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, 1997

                                       OR

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

             For the transition period from _________ to ___________


                         Commission file number 0-19140

                            CNL INCOME FUND VII, LTD.
             (Exact name of registrant as specified in its charter)

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

                        400 East South Street, Suite 500
                             Orlando, Florida 32801
          (Address of principal executive offices, including zip code)

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

           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  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 value 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,  totalled
$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.  As a result of the above transactions,
the  Partnership  currently  owns  40  Properties,  including  interests  in ten
Properties owned by joint ventures in which the Partnership is a co-venturer and
two Properties  owned with affiliates as  tenants-in-common.  The Properties are
leased on a triple-net  basis with the lessees  responsible  for all repairs and
maintenance, property taxes, insurance and utilities.

         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.  In general,  the General Partners plan to seek the sale of some of
the  Properties  commencing  seven  to 12 years  after  their  acquisition.  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.

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

                                        1

<PAGE>



average being 17 years),  and expire  between 2003 and 2016. All 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  $22,100 to  $166,700.  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.  Certain  lessees  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.  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 February  1997,  the  Partnership  reinvested the net sales proceeds
from the sale of the  Property in Hartland,  Michigan,  in CNL  Mansfield  Joint
Venture, as described below under "Joint Venture  Arrangements." The lease terms
of the lease of CNL Mansfield Joint Venture are  substantially the same as those
described in the first three paragraphs of this section.

         In December  1997,  the  Partnership  reinvested the net sales proceeds
from the sale of the Property in Dunnellon,  Florida and Columbus,  Indiana, and
net sales  proceeds  from the sale of the  Property  in Yuma,  Arizona,  held as
tenants-in-common  with an affiliate of the General  Partners,  in a Property in
Miami,  Florida, as  tenants-in-common  with affiliates of the General Partners,
and in a Property in Smithfield,  North Carolina,  as tenants-in-common  with an
affiliate  of the  General  Partners,  as  described  below  in  "Joint  Venture
Arrangements."  The lease terms for these Properties are  substantially the same
as the  Partnership's  other  leases,  as  described  above in the  first  three
paragraphs of this section.

Major Tenants

         During 1997,  three  lessees of the  Partnership  and its  consolidated
joint venture,  Golden Corral Corporation,  Restaurant Management Services, Inc.
and Flagstar  Enterprises,  Inc., each  contributed more than ten percent of the
Partnership's   total  rental   income   (including   rental   income  from  the
Partnership's  consolidated joint venture and the Partnership's  share of rental
income from nine  Properties  owned by  unconsolidated  joint ventures and three
Properties  owned with affiliates as  tenants-in-common,  including one Property
owned as  tenants-in-common  which was sold in October 1997). As of December 31,
1997,  Golden Corral  Corporation  was the lessee under leases  relating to four
restaurants,  Restaurant  Management Services,  Inc. was the lessee under leases
relating to seven restaurants and one site currently consisting of land only and
Flagstar  Enterprises,  Inc.  was  the  lessee  under  leases  relating  to four
restaurants.  It is  anticipated  that,  based on the  minimum  rental  payments
required by the leases,  these three  lessees each will  continue to  contribute
more than ten  percent  of the  Partnership's  total  rental  income in 1998 and
subsequent  years. 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 income in
1997 (including rental income from the Partnership's  consolidated joint venture
and the  Partnership's  share of rental  income  from nine  Properties  owned by
unconsolidated  joint  ventures and three  Properties  owned with  affiliates as
tenants-in-common,  including one Property owned as tenants-in-common  which was
sold in October 1997). In subsequent  years, it is anticipated  that these three
Restaurant Chains each will continue to account for more than ten percent of the
Partnership's total rental 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.  No single  tenants  or group of
affiliated tenants lease Properties with an aggregate carrying value,  excluding
acquisition fees and certain  acquisition  expenses,  in excess of 20 percent of
the total assets of the Partnership.



                                        2

<PAGE>




Joint Venture 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, as of December 31, 1996, the Partnership had entered into
four separate joint venture  arrangements,  Halls Joint Venture,  CNL Restaurant
Investments  II, Des Moines Real Estate Joint  Venture and CNL  Mansfield  Joint
Venture,  with  affiliates  of the General  Partners  to purchase  and hold nine
Properties through such joint ventures.  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 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,  Halls Joint  Venture,  Des Moines Real
Estate Joint Venture and CNL  Mansfield  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 Halls Joint Venture, CNL Restaurant Investments II, Des Moines Real
Estate  Joint  Venture  and CNL  Mansfield  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,  Halls
Joint  Venture,  CNL  Restaurant  Investments  II, Des Moines Real Estate  Joint
Venture and CNL Mansfield  Joint Venture is distributed 83 percent,  51 percent,
18  percent,  4.79% and 79 percent,  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 addition to the above joint venture  agreements,  in July 1994,  the
Partnership  entered  into an  agreement  to hold a Jack in the Box  Property as
tenants-in-common  with 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-venturer's  percentage.  The
Partnership  owned a 48.33%  interest in this  Property.  In October  1997,  the
Partnership and the affiliate,  as  tenants-in-common,  sold the Jack in the Box
Property in Yuma,  Arizona.  In December 1997, the  Partnership  entered into an
agreement  to hold a  Property  in Miami,  Florida,  as  tenants-in-common  with
affiliates of the General Partners and in conjunction therewith,  reinvested its
portion of the net sales  proceeds  received  from the sale of the  Property  in
Yuma,  Arizona,  along with  additional  funds from the sale of the  Property in
Columbus,  Indiana. The agreement provides for the Partnership and the affiliate
to share in the  profits  and  losses  of the  Property  in  proportion  to each
co-venturer'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 hold a Golden Corral  Property in Smithfield,  North  Carolina,  as
tenants-in-common  with 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-venturer's  percentage interest.
The Partnership owns a 53 percent interest in this Property.






                                        3

<PAGE>



Certain Management Services

         CNL Income Fund Advisors,  Inc., an affiliate of the General  Partners,
provided  certain  services  relating to management of the  Partnership  and its
Properties  pursuant to a  management  agreement  with the  Partnership  through
September 30, 1995.  Under this  agreement,  CNL Income Fund Advisors,  Inc. was
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 Income Fund  Advisors,  Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership  had agreed to pay CNL Income 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").

         Effective October 1, 1995, CNL Income Fund Advisors,  Inc. assigned its
rights  in,  and its  obligations  under,  the  management  agreement  with  the
Partnership  to CNL Fund  Advisors,  Inc. All of the terms and conditions of the
management agreement,  including the payment of fees, as described above, remain
unchanged.

         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.

         At the time the Partnership elects to dispose of its Properties,  other
than as a result of the exercise of tenant options to purchase  Properties,  the
Partnership  will be in  competition  with other  persons and entities to locate
purchasers for its Properties.

Employees

         The  Partnership   has  no  employees.   The  officers  of  CNL  Realty
Corporation  and the officers and employees 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 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, 1997,  the  Partnership  owned,  either  directly or
through  joint  venture  arrangements,  40  Properties  located  in  13  states.
Reference  is made to the Schedule of Real Estate and  Accumulated  Depreciation
filed  with this  report for a listing of the  Properties  and their  respective
costs, including acquisition fees and certain acquisition expenses.








                                        4

<PAGE>



Description of Properties

         Land. The Partnership's  Property sites range from approximately 10,800
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.

         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.

         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.

         Leases  with Major  Tenants.  The terms of each of the leases  with the
Partnership's  major  tenants as of December  31,  1997 (see Item 1.  Business -
Major  Tenants),  are  substantially  the  same as  those  described  in Item 1.
Business - Leases.

         Golden Corral  Corporation leases four Golden Corral  restaurants.  The
initial term of each lease is 15 years (expiring  between 2004 and 2005) and the
average  minimum  base  annual  rent is  approximately  $147,800  (ranging  from
approximately $137,100 to $166,700).

         Restaurant  Management Services,  Inc. leases five Popeyes restaurants,
one Shoney's  restaurant,  one Church's  Fried Chicken  restaurant  and one site
currently  consisting  of land  only  (formerly  operated  as a  Church's  Fried
Chicken).  The initial  term of each lease is 19 to 20 years  (expiring  between
2009 and 2010) and the average minimum base annual rent is approximately $53,700
(ranging from approximately $22,100 to $121,000).

         Flagstar  Enterprises,  Inc.  leases  four  Hardee's  restaurants.  The
initial term of each lease is 20 years (expiring  between 2010 and 2012) and the
average  minimum  base  annual  rent  is  approximately  $79,100  (ranging  from
approximately $70,500 to $89,400).

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

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.




