    1998     11/99          (d)


</TABLE>
















<PAGE>



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

        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 2000


(a)      Transactions in real estate and accumulated  depreciation  during 2000,
         1999 and 1998, are summarized as follows:


<TABLE>
<CAPTION>
<S><C>
                                                                                                Accumulated
                                                                               Cost            Depreciation
          -------------------------------------------                    -----------------    ----------------
          Properties the Partnership has Invested
            in Under Operating Leases:
          -------------------------------------------

          -------------------------------------------
               Balance, December 31, 1997                                    $  17,552,433       $  2,169,570
          -------------------------------------------
               Depreciation expense                                                     --            304,356
          -------------------------------------------                    -----------------    ----------------

          -------------------------------------------
               Balance, December 31, 1998                                       17,552,433          2,473,926
          -------------------------------------------
               Dispositions                                                       (965,646)          (165,272 )
          -------------------------------------------
               Depreciation expense                                                     --            293,799
          -------------------------------------------                    -----------------    ----------------

          -------------------------------------------
               Balance, December 31, 1999                                       16,586,787          2,602,453
          -------------------------------------------
               Dispositions                                                     (3,064,187)          (639,790 )
          -------------------------------------------
               Depreciation expense                                                     --            262,897
          -------------------------------------------                    -----------------    ----------------

          -------------------------------------------
               Balance, December 31, 2000                                    $  13,522,600       $  2,225,560
          -------------------------------------------                    =================    ================




          Properties  of Joint  Venture  in  Which  the  Partnership  has an 18%
            Interest and has Invested in Under Operating Leases:

               Balance, December 31, 1997                                    $  6,131,281           $  952,835
               Depreciation expense                                                    --              152,137
                                                                          ----------------     ---------------

               Balance, December 31, 1998                                       6,131,281            1,104,972
               Depreciation expense                                                    --              152,137
                                                                          ----------------     ---------------

               Balance, December 31, 1999                                       6,131,281            1,257,109
               Depreciation expense                                                    --              152,137
                                                                          ----------------     ---------------

               Balance, December 31, 2000                                    $  6,131,281          $ 1,409,246
                                                                          ================     ===============
</TABLE>


<PAGE>


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

        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 2000
<TABLE>
<CAPTION>
<S><C>

                                                                                               Accumulated
                                                                              Cost             Depreciation
                                                                         ----------------     ---------------

         Property of Joint Venture in Which the Partnership has a 4.79% Interest
           and has Invested in Under an Operating Lease:

              Balance, December 31, 1997                                    $  1,114,384           $  137,507
              Depreciation expense                                                    --               26,388
                                                                         ----------------     ---------------

              Balance, December 31, 1998                                       1,114,384              163,895
              Depreciation expense                                                    --               26,389
                                                                         ----------------     ---------------

              Balance, December 31, 1999                                       1,114,384              190,284
              Depreciation expense                                                    --               26,389
                                                                         ----------------     ---------------

              Balance, December 31, 2000                                    $  1,114,384           $  216,673
                                                                         ================     ===============


         Property of Joint Venture in Which the  Partnership  has a 79% Interest
           and has Invested in Under an Operating Lease:

              Balance, December 31, 1997                                    $    780,209         $    12,778
              Depreciation expense                                                    --              16,186
                                                                        -----------------    ----------------

              Balance, December 31, 1998                                         780,209              28,964
              Depreciation expense                                                    --              16,097
                                                                        -----------------    ----------------

              Balance, December 31, 1999                                         780,209              45,061
              Depreciation expense                                                    --              16,097
                                                                        -----------------    ----------------

              Balance, December 31, 2000                                    $    780,209         $    61,158
                                                                        =================    ================
</TABLE>


<PAGE>


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

        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 2000
<TABLE>
<CAPTION>
<S><C>
                                                                                            Accumulated
                                                                           Cost             Depreciation
                                                                     ------------------   -----------------