                                        5

<PAGE>



                                     PART II


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

         As of  February  28,  1998,  there were 3,162  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.  Limited  Partners
who wish to sell  their  Units may offer  the  Units  for sale  pursuant  to the
Partnership's  distribution reinvestment plan (the "Plan"), and Limited Partners
who wish to have their  distributions  used to acquire  additional Units (to the
extent Units are available for  purchase),  may do so pursuant to such Plan. The
General Partners have the right to prohibit transfers of Units. Since inception,
the price paid for any Unit  transferred  pursuant to the Plan has been $.95 per
Unit. The price to be paid for any Unit  transferred  other than pursuant to the
Plan is 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 1997 and 1996 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>

                                 1997 (1)                           1996 (1)
                                 --------                           --------
                        High       Low      Average        High       Low      Average
                        ----       ---      -------        ----       ---      -------
<S> <C>
  First Quarter         $1.00     $ .95       $ .96        $ .88     $ .79       $ .84
  Second Quarter          .95       .82         .91          .95       .82         .94
  Third Quarter           .92       .79         .85          .95       .91         .93
  Fourth Quarter          .84       .81         .83          .78       .75         .76
</TABLE>

(1)      A total of  94,606  and  153,050  Units  were  transferred  other  than
         pursuant  to the Plan for the years ended  December  31, 1997 and 1996,
         respectively.

         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, 1997 and 1996, 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 1997 and 1996 to the Limited Partners. No amounts distributed to
partners for the years ended  December 31, 1997 and 1996,  are required to be or
have been  treated by the  Partnership  as a return of capital  for  purposes of
calculating   the   Limited   Partners'   return  on  their   adjusted   capital
contributions.  No distributions have been made to the General Partners to date.
As indicated in the chart below, these  distributions were declared at the close
of each of the Partnership's  calendar  quarters.  These amounts include monthly
distributions  made in arrears  for the  Limited  Partners  electing  to receive
distributions on this basis.

         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.





                                        6

<PAGE>



Item 6.  Selected Financial Data
<TABLE>
<CAPTION>

                                  1997              1996             1995              1994              1993
                                  ----              ----             ----              ----              ----
<S> <C>
Year Ended December 31:
    Revenues (1)               $  2,919,734      $  2,882,709     $  2,716,883      $  2,917,331      $  2,953,405
    Net income (2)                2,606,008         2,326,863        1,982,148         2,503,300         2,433,910
    Cash distributions
       declared (3)               2,700,000         2,700,000        2,700,002         2,760,002         2,700,000
    Net income per Unit (2)           0.086             0.077            0.065             0.083             0.080
    Cash distributions
       declared per Unit(3)           0.090             0.090            0.090             0.092             0.090

At December 31:
    Total assets                $25,479,762       $25,523,853      $25,915,616       $26,644,363       $26,872,295
    Partners' capital            24,547,778        24,641,770       25,014,907        25,732,761        26,989,463
</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, 1997,  1996, 1995 and 1994,
         includes $184,627,  $195,675,  $1,421 and $77,379,  respectively,  from
         gains on dispositions  of land and buildings.  Net income for the years
         ended  December 31, 1997 and 1996,  includes a loss on sale of land and
         building of $19,739 and $235,465, respectively. In addition, net income
         for the year ended December 31, 1995,  includes a loss on demolition of
         building  and a loss on  sale of land  and  building  of  $174,466  and
         $6,556, respectively.

(3)      Distributions  for the year ended December 31, 1994,  include a special
         distribution  to the  Limited  Partners  of $60,000  which  represented
         cumulative excess operating reserves.

         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 triple-net  leases,  with the lessees  generally  responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 1997, the  Partnership  owned 40 Properties,  either  directly or indirectly
through joint venture arrangements.

Liquidity and Capital Resources

         The  Partnership's  primary  source  of  capital  for the  years  ended
December 31, 1997, 1996 and 1995, 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  $2,840,459,  $2,670,869
and  $2,484,538  for  the  years  ended  December  31,  1997,   1996  and  1995,
respectively. The increase in cash from operations during 1997 and 1996, each as
compared  to the prior  year,  is  primarily  a result of  changes in income and
expenses  as  described  in  "Results  of  Operations"  below and changes in the
Partnership's working capital during each of the respective years.

         Other  sources and uses of capital  included the  following  during the
years ended December 31, 1997, 1996 and 1995.

         In August 1995, the  Partnership  sold its Property in Florence,  South
Carolina, to the tenant for $1,160,000, and in connection therewith,  accepted a
promissory note in the principal sum of $1,160,000, collateralized by a

                                        7

<PAGE>



mortgage on the Property.  The note bears interest at a rate of 10.25% per annum
and is being  collected  in 59 equal  monthly  installments  of $10,395,  with a
balloon payment of $1,106,657 due in July 2000. Collections commenced August 10,
1995. In accordance  with  Statement of Financial  Accounting  Standards No. 66,
"Accounting for Sales of Real Estate," the Partnership  recorded the sale of the
Property using the installment sales method.  Therefore, the gain on the sale of
the Property was deferred and is being recognized as income  proportionately  as
payments under the mortgage note are  collected.  The  Partnership  recognized a
gain of $926 and $836 for  financial  reporting  purposes  for the  years  ended
December 31, 1997 and 1996, respectively,  and had a deferred gain in the amount
of  $126,303  and  $127,229 at December  31,  1997 and 1996,  respectively.  The
mortgage  notes  receivable  balances  at December  31,  1997 and 1996,  include
principal of $1,131,496 and $1,139,788,  respectively,  and accrued  interest of
$6,235  and  $6,281,  respectively,  and are shown net of the  deferred  gain of
$126,303 and  $127,229,  respectively.  Proceeds  received from the sale of this
Property  will  be  reinvested  in  additional  Properties  or  used  for  other
Partnership purposes.

         In November 1994, the Partnership received notice from the subtenant of
its Property in Jacksonville,  Florida,  that it intended to exercise its option
to purchase the Property in accordance with the terms of its sublease agreement.
In December 1995, the Partnership sold its Property in Jacksonville, Florida, to
the subtenant for $240,000,  and in connection therewith,  accepted a promissory
note in the  principal  sum of  $240,000,  collateralized  by a mortgage  on the
Property.  The note bears  interest  at a rate of ten  percent  per annum and is
being  collected in 119 equal  monthly  installments  of $2,106,  with a balloon
payment of $218,252 due December 2005. Collections commenced in January 1996. As
a result  of the sale of the  Property,  the  Partnership  recognized  a loss of
$6,556 for financial  reporting  purposes for the year ended  December 31, 1995.
The mortgage  notes  receivable  balance at December 31, 1997 and 1996,  include
principal of $237,192 and $238,666, respectively, and accrued interest of $1,977
and $1,989, respectively.  Proceeds received from the sale of this Property will
be  distributed  to the Limited  Partners or will be used for other  Partnership
purposes.

         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 April 1996 and March 1997 in accordance with the
terms of the  agreement,  and has agreed to pay the  Partnership  the  remaining
balance  due of  approximately  $28,000 in five  remaining  annual  installments
through 2002.

         In July 1996, the  Partnership  sold its Property in Colorado  Springs,
Colorado,  for  $1,075,000,  and  received  net sales  proceeds  of  $1,044,909,
resulting in a gain of $194,839 for financial reporting purposes.  This Property
was  originally  acquired  by the  Partnership  in July  1990  and had a cost of
approximately $900,900, excluding acquisition fees and miscellaneous acquisition
expenses;  therefore,  the  Partnership  sold  the  Property  for  approximately
$144,000  in excess  of its  original  purchase  price.  In  October  1996,  the
Partnership reinvested the net sales proceeds, along with additional funds, in a
Boston  Market  Property  located  in  Marietta,   Georgia.  A  portion  of  the
transaction relating to the sale of the Property in Colorado Springs,  Colorado,
and the  reinvestment  of the net sales proceeds were structured to qualify as a
like-kind  exchange  transaction in accordance with Section 1031 of the Internal
Revenue  Code.  The  Partnership  distributed  amounts  sufficient to enable the
Limited Partners to pay federal and state income taxes resulting form the sale.

         In addition,  in October  1996,  the  Partnership  sold its Property in
Hartland,  Michigan,  for $625,000 and received net sales  proceeds of $617,035,
resulting in a loss of approximately $235,465, for financial reporting purposes.
In February  1997,  the  Partnership  reinvested  the net sales  proceeds in CNL
Mansfield  Joint  Venture.  The  Partnership  has a 79 percent  interest  in the
profits and losses of CNL Mansfield Joint Venture and the remaining  interest in
this joint venture is held by an affiliate of the Partnership which has the same
General Partners.

         In May 1997, the  Partnership  sold its Property in Columbus,  Indiana,
for $240,000 and received net sales proceeds of $223,589, resulting in a loss of
$19,739 for financial  reporting  purposes.  In December 1997,  the  Partnership
reinvested the net sales proceeds, along with additional funds, in a Property in
Miami, Florida, as tenants-in-common  with affiliates of the General Partner, in
exchange for a 35.64% interest in this Property.

         In October  1997,  the  Partnership  sold its  Property  in  Dunnellon,
Florida,  for  $800,000 and  received  net sales  proceeds  (net of $5,055 which
represents  amounts  due to the former  tenant for  prepaid  rent) of  $752,745,
resulting

                                        8

<PAGE>



in a gain of $183,701  for  financial  reporting  purposes.  This  Property  was
originally  acquired  by the  Partnership  in  August  1990  and  had a cost  of
approximately $546,300, excluding acquisition fees and miscellaneous acquisition
expenses;  therefore,  the  Partnership  sold  the  Property  for  approximately
$211,500  in excess of its  original  purchase  price.  In  December  1997,  the
Partnership  reinvested  these net sales  proceeds in a Property in  Smithfield,
North Carolina,  as tenants-in-common  with an affiliate of the General Partner.
The  General  Partners  believe  that the  transaction,  or a  portion  thereof,
relating to the sale of the Property in Dunnellon,  Florida and the reinvestment
of the net sales proceeds in the Property in Smithfield,  North  Carolina,  will
qualify as a like-kind  exchange  transaction in accordance with Section 1031 of
the Internal  Revenue Code.  However,  the Partnership  will distribute  amounts
sufficient to enable the Limited Partners to pay federal and state income taxes,
if any, (at a level reasonably  assumed by the General Partners)  resulting from
the sale.

         In addition,  in October 1997,  the  Partnership  and an affiliate,  as
tenants-in-common,  sold the Property in Yuma, Arizona, in which the Partnership
owned a 48.33% interest,  for a total sales price of $1,010,000 and received net
sales proceeds of $982,025,  resulting in a gain, to the  tenancy-in-common,  of
approximately  $128,400  for  financial  reporting  purposes.  The  Property was
originally acquired in July 1994 and had a total cost of approximately $861,700,
excluding acquisition fees and miscellaneous  acquisition  expenses;  therefore,
the  Property  was sold for  approximately  $120,300  in excess of its  original
purchase price. In December 1997, the Partnership  reinvested its portion of the
net sales  proceeds  from the sale of the Yuma,  Arizona,  Property,  along with
funds from the sale of the  wholly-owned  Property in  Columbus,  Indiana,  in a
Property in Miami, Florida, as tenants-in-common  with affiliates of the General
Partners.  The  General  Partners  believe  that the  transaction,  or a portion
thereof,  relating  to the  sale  of the  Property  in  Yuma,  Arizona  and  the
reinvestment of the net sales proceeds in the Property in Miami,  Florida,  will
qualify as a like-kind  exchange  transaction in accordance with Section 1031 of
the Internal  Revenue Code.  However,  the Partnership  will distribute  amounts
sufficient to enable the Limited Partners to pay federal and state income taxes,
if any, (at a level reasonably  assumed by the General Partners)  resulting from
the sale.

         None of the Properties  owned by the  Partnership or the joint ventures
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 is invested
in money market accounts or other short-term,  highly liquid investments pending
the  Partnership's  use of  such  funds  to pay  Partnership  expenses  or  make
distributions  to the  partners.  At December  31,  1997,  the  Partnership  had
$761,317 invested in such short-term  investments,  as compared to $1,305,429 at
December 31, 1996. The decrease in the amount invested in short-term investments
is primarily a result of the reinvestment of the net sales proceeds  received in
1996 from the sale of the Property in Hartland, Michigan, in CNL Mansfield Joint
Venture in February 1997, as described  above.  The funds  remaining at December
31, 1997, will be used for the payment of distributions and other liabilities.

         During 1997, 1996 and 1995, affiliates of the General Partners incurred
on behalf of the Partnership  $74,968,  $97,288 and $94,618,  respectively,  for
certain  operating  expenses.  As of December 31, 1997 and 1996, the Partnership
owed  $27,683 and  $1,867,  respectively,  to  affiliates  for such  amounts and
accounting and administrative services. As of February 28, 1998, the Partnership
had reimbursed the  affiliates  all such amounts.  In addition,  during the year
ended  December  31,  1995,  the  Partnership  incurred  $7,200  in real  estate
disposition  fees due to an affiliate as a result of its services in  connection
with the sale of the Property in Jacksonville, Florida. The payment of such fees
is  deferred  until the  Limited  Partners  have  received  the sum of their 10%
Preferred  Return and their adjusted capital  contributions.  Amounts payable to
other parties,  including distributions payable, of the Partnership increased to
$749,587 at December 31, 1997, from $724,399 at December 31, 1996,  primarily as
a result of an increase in rents paid in advance  during the year ended December
31, 1997.  Liabilities  at December 31, 1997, to the extent they exceed cash and
cash  equivalents  at  December  31,  1997,  will be paid from  future cash from
operations,  from amounts collected under the mortgage notes described above or,
in  the  event  the  General   Partners   elect  to  make   additional   capital
contributions, from future General Partner contributions.

         Based primarily on current and anticipated future cash from operations,
the Partnership declared distributions to the Limited Partners of $2,700,000 for
each of the years ended December 31, 1997 and 1996, and $2,700,002 for

                                        9

<PAGE>



the year ended December 31, 1995.  This represents  distributions  of $0.090 per
Unit for each of the years ended  December 31, 1997,  1996 and 1995.  No amounts
distributed to the Limited  Partners for the years ended December 31, 1997, 1996
and 1995 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.

         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.

         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.

Results of Operations

         During  1995,  the  Partnership   owned  and  leased  33  wholly  owned
Properties   (including  two  Properties  in  Florence,   South  Carolina,   and
Jacksonville,   Florida,   which  were  sold  in  August  and   December   1995,
respectively),  during 1996,  the  Partnership  owned and leased 33 wholly owned
Properties  (including  two  Properties  in  Colorado  Springs,   Colorado,  and
Hartland,  Michigan,  which were sold in July and October  1996,  respectively),
during  1997,  the  Partnership  owned and  leased 31  wholly  owned  Properties
(including two Properties in Columbus,  Indiana and  Dunnellon,  Florida,  which
were sold in May and October 1997,  respectively).  In addition, during 1996 and
1995,  the  Partnership  was a co-venturer in four separate joint ventures which
owned and leased nine  Properties  and one  Property the  Partnership  owned and
leased with an affiliate as tenants-in-common.  During 1997, the Partnership was
a  co-venturer  in five  separate  joint  ventures  which  owned and  leased ten
Properties  and three  Properties  the  Partnership  owned  with  affiliates  as
tenants-in-common  (including  one Property in Yuma,  Arizona  which was sold in
October 1997).  As of December 31, 1997, the  Partnership  and its  consolidated
joint  venture,  San Antonio #849 Joint  Venture,  owned  (either  directly,  as
tenants-in-common  with an affiliate or through joint venture  arrangements)  40
wholly owned Properties which are 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  $22,100  to  $166,700.
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,  1997,   1996  and  1995,  the
Partnership and its consolidated joint venture,  San Antonio #849 Joint Venture,
earned  $2,436,222,  $2,459,094 and $2,427,464,  respectively,  in rental income
from  operating  leases and earned  income from  direct  financing  leases.  The
decrease in rental and earned  income  during  1997,  as  compared to 1996,  was
attributable  to a decrease in rental and earned income as a result of the sales
of the Properties in Colorado Springs, Colorado;  Hartland,  Michigan; Columbus,
Ohio and Dunnellon,  Florida,  in July 1996,  October 1996, May 1997 and October
1997, respectively.  This decrease was partially offset by an increase in rental
and earned  income as a result of  reinvesting  the net sales  proceeds from the
sale of the Property in Colorado,  Springs, Colorado, in a Property in Marietta,
Georgia,  in October 1996.  Rental and earned income are expected to decrease in
future  years as a result  of  reinvesting  the  proceeds  from the sales of the
Properties

                                       10

<PAGE>



in Hartland,  Michigan;  Columbus, Ohio and Dunnellon, Florida in joint ventures
and in Properties  owned with  affiliates,  as  tenants-in-common,  as described
below.  However,  as a result of reinvesting in joint ventures and in Properties
owned with affiliates, as tenants-in-common, net income earned by unconsolidated
joint ventures is expected to increase in 1998.