       Property of Joint Venture in Which the  Partnership has a 17.16% Interest
         and has Invested in Under an Operating Lease:

            Balance, December 31, 1999                                       $      --            $     --
            Acquisition                                                      2,535,593                  --
            Depreciation expense                                                    --              29,288
                                                                     ------------------   -----------------

            Balance, December 31, 2000                                   $   2,535,593         $    29,288
                                                                     ==================   =================

       Property of Joint Venture in Which the  Partnership has a 53% Interest as
         Tenants-in-Common and has Invested in Under an Operating Lease:

            Balance, December 31, 1997                                    $  1,419,290           $     949
            Depreciation expense                                                    --              38,501
                                                                       ----------------    ----------------

            Balance, December 31, 1998                                       1,419,290              39,450
            Depreciation expense                                                    --              38,501
                                                                       ----------------    ----------------

            Balance, December 31, 1999                                       1,419,290              77,951
            Depreciation expense                                                    --              38,501
                                                                       ----------------    ----------------

            Balance, December 31, 2000                                    $  1,419,290          $  116,452
                                                                       ================    ================

       Property in Which the  Partnership  has a 35.64%  Interest as Tenants-in-
         Common and has Invested in Under an Operating Lease:

            Balance December 31, 1997                                     $  1,950,373            $     89
            Depreciation                                                            --              32,467
                                                                       ----------------    ----------------

            Balance December 31, 1998                                        1,950,373              32,556
            Depreciation                                                            --              32,467
                                                                       ----------------    ----------------

            Balance December 31, 1999                                        1,950,373              65,023
            Depreciation                                                            --              32,467
                                                                       ----------------    ----------------

            Balance December 31, 2000                                     $  1,950,373          $   97,490
                                                                       ================    ================

</TABLE>


<PAGE>


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

  NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
  ----------------------------------------------------------------------------

                                December 31, 2000

<TABLE>
<CAPTION>
<S><C>
                                                                                              Accumulated
                                                                            Cost              Depreciation
                                                                       ----------------     -----------------
       Property of Joint Venture in Which the Partnership has a 56% Interest and
         has Invested in Under an Operating Lease:

            Balance, December 31, 1998                                        $     --              $     --
            Acquisition                                                      1,083,153                    --
            Depreciation expense                                                    --                    --
                                                                       ----------------     -----------------

            Balance, December 31, 1999                                       1,083,153                    --
            Acquisition                                                        860,501                    --
            Depreciation expense                                                    --                 7,210
                                                                       ----------------     -----------------

            Balance, December 31, 2000                                    $  1,943,654            $    7,210
                                                                       ================     =================

       Property in Which the Partnership has a 71% Interest as Tenants-in Common
         and has Invested in Under an Operating Lease:

            Balance, December 31, 1998                                        $     --              $     --
            Acquisition                                                        584,126                    --
            Depreciation expense (d)                                                --                    --
                                                                       ----------------     -----------------

            Balance December 31, 1999                                          584,126                    --
            Depreciation expense (d)                                                --                    --
                                                                       ----------------     -----------------

            Balance December 31, 2000                                      $   584,126              $     --
                                                                       ================     =================

       Property in Which the Partnership has a 43% Interest as Tenants-in Common
         and has Invested in Under an Operating Lease:

            Balance December 31, 1999                                         $     --              $     --
            Acquisition                                                      2,226,133                    --
            Depreciation expense                                                    --                17,765
                                                                       ----------------     -----------------

            Balance December 31, 2000                                     $  2,226,133           $    17,765
                                                                       ================     =================


</TABLE>


(b)      Depreciation  expense is computed for buildings and improvements  based
         upon estimated lives of 30 years.