         Rental and earned income increased during 1996, as compared to 1995, as
a result of recording  rental income  during 1996 relating to the  Properties in
Colorado Springs, and Pueblo, Colorado as compared to recording no rental income
during  1995 due to  financial  difficulties  the tenant was  experiencing.  The
Property in Colorado  Springs,  Colorado,  was  subsequently  sold, as described
above in "Liquidity  and Capital  Resources."  The increase in rental and earned
income during 1996, as compared to 1995,  was partially  offset by a decrease in
rental income during 1996, as a result of the sale of the Partnership Properties
in Florence,  South Carolina, and Jacksonville,  Florida, in August and December
1995,  respectively.  However, as a result of the Partnership accepting mortgage
notes for the sale of these  Properties,  interest income  increased during 1996
and 1995, as described below and above in "Liquidity and Capital Resources."

         For the years ended December 31, 1997,  1996 and 1995, the  Partnership
also earned $51,345,  $44,973 and $68,820,  respectively,  in contingent  rental
income.  The increase in  contingent  rental  income during 1997, as compared to
1996,  is  primarily a result of  increased  gross  sales of certain  restaurant
Properties  requiring the payment of contingent  rental income.  The decrease in
contingent  rental  income  during  1996,  as  compared  to 1995,  is  primarily
attributable to the change in the percentage rent formula in accordance with the
terms of the lease agreement for one of the Partnership's leases during 1996.

         During  the  years  ended  December  31,  1997,   1996  and  1995,  the
Partnership earned $183,579, $240,079 and $84,390, respectively, in interest and
other income. The decrease in interest and other income for 1997, as compared to
1996,  and the increase in interest and other income during 1996, as compared to
1995, is attributable  to the fact that during 1996, the Partnership  recognized
approximately  $46,500  in  other  income  due to the fact  that  the  corporate
franchisor of the Properties in Pueblo and Colorado Springs, Colorado, paid past
due real estate taxes relating to the Properties  and the  Partnership  reversed
such amounts during 1996 that it had previously  accrued as payable during 1995.
In addition,  the decrease in interest and other income during 1997, as compared
to  1996,  was  due to  the  fact  that  during  1996,  the  Partnership  earned
approximately  $10,000  in  interest  income on the net sales  proceeds  held in
escrow relating to the Property in Colorado  Springs,  Colorado.  These proceeds
were  reinvested  in a Property  in  Marietta,  Georgia,  in October  1996.  The
increase in interest and other  income  during  1996,  as compared to 1995,  was
primarily  attributable  to an increase in interest earned on the mortgage notes
accepted in  connection  with the sales of the  Properties  in  Florence,  South
Carolina,  in August 1995,  and  Jacksonville,  Florida,  in December  1995,  as
discussed above in "Liquidity and Capital Resources."

         For the years ended December 31, 1997,  1996 and 1995, the  Partnership
also earned $267,251, $157,254 and $154,937,  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 joint  ventures  during
the year ended 1997,  is partially  due to the fact that in February  1997,  the
Partnership  reinvested  the net sales  proceeds it received  from the sale,  in
October 1996,  of the Property in Hartland,  Michigan,  in CNL  Mansfield  Joint
Venture,  with an  affiliate  of the  Partnership  which  has the  same  General
Partners.  In addition,  the increase in net income earned by joint  ventures is
partially  attributable to the fact that in October 1997, the Partnership and an
affiliate,  as  tenants-in-common,  sold the Property in Yuma, Arizona, in which
the Partnership owned a 48.33% interest. The tenancy-in-common recognized a gain
of approximately  $128,400 for financial reporting purposes,  as described above
in "Liquidity and Capital  Resources."  In addition,  the increase in net income
earned by joint  ventures  during the year ended 1997,  as compared to 1996,  is
partially due to the  Partnership  investing in a Property in Smithfield,  North
Carolina,  in  December  1997,  with  affiliates  of  the  General  Partners  as
tenants-in-common, as described above in "Liquidity and Capital Resources."

         During at least one of the years  ended  December  31,  1997,  1996 and
1995,  three lessees of the  Partnership  and its  consolidated  joint  venture,
Golden Corral Corporation,  Restaurant  Management  Services,  Inc. and Flagstar
Enterprises,  Inc., each contributed more than ten percent of the  Partnership's
total rental income (including rental income from the Partnership's consolidated
joint venture and the Partnership's  share of rental income from nine Properties
owned  by  unconsolidated   joint  ventures  and  three  Properties  owned  with
affiliates   as    tenants-in-common,    including   one   Property   owned   as
tenants-in-common which sold in October 1997). As of December 31, 1997,

                                       11

<PAGE>



Golden  Corral  Corporation  was  the  lessee  under  leases  relating  to  four
restaurants,  Restaurant  Management Services,  Inc. was the lessee under leases
relating to eight  restaurants  and  Flagstar  Enterprises,  Inc. was the lessee
under leases relating to four restaurants.  It is anticipated that, based on the
minimum rental  payments  required by the leases,  these three lessees each will
continue to contribute more than ten percent of the  Partnership's  total rental
income during 1998 and  subsequent  years.  In addition,  during at least one at
least on of the years ended December 31, 1997, 1996 and 1995,  three  Restaurant
Chains,  Golden Corral,  Hardee's and Burger King,  each accounted for more than
ten percent of the  Partnership's  total rental income  (including rental income
from the Partnership's consolidated joint venture and the Partnership's share of
rental income from nine Properties  owned by  unconsolidated  joint ventures and
three  Properties  owned with  affiliates  as  tenants-in-common,  including one
Property  owned  as  tenants-in-common  which  was  sold in  October  1997).  In
subsequent years, it is anticipated that these three Restaurant Chains each will
continue to account for more than ten percent of the Partnership's  total rental
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.

         Operating expenses,  including  depreciation and amortization  expense,
were $478,614, $516,056 and $555,134 for the years ended December 31, 1997, 1996
and 1995,  respectively.  The decrease in  operating  expenses  during 1997,  as
compared  to 1996,  was  primarily  a result of a  decrease  in  accounting  and
administrative  expenses  associated  with  operating  the  Partnership  and its
Properties.  In addition,  the decrease in operating  expenses  during 1997,  as
compared to 1996,  was due to the fact that in July 1996, the  Partnership  sold
the Property in Colorado Springs, Colorado, as discussed above in "Liquidity and
Capital Resources," and in connection  therewith,  paid approximately  $9,000 in
1996 real estate taxes which were due upon the sale of the Property.  Because of
the sale, no real estate taxes were recorded in 1997.  The decrease in operating
expenses  during 1996, as compared to 1995,  was primarily  attributable  to the
fact that the Partnership accrued approximately $46,500 for current and past due
real estate taxes  relating to the  Properties  in Colorado  Springs and Pueblo,
Colorado,  during 1995. As described above, the amounts accrued during 1995 were
reversed  and recorded as other  income  during 1996.  No real estate taxes were
recorded  during 1996 relating to the Property in Pueblo,  Colorado,  due to the
fact that the new tenant is  responsible  for the real  estate  taxes  under the
terms of the assigned lease.

         The decrease in operating  expenses  during 1997,  as compared to 1996,
was also partially attributable to a decrease in depreciation expense due to the
sales of the Properties in Hartland,  Michigan and Colorado Springs, Colorado in
1996. The decrease in depreciation  expense was partially offset by the purchase
of the Property in Marietta, Georgia, in October 1996. The decrease in operating
expenses  during 1996,  as compared to 1995,  was  partially  attributable  to a
decrease in  depreciation  expense as a result of the demolition of the Property
in Daytona Beach, Florida, the sale of the Property in Florence, South Carolina,
and the sale of the Property in Jacksonville, Florida, during 1995.

         The decrease in operating  expenses  during 1996,  as compared to 1995,
was partially  offset by an increase in accounting and  administrative  expenses
associated  with operating the Partnership and its Properties and an increase in
insurance  expense as a result of the  General  Partners'  obtaining  contingent
liability and property coverage for the Partnership beginning in May 1995.

         As a result of the sale of the  Property in Columbus,  Indiana,  during
1997, as described  above in "Liquidity and Capital  Resources," the Partnership
recognized  a loss of $19,739 for  financial  reporting  purposes,  for the year
ended  December 31, 1997.  As a result of the sale of the Property in Dunnellon,
Florida,   as  described  above  in  "Liquidity  and  Capital   Resources,"  the
Partnership  recognized a gain for financial  reporting purposes of $183,701 for
the year ended December 31, 1997.

         As a result of the sale of the Property in Colorado Springs,  Colorado,
during 1996,  as  described  above in  "Liquidity  and Capital  Resources,"  the
Partnership  recognized a gain of $194,839 for financial  reporting purposes for
the year ended  December  31,  1996.  As a result of the sale of the Property in
Hartland, Michigan, as described above in "Liquidity and Capital Resources," the
Partnership  recognized a loss for financial  reporting purposes of $235,465 for
the year ended December 31, 1996.

         In  connection  with  the  sale  of its  Property  in  Florence,  South
Carolina,  during 1995, as described above in "Liquidity and Capital Resources,"
the Partnership recognized a gain for financial reporting purposes of $926, $836
and $1,421 for the years ended December 31, 1997,  1996 and 1995,  respectively.
In accordance with Statement of

                                       12

<PAGE>



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 $126,303 at December 31, 1997 is being  recognized as income in
future  periods as payments are collected.  For federal  income tax purposes,  a
gain of  approximately  $97,300 from the sale of this Property was also deferred
during 1995 and is being  recognized  as payments  under the  mortgage  note are
collected.

         In addition,  as a result of the sale of the Property in  Jacksonville,
Florida,  during 1995, as described above in "Liquidity and Capital  Resources,"
the Partnership recognized a loss for financial reporting purposes of $6,556 for
the year ended December 31, 1995. In addition,  as a result of the demolition of
the Property in Daytona  Beach,  Florida,  as described  above in "Liquidity and
Capital Resources," the Partnership  recognized a loss on demolition of building
for  financial  reporting  purposes of $174,466 for the year ended  December 31,
1995.

         The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on its computer package software. The
hardware  and  built-in  software  are  believed  to  be  year  2000  compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the  Partnership  conducts  business  nor its  current or future  results of
operations or financial position.

         The Partnership's leases as of December 31, 1997, are 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.

Item 8.   Financial Statements and Supplementary Data

                                       13

<PAGE>



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

                                    CONTENTS
                                    --------



                                                                    Page
                                                                    ----

Report of Independent Accountants                                    15

Financial Statements:

  Balance Sheets                                                     16

  Statements of Income                                               17

  Statements of Partners' Capital                                    18

  Statements of Cash Flows                                           19

  Notes to Financial Statements                                      22

                                       14

<PAGE>







                        Report of Independent Accountants
                        ---------------------------------



To the Partners
CNL Income Fund VII, Ltd.


We have audited the financial  statements and the financial  statement schedules
of CNL Income Fund VII,  Ltd.  (a Florida  limited  partnership)  listed in Item
14(a) of this Form 10-K.  These  financial  statements  and financial  statement
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  in  accordance  with  generally   accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of CNL Income Fund VII, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended  December 31, 1997 in conformity
with generally accepted accounting principles.  In addition, in our opinion, the
financial  statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.



/s/ Coopers & Lybrand L.L.P.
--------------------------------

Orlando, Florida
January 15, 1998

                                       15

<PAGE>



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

                                 BALANCE SHEETS
                                 --------------


                                                       December 31,
            ASSETS                              1997                 1996
            ------                              ----                 ----

Land and buildings on operating
  leases, less accumulated
  depreciation                               $15,382,863          $15,930,547
Net investment in direct financing
  leases                                       3,447,152            4,098,192
Investment in joint ventures                   3,393,932            1,789,238
Mortgage notes receivable, less
  deferred gain                                1,250,597            1,259,495
Cash and cash equivalents                        761,317            1,305,429
Receivables, less allowance for
  doubtful accounts of $32,959
  and $43,234                                     64,092               63,386
Prepaid expenses                                   4,755                4,654
Accrued rental income, less
  allowance for doubtful accounts
  of $9,845 and $10,786                        1,114,632            1,012,490
Other assets                                      60,422               60,422

                                             $25,479,762          $25,523,853


LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                             $     6,131          $     6,502
Escrowed real estate taxes
  payable                                          7,785                4,192
Distributions payable                            675,000              675,000
Due to related parties                            34,883                9,067
Rents paid in advance                             60,671               38,705
    Total liabilities                            784,470              733,466

Minority interest                                147,514              148,617

Partners' capital                             24,547,778           24,641,770

                                             $25,479,762          $25,523,853










                 See accompanying notes to financial statements.

                                       16

<PAGE>



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

                              STATEMENTS OF INCOME
                              --------------------

<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                              1997                1996               1995
                                              ----                ----               ----
<S> <C>
Revenues:
  Rental income from operating
    leases                                 $1,960,724          $1,954,033         $1,888,830
  Earned income from direct
    financing leases                          475,498             505,061            538,634
  Contingent rental income                     51,345              44,973             68,820
  Interest and other income                   183,579             240,079             84,390
                                            2,671,146           2,744,146          2,580,674

Expenses:
  General operating and
    administrative                            138,560             159,001            146,747
  Professional services                        23,546              27,640             27,379
  Bad debt expense                              4,613                  -               2,584
  Real estate taxes                             2,979               9,010             46,512
  State and other taxes                         4,560               2,448              2,562
  Depreciation and amortization               304,356             317,957            329,350
                                              478,614             516,056            555,134

Income Before Minority Interest
  in Income of Consolidated Joint
  Venture, Equity in Earnings of
  Unconsolidated Joint Ventures,
  Gain (Loss) on Sale of Land
  and Buildings and Loss on
  Demolition of Building                    2,192,532           2,228,090          2,025,540

Minority Interest in Income of
  Consolidated Joint Venture                  (18,663)            (18,691)           (18,728)

Equity in Earnings of Unconsoli-
  dated Joint Ventures                        267,251             157,254            154,937

Gain (Loss) on Sale of Land
  and Buildings                               164,888             (39,790)            (5,135)

Loss on Demolition of Building                     -                   -            (174,466)

Net Income                                 $2,606,008          $2,326,863         $1,982,148

Allocation of Net Income:
  General partners                         $   24,300          $   23,586         $   20,784
  Limited partners                          2,581,708           2,303,277          1,961,364

                                           $2,606,008          $2,326,863         $1,982,148

Net Income Per Limited Partner
  Unit                                     $    0.086          $    0.077         $    0.065

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


</TABLE>


                 See accompanying notes to financial statements.

                                       17

<PAGE>



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

                         STATEMENTS OF PARTNERS' CAPITAL

                  Years Ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>


                                 General Partners                           Limited Partners
                                 ----------------       ----------------------------------------------------------
                                          Accumu-                                       Accumu-
                              Contri-      lated        Contri-         Distri-          lated        Syndication
                              butions     Earnings      butions         butions         Earnings         Costs            Total
                              -------     --------      -------         -------         --------         -----            -----
<S> <C>
Balance, December 31, 1994     $1,000     $111,415    $30,000,000    $(12,077,621)    $11,137,967     $(3,440,000)     $25,732,761

  Distributions to limited
    partners ($0.090 per
    limited partner unit)          -            -              -       (2,700,002)             -               -        (2,700,002)
  Net income                       -        20,784             -               -        1,961,364              -         1,982,148

Balance, December 31, 1995      1,000      132,199     30,000,000     (14,777,623)     13,099,331      (3,440,000)      25,014,907

  Distributions to limited
    partners ($0.090 per
    limited partner unit)          -            -              -       (2,700,000)             -               -        (2,700,000)
  Net income                       -        23,586             -               -        2,303,277              -         2,326,863

Balance, December 31, 1996      1,000      155,785     30,000,000     (17,477,623)     15,402,608      (3,440,000)      24,641,770

  Distributions to limited
    partners ($0.090 per
    limited partner unit)          -            -              -       (2,700,000)             -               -        (2,700,000)
  Net income                       -        24,300             -               -        2,581,708              -         2,606,008

Balance, December 31, 1997     $1,000     $180,085    $30,000,000    $(20,177,623)    $17,984,316     $(3,440,000)     $24,547,778
                               ======     ========    ===========    ============     ===========     ===========      ===========

</TABLE>




                 See accompanying notes to financial statements.

                                       18

<PAGE>



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

                            STATEMENTS OF CASH FLOWS
                            ------------------------

<TABLE>
<CAPTION>

                                                     Year Ended December 31,
                                         1997                 1996                 1995
                                         ----                 ----                 ----
<S> <C>
Increase (Decrease) in Cash
  and Cash Equivalents:

    Cash Flows From Operating
      Activities:
        Cash received from
          tenants                    $ 2,500,189          $ 2,549,406          $ 2,399,249
        Distributions from
          unconsolidated
          joint ventures                 300,696              191,174              190,398
        Cash paid for expenses          (140,819)            (248,523)            (174,993)
        Interest received                180,393              178,812               69,884
            Net cash provided
              by operating
              activities               2,840,459            2,670,869            2,484,538

    Cash Flows From Investing
      Activities:
        Additions to land and
          buildings on opera-
          ting leases                         -            (1,041,555)                  -
        Proceeds from sale of
          land and buildings             976,334            1,661,943                   -
        Investment in joint
          ventures                    (1,650,905)                  -                    -
        Collections on mortgage
          notes receivable                 9,766                8,821               12,725
            Net cash provided
              by (used in)
              investing
              activities                (664,805)             629,209               12,725

    Cash Flows From Financing
      Activities:
        Distributions to
          limited partners            (2,700,000)          (2,700,000)          (2,760,002)
        Distributions to holder
          of minority interest           (19,766)             (19,723)             (17,240)
            Net cash used in
              financing
              activities              (2,719,766)          (2,719,723)          (2,777,242)

Net Increase (Decrease) in
  Cash and Cash Equivalents             (544,112)             580,355             (279,979)

Cash and Cash Equivalents at
  Beginning of Year                    1,305,429              725,074            1,005,053

Cash and Cash Equivalents at
  End of Year                        $   761,317          $ 1,305,429          $   725,074


</TABLE>



                 See accompanying notes to financial statements.