<PAGE>


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

  NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
  ----------------------------------------------------------------------------

                                December 31, 2000


(c)      As of December 31, 2000, the aggregate cost of the Properties  owned by
         the  Partnership   and  its   consolidated   joint  venture,   and  the
         unconsolidated   joint  ventures  (including  the  Properties  held  as
         tenants-in-common)  for federal income tax purposes was $16,547,577 and
         $19,616,916,  respectively.  All of the leases are treated as operating
         leases for federal income tax purposes.

(d)      For financial reporting purposes,  the portion of the lease relating to
         the building has been recorded as a direct financing lease. The cost of
         the  building  has  been  included  in the  net  investment  in  direct
         financing leases; therefore, depreciation is not applicable.

(e)      For financial reporting  purposes,  the lease for the land and building
         has been recorded as a direct financing lease. The cost of the land and
         building  has been  included  in net  investment  in  direct  financing
         leases; therefore, depreciation is not applicable.

(f)      For  financial  reporting  purposes,  certain  components  of the lease
         relating to land and building have been recorded as a direct  financing
         lease.  Accordingly,  costs relating to these  components of this lease
         are not shown.

(g)      The  building  portion  of  this  Property  is  owned  by  the  tenant;
         therefore, depreciation is not applicable.

(h)      The tenant of this Property,  Restaurant Management Services, Inc., has
         subleased this Property to a local, independent restaurant.  Restaurant
         Management  Services,  Inc.  continues to be responsible  for complying
         with all the terms of the lease agreement and is continuing to pay rent
         on  this  Property,  subject  to  certain  rent  concessions,   to  the
         Partnership.

(i)      The  building   located  on  this  Property  was  demolished  in  1995;
         therefore, depreciation is not applicable.




<PAGE>


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

                   SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

                                December 31, 2000


<TABLE>
<CAPTION>
<S><C>
                                                                                                                       Principal
                                                                                                                      Amount of
                                                                                                                        Loans
                                                                                                                     Subject to
                                      Final           Periodic                      Face           Carrying          Delinquent
                      Interest       Maturity         Payment       Prior         Amount of        Amount of          Principal
   Description          Rate           Date            Terms        Liens         Mortgages      Mortgages(2)        or Interest
------------------    ---------  -----------------   -----------   ----------    -------------   --------------     -------------

Perkins -
Florence, SC
First Mortgage         10.25%     February 2001         (1)            $ --      $ 1,160,000        $  994,593            $    --
                                                                   ----------    -------------   --------------     -------------

    Total                                                              $ --      $ 1,160,000        $  994,593 (3)        $    --
                                                                   ==========    =============   ==============     =============


(1)      Monthly payments of principal and interest at an annual rate of 10.25%, with a balloon payment at maturity of $1,100,882.

(2)      The tax carrying value of the notes is approximately $1,101,866, which is net of deferred gain of $93,421.

(3)      The changes in the carrying amounts are summarized as follows:

                                                                2000              1999                 1998
             -------------------------------------------   ----------------   ---------------     ---------------

             -------------------------------------------
             Balance at beginning of period                    $  994,408       $ 1,241,056         $  1,250,597
             -------------------------------------------

             -------------------------------------------
             Interest earned                                      113,379           127,054              139,446
             -------------------------------------------

             -------------------------------------------
             Collection of principal and interest                (114,341  )       (374,837  )          (150,012 )
             -------------------------------------------

             -------------------------------------------
             Recognition  of deferred  gain on sale
             of                                                     1,147             1,135                1,025
                 land and building
             -------------------------------------------   ----------------   ---------------     ---------------

             -------------------------------------------
             Balance at end of period                          $  994,593        $  994,408         $  1,241,056
             -------------------------------------------   ================   ===============     ===============

</TABLE>


<PAGE>






                                    EXHIBITS


<PAGE>


                                  EXHIBIT INDEX


Exhibit Number

3.1      Affidavit and  Certificate  of Limited  Partnership  of CNL Income Fund
         VII,  Ltd.  (Included  as Exhibit  3.1 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.)