                                       19

<PAGE>



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

                      STATEMENTS OF CASH FLOWS - CONTINUED
                      ------------------------------------

<TABLE>
<CAPTION>

                                                                     Year Ended December 31,
                                                         1997                 1996                 1995
                                                         ----                 ----                 ----
<S> <C>
Reconciliation of Net Income
  to Net Cash Provided by
  Operating Activities:

    Net income                                       $ 2,606,008          $ 2,326,863          $ 1,982,148
    Adjustments to reconcile
      net income to net cash
      provided by operating
      activities:
        Depreciation                                     304,356              317,957              328,982
        Amortization                                          -                    -                   368
        Minority interest in
          income of consoli-
          dated joint venture                             18,663               18,691               18,728
        Loss (gain) on sale of
          land and buildings                            (164,888)              39,790                5,135
        Loss on demolition of
          building                                            -                    -               174,466
        Equity in earnings of
          unconsolidated joint
          ventures, net of
          distributions                                   33,445               33,920               35,461
        Decrease (increase) in
          receivables                                     17,173              (14,827)                 799
        Decrease (increase) in
          prepaid expenses                                  (101)                 379               (3,320)
        Decrease in net invest-
          ment in direct
          financing leases                                76,941               70,329               70,872
        Increase in accrued
          rental income                                 (102,142)            (104,639)            (169,520)
        Increase (decrease) in
          accounts payable and
          accrued expenses                                 3,222              (40,072)              46,367
        Increase (decrease) in
          due to related
          parties                                         25,816               (4,244)               6,111
        Increase (decrease) in
          rents paid in advance                           21,966               26,722              (12,059)
            Total adjustments                            234,451              344,006              502,390

Net Cash Provided by Operating
  Activities                                         $ 2,840,459          $ 2,670,869          $ 2,484,538
                                                     ===========          ===========          ===========
</TABLE>




                 See accompanying notes to financial statements.

                                       20

<PAGE>



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

                      STATEMENTS OF CASH FLOWS - CONTINUED
                      ------------------------------------


                                                Year Ended December 31,
                                       1997             1996            1995
                                       ----             ----            ----

Supplemental Schedule of
  Non-Cash Investing and
  Financing Activities:

    Mortgage notes accepted
      in exchange for sale of
      land and buildings           $       -        $        -      $ 1,400,000
                                   ===========      ===========     ===========

    Distributions declared and
      unpaid at December 31        $   675,000      $   675,000     $   675,000
                                   ===========      ===========     ===========







                       See accompanying notes to financial statements.

                                       21

<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                  Years Ended December 31, 1997, 1996 and 1995


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
         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.

                                       22

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


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.

         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. 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.  If an impairment is indicated,  the assets are
         adjusted to their fair value.

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

         The Partnership's investments in Halls Joint Venture, CNL
         Restaurant Investments II, Des Moines Real Estate Joint
         Venture  and  CNL  Mansfield  Joint Venture, and a property in

                                       23

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


1.       Significant Accounting Policies - Continued:

         Smithfield, North Carolina, and a property in Miami, Florida, for which
         each  of  the  two  properties  is  held  as   tenants-in-common   with
         affiliates,  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.  The  Partnership  limits  investment  of
         temporary cash investments to financial  institutions  with high credit
         standing;  therefore, the Partnership believes it is not exposed to any
         significant credit risk on cash and cash equivalents.

         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.



                                       24

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


1.       Significant Accounting Policies - Continued:

         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.  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.

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 13 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  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.





                                       25

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


3.       Land and Buildings on Operating Leases:

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

                                                 1997               1996
                                                 ----               ----

                  Land                        $ 8,430,465        $ 8,673,793
                  Buildings                     9,121,968          9,121,968
                                               17,552,433         17,795,761
                  Less accumulated
                    depreciation               (2,169,570)        (1,865,214)
                                              -----------        -----------

                                              $15,382,863        $15,930,547
                                              ===========        ===========

         In July 1996, the  Partnership  sold its property in Colorado  Springs,
         Colorado, for $1,075,000 and received net sales proceeds of $1,044,909,
         resulting in a gain of $194,839 for financial reporting purposes.  This
         property was  originally  acquired by the  Partnership in July 1990 and
         had a cost of approximately  $900,900,  excluding  acquisition fees and
         miscellaneous acquisition expenses; therefore, the Partnership sold the
         property for approximately  $144,000 in excess of its original purchase
         price.  In  October  1996,  the  Partnership  reinvested  the net sales
         proceeds  along with  additional  funds,  in a Boston  Market  property
         located in Marietta, Georgia.

         In addition,  in October  1996,  the  Partnership  sold its property in
         Hartland,  Michigan,  for $625,000  and received net sales  proceeds of
         $617,035,  resulting in a loss of approximately  $235,465 for financial
         reporting purposes.

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


                                       26

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


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,  1997,  1996 and 1995,  the  Partnership
         recognized  $102,142,  $104,639  and  $169,520,  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, 1997:

                  1998                                          $ 1,879,999
                  1999                                            1,891,776
                  2000                                            1,925,741
                  2001                                            2,022,708
                  2002                                            2,034,710
                  Thereafter                                     12,545,975
                                                                 ----------

                                                                $22,300,909
                                                                ===========

         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:

                                                    1997              1996
                                                    ----              ----

               Minimum lease payments
                 receivable                     $ 6,411,161       $ 7,824,101
               Estimated residual values          1,008,935         1,266,893
               Less unearned income              (3,972,944)       (4,992,802)
                                                -----------       -----------

               Net investment in direct
                 financing leases               $ 3,447,152       $ 4,098,192
                                                ===========       ===========

                                       27

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


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, 1997:

                  1998                                          $  495,609
                  1999                                             495,609
                  2000                                             495,609
                  2001                                             496,766
                  2002                                             496,766
                  Thereafter                                     3,930,802
                                                                 ---------

                                                                $6,411,161
                                                                ==========

         In October  1997,  the  Partnership  sold its  property  in  Dunnellon,
         Florida,  for $800,000 and received net sales  proceeds  (net of $5,055
         which represents  amounts due to the former tenant for prepaid rent) of
         $752,745,  resulting  in a gain of  $183,701  for  financial  reporting
         purposes.  This property was originally  acquired by the Partnership in
         August  1990  and  had a  cost  of  approximately  $546,300,  excluding
         acquisition fees and miscellaneous acquisition expenses; therefore, the
         Partnership sold the property for  approximately  $211,500 in excess of
         its original purchase price.

         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).

5.       Investment in Joint Ventures:

         The Partnership has a 51 percent interest, an 18 percent interest and a
         4.79%  interest in the profits and losses of Halls Joint  Venture,  CNL
         Restaurant  Investments  II and Des Moines Real Estate  Joint  Venture,
         respectively.  The remaining interests in these joint ventures are held
         by affiliates of the Partnership which have the same general partners.

         In  February  1997,  the  Partnership  entered  into  a  joint  venture
         arrangement,  CNL  Mansfield  Joint  Venture,  with an affiliate of the
         Partnership which has the same general partners, to hold one restaurant
         property in Mansfield,  Texas. As of December 31, 1997, the Partnership
         and its  co-venture  partner had  contributed  $616,245  and  $163,964,
         respectively,  to the joint venture to acquire the restaurant property.
         As of December 31, 1997, the  Partnership  and its  co-venture  partner
         owned a

                                       28

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


5.       Investment in Joint Ventures - Continued:

         79 percent and 21 percent  interest,  respectively,  in the profits and
         losses  of  the  joint  venture.   The  Partnership  accounts  for  its
         investment  in this joint  venture  under the equity  method  since the
         Partnership shares control with the affiliate.

         As of December 31, 1996,  the  Partnership  had a 48.33%  interest in a
         property in Yuma,  Arizona,  with an affiliate of the Partnership  that
         has the same general partners, as  tenants-in-common.  In October 1997,
         the  Partnership  and the  affiliate,  as  tenants-in-common,  sold the
         property in Yuma,  Arizona,  for a total sales price of $1,010,000  and
         received  net  sales  proceeds  of  $982,025  resulting  in a  gain  of
         approximately  $128,400 for financial reporting purposes.  The property
         was  originally  acquired  in  July  1994  and  had  a  total  cost  of
         approximately  $861,700,  excluding  acquisition fees and miscellaneous
         acquisition   expenses;   therefore,   the   property   was   sold  for
         approximately  $120,300 in excess of its original  purchase  price.  In
         December 1997, the Partnership  reinvested its portion of the net sales
         proceeds from the sale of the Yuma, Arizona, property, along with funds
         from the sale of a  wholly-owned  Property in Columbus,  Indiana,  in a
         property in Miami, Florida, as tenants-in-common with affiliates of the
         general  partners.  The Partnership  accounts for its investment in the
         property  in  Miami,  Florida,   using  the  equity  method  since  the
         Partnership shares control with affiliates, and amounts relating to its
         investment are included in investment in joint ventures. As of December
         31, 1997, the Partnership owned a 35.64% interest in the Miami, Florida
         property owned with affiliates as tenants-in-common.

         In December  1997, the  Partnership  acquired a property in Smithfield,
         North  Carolina as  tenants-in-common  with an affiliate of the general
         partners.  The Partnership accounts for its investment in this property
         using the equity method since the  Partnership  shares  control with an
         affiliate,  and amounts  relating  to its  investment  are  included in
         investment in joint ventures.  As of December 31, 1997, the Partnership
         owned a 53 percent interest in this property.



                                       29

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


5.       Investment in Joint Ventures - Continued:

         CNL  Restaurant  Investments  II owns and leases six  properties  to an
         operator of national fast-food or family-style  restaurants,  and Halls
         Joint Venture, Des Moines Real Estate Joint Venture and the Partnership
         and affiliates as tenants-in-common  in two 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 two properties  held as  tenants-in-common  with  affiliates at
         December 31:

                                                       1997             1996
                                                       ----             ----

                  Land and buildings on
                    operating leases, less
                    accumulated deprecia-
                    tion                           $10,892,405      $ 7,778,815
                  Cash                                     750            1,106
                  Receivables                           18,819           14,495
                  Accrued rental income                147,685          154,782
                  Other assets                           1,079            1,115
                  Liabilities                            8,625            1,216
                  Partners' capital                 11,052,113        7,949,097
                  Revenues                           1,012,624          911,833
                  Net income                           905,117          689,075

         The Partnership  recognized  income  totalling  $267,251,  $157,254 and
         $154,937  for the  years  ended  December  31,  1997,  1996  and  1995,
         respectively,  from these joint ventures and the two properties held as
         tenants-in-common with affiliates.

6.       Mortgage Notes Receivable:

         In  connection  with  the  sale  of its  property  in  Florence,  South
         Carolina,  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,  with a
         balloon payment of $1,106,657 due in July 2000.





                                       30

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


6.       Mortgage Notes Receivable - Continued:

         In  addition,  the  Partnership  accepted  a  promissory  note  in  the
         principal sum of $240,000 in  connection  with the sale of its property
         in Jacksonville,  Florida.  The note is collateralized by a mortgage on
         the  property.  The  promissory  note bears  interest  at a rate of ten
         percent  per  annum  and  is  being  collected  in  119  equal  monthly
         installments  of  $2,106,  with a balloon  payment of  $218,252  due in
         December 2005.

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

                                                    1997              1996
                                                    ----              ----

               Principal balance                 $1,368,688        $1,378,454
               Accrued interest receivable            8,212             8,270
               Less deferred gain on sale
                 of land and building              (126,303)         (127,229)
                                                  ---------         ---------

                                                 $1,250,597        $1,259,495
                                                 ==========        ==========

         The general partners believe that the estimated fair values of mortgage
         notes  receivable  at  December  31,  1997 and  1996,  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.

7.       Allocations and Distributions:

         Generally, all net income and net losses of the Partnership,  excluding
         gains and losses from the sale of properties,  are allocated 99 percent
         to the  limited  partners  and one  percent  to the  general  partners.
         Distributions  of net  cash  flow are 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  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").



                                       31

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995

7.       Allocations and Distributions - Continued:

         Generally,  net  sales  proceeds  from the sale of  properties,  to the
         extent  distributed,  will be 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  will  then  receive,   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 will be  distributed  95
         percent  to the  limited  partners  and  five  percent  to the  general
         partners.  Any  gain  from  the  sale of a  property  is,  in  general,
         allocated in the same manner as net sales  proceeds are  distributable.
         Any loss from the sale of a property is, 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.

         During  each of the  years  ended  December  31,  1997  and  1996,  the
         Partnership   declared   distributions   to  the  limited  partners  of
         $2,700,000,   and  during  the  year  ended   December  31,  1995,  the
         partnership   declared   distributions   to  the  limited  partners  of
         $2,700,002.  No distributions have been made to the general partners to
         date.



                                       32

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


8.       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>

                                               1997             1996              1995
                                               ----             ----              ----
<S> <C>
           Net income for financial
             reporting purposes             $2,606,008       $2,326,863        $1,982,148

           Depreciation for tax
             reporting purposes in
             excess of depreciation
             for financial reporting
             purposes                          (25,552)         (24,753)          (36,960)

           Gain or loss on sale of
             land and buildings for
             financial reporting
             purposes in excess of
             gain or loss for tax
             reporting purposes               (178,348)        (163,152)          174,513

           Direct financing leases
             recorded as operating
             leases for tax reporting
             purposes                           76,941           70,329            70,872

           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      (55,911)           1,420               (68)

           Accrued rental income              (102,142)        (104,639)         (169,520)

           Rents paid in advance                21,966           26,722           (12,059)

           Minority interest in
             timing differences of
             consolidated joint
             venture                               981              981             3,525

           Other                               (10,275)              -            (20,722)
                                            ----------       ----------        ----------

           Net income for federal
             income tax purposes            $2,333,668       $2,133,771        $1,991,729
                                            ==========       ==========        ==========
</TABLE>

                                          

                                       33

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


9.       Related Party Transactions:

         One of the individual general partners, James M. Seneff, Jr., is one of
         the principal  shareholders  of CNL Group,  Inc., the parent company of
         CNL Fund Advisors, Inc. The other individual general partner, Robert A.
         Bourne, served as president of CNL Fund Advisors,  Inc. through October
         1997. CNL Income Fund Advisors,  Inc. was a wholly owned  subsidiary of
         CNL Group,  Inc. until its merger,  effective January 1, 1996, with CNL
         Fund Advisors,  Inc. During the years ended December 31, 1997, 1996 and
         1995,  CNL  Income  Fund  Advisors  Inc.  and CNL Fund  Advisors,  Inc.
         (hereinafter   referred  to  collectively  as  the  "Affiliates")  each
         performed certain services for the Partnership, as described below.

         During  the years  ended  December  31,  1997,  1996 and 1995,  certain
         Affiliates acted as manager of the Partnership's properties pursuant to
         a management agreement with the Partnership.  In connection  therewith,
         the Partnership agreed to pay the Affiliates 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 property
         held as  tenants-in-common  with an  affiliate,  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 do not receive 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, 1997, 1996 and 1995.

         Certain   Affiliates   are  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
         Affiliates  provide 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  receipt  by the  limited  partners  of  their
         aggregate 10% Preferred Return, plus their adjusted capital


                                       34

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995

9.       Related Party Transactions - Continued:

         contributions. During the year ended December 31, 1995, the Partnership
         incurred $7,200 in deferred,  subordinated real estate disposition fees
         as a result of the Partnership's  sale of its Property in Jacksonville,
         Florida.  No deferred,  subordinated real estate  disposition fees were
         incurred for the years ended December 31, 1997 and 1996.

         During the years ended  December  31, 1997,  1996 and 1995,  Affiliates
         provided accounting and administrative services to the Partnership on a
         day-to-day basis. The Partnership incurred $77,078, $92,985 and $81,259
         for the years ended December 31, 1997, 1996 and 1995, respectively, for
         such services.

         The due to related parties consisted of the following at December 31:

                                                            1997         1996
                                                            ----         ----

                  Due to Affiliates:
                    Expenditures incurred on
                      behalf of the Partnership           $20,321      $    63
                    Accounting and administrative
                      services                              7,362        1,804
                    Deferred, subordinated real
                      estate disposition fee                7,200        7,200
                                                          -------      -------

                                                          $34,883      $ 9,067
                                                          =======      =======

10.      Concentration of Credit Risk:

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

                                                1997         1996        1995
                                                ----         ----        ----

                  Golden Corral
                    Corporation               $625,724     $608,852    $618,413
                  Restaurant Management
                    Services, Inc.             444,069      446,867     446,279
                  Flagstar Enterprises,
                    Inc.                       307,738      464,042     469,374

                                       35

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                    -----------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995


10.      Concentration of Credit Risk - Continued:

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

                                               1997         1996         1995
                                               ----         ----         ----

                  Golden Corral
                    Family Steakhouse
                    Restaurants              $625,724     $608,852     $618,413
                  Hardees                     447,074      524,625      548,221
                  Burger King                 466,626      478,901      486,944

         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. However, the general partners believe that the risk
         of such a default is reduced due to the  essential or important  nature
         of these properties for the on-going operations of the lessees.

                                       36

<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 Group,  Inc. and their
affiliates, all of which are affiliates of the General Partners.

         James M. Seneff, Jr., age 51, is a principal  stockholder of CNL Group,
Inc., a diversified  real estate company,  and has served as its Chairman of the
Board of Directors,  director and Chief Executive Officer since its formation in
1980.  CNL Group,  Inc.  is the  parent  company of CNL  Securities  Corp.,  CNL
Investment Company, CNL Fund Advisors,  Inc., CNL Real Estate Advisors, Inc. and
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL
Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a
director and registered  principal of CNL Securities Corp.,  which served as the
managing dealer in the Partnership's  offering of Units,  since its formation in
1979.  Mr.  Seneff also has held the position of President and a director of CNL
Management  Company,  a registered  investment  advisor,  since its formation in
1976,  has served as Chief  Executive  Officer and  Chairman of the Board of CNL
Investment  Company,  and Chief  Executive  Officer and Chairman of the Board of
Commercial Net Lease Realty,  Inc. since 1992, has served as the Chairman of the
Board and the Chief  Executive  Officer of CNL Realty  Advisors,  Inc. since its
inception in 1991 through  December 31, 1997, at which time CNL Realty Advisors,
Inc.  merged with Commercial Net Lease Realty,  Inc.,  served as Chairman of the
Board and Chief  Executive  Officer of CNL Income Fund Advisors,  Inc. since its
inception in 1994 through December 31, 1995, has served as a director,  Chairman
of the Board and Chief  Executive  Officer of CNL Fund Advisors,  Inc. since its
inception in 1994,  and has held the position of Chief  Executive  Officer and a
director of CNL Institutional  Advisors,  Inc., a registered investment advisor,
since its inception in 1990.  In addition,  Mr. Seneff has served as a director,
Chairman of the Board and Chief  Executive  Officer of CNL  American  Properties
Fund,  Inc. since 1994, and has served as a director,  Chairman of the Board and
Chief Executive  Officer of CNL American Realty Fund, Inc. since 1996 and of CNL
Real Estate Advisors,  Inc. since January 1997. 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.  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
joint  venturer in over 100 real  estate  ventures  involved  in the  financing,
acquisition,  construction and rental of office buildings,  apartment complexes,
restaurants,  hotels  and other  real  estate.  Included  in these  real  estate
ventures are approximately 65 privately offered real estate limited partnerships
in which Mr.  Seneff,  directly or through an affiliated  entity,  serves or has
served as a general partner. Also included are CNL Income Fund, Ltd., CNL Income
Fund II, Ltd.,  CNL Income Fund III,  Ltd., CNL Income Fund IV, Ltd., CNL Income
Fund V, Ltd., CNL Income Fund VI, Ltd.,  CNL Income Fund VIII,  Ltd., CNL Income
Fund IX, Ltd.,  CNL Income Fund X, Ltd.,  CNL Income Fund XI,  Ltd.,  CNL Income
Fund XII,  Ltd.,  CNL Income Fund XIII,  Ltd.,  CNL Income Fund XIV,  Ltd.,  CNL
Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII,  Ltd. and
CNL Income Fund XVIII,  Ltd. (the "CNL Income Fund  Partnerships"),  public real
estate limited  partnerships with investment  objectives similar to those of the
Partnership,  in which  Mr.  Seneff  serves  as a general  partner.  Mr.  Seneff
received his degree in Business  Administration from Florida State University in
1968.


                                       37

<PAGE>



         Robert A.  Bourne,  age 50, is  President  and  Treasurer of CNL Group,
Inc., President,  a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, and prior to its merger with
CNL Fund Advisors,  Inc.,  effective  January 1, 1996, CNL Income Fund Advisors,
Inc., and Chief Investment Officer,  Vice Chairman of the Board of Directors,  a
director  and  Treasurer  of CNL  Institutional  Advisors,  Inc.,  a  registered
investment  advisor.  Mr.  Bourne  served  as  President  of  CNL  Institutional
Advisors,  Inc. from the date of its inception  through June 30, 1997 and served
as President of CNL Fund Advisors,  Inc. from the date of its inception  through
October 1997.  Mr. Bourne also has served as a director since 1992, as President
from July 1992 to February  1996, as Secretary and Treasurer  from February 1996
through  December 1997, and since February 1996,  served as Vice Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc. In addition,  Mr. Bourne
has served as a director  since its inception in 1991, as President from 1991 to
February  1996, as Secretary from February 1996 to July 1996, and since February
1996, served as Treasurer and Vice Chairman of CNL Realty Advisors, Inc. through
December  31,  1997,  at which  time  CNL  Realty  Advisors,  Inc.  merged  with
Commercial  Net Lease  Realty,  Inc.  In  addition,  Mr.  Bourne  has  served as
President and a director of CNL American  Properties  Fund, Inc. since 1994, and
has served as President and a director of CNL American  Realty Fund,  Inc. since
1996 and of CNL Real Estate  Advisors,  Inc. since January 1997. Upon graduation
from Florida State  University in 1970,  where he received a B.A. in Accounting,
with honors,  Mr.  Bourne  worked as a certified  public  accountant  and,  from
September  1971  through  December  1978,  was  employed  by  Coopers & Lybrand,
Certified  Public  Accountants,  where  he  held  the  position  of tax  manager
beginning in 1975.  From January 1979 until June 1982,  Mr. Bourne was a partner
in the  accounting  firm of Cross & Bourne  and from July 1982  through  January
1987, he was a partner in the accounting firm of Bourne & Rose, P.A.,  Certified
Public  Accountants.  Mr. Bourne,  who joined CNL Securities  Corp. in 1979, has
participated  as a general  partner or joint  venturer  in over 100 real  estate
ventures  involved in the  financing,  acquisition,  construction  and rental of
office  buildings,  apartment  complexes,  restaurants,  hotels  and other  real
estate.  Included in these real estate ventures are  approximately  64 privately
offered  real  estate  limited  partnerships  in which Mr.  Bourne,  directly or
through an affiliated  entity,  serves or has served as a general partner.  Also
included  are the CNL Income  Fund  Partnerships,  public  real  estate  limited
partnerships with investment objectives similar to those of the Partnership,  in
which Mr. Bourne serves as a general partner.

         CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida.  Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners.  CNL
Realty  Corporation  was organized to serve as the corporate  general partner of
real estate limited partnerships,  such as the Partnership,  organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.

         CNL  Fund  Advisors,  Inc.  provides  certain  management  services  in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation  organized  in 1994 under the laws of the State of Florida,  and its
principal  office is located at 400 East South Street,  Orlando,  Florida 32801.
CNL Fund  Advisors,  Inc. is a wholly  owned  subsidiary  of CNL Group,  Inc., a
diversified  real  estate  company,   and  was  organized  to  perform  property
acquisition, property management and other services.

         CNL  Group,  Inc.,  which is the parent  company of CNL Fund  Advisors,
Inc.,  was organized in 1980 under the laws of the State of Florida.  CNL Group,
Inc. is a diversified  real estate  company which  provides a wide range of real
estate,  development  and  financial  services to companies in the United States
through the  activities  of its  subsidiaries.  These  activities  are primarily
focused  on the  franchised  restaurant  and  hospitality  industries.  James M.
Seneff,  Jr., an individual General Partner of the Partnership,  is the Chairman
of the Board,  Chief Executive  Officer,  and a director of CNL Group,  Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.

         The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or  subsidiaries  in the discretion of the Boards of Directors of
those companies,  but, except as specifically indicated, do not serve as members
of the Boards of Directors of those  entities.  The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.



                                       38

<PAGE>



         Curtis B. McWilliams,  age 42, joined CNL Fund Advisors,  Inc. in April
1997 and  currently  serves  as  President  of CNL Fund  Advisors,  Inc.  and as
Executive Vice President of CNL American Properties Fund, Inc. In addition,  Mr.
McWilliams  serves  as  Executive  Vice  President  of CNL  Group,  Inc.  and as
President of CNL Financial Services,  Inc. and certain other subsidiaries of CNL
Group,  Inc. From September 1983 through March 1997, Mr. McWilliams was employed
by Merrill  Lynch.  From  January  1991 to August  1996,  Mr.  McWilliams  was a
managing director in the corporate  banking group of Merrill Lynch's  investment
banking division.  During this time, he was a senior  relationship  manager with
Merrill  Lynch and as such was  responsible  for a number of the  firm's  larger
clients.  From February 1990 to February  1993, he also served as co-head of one
of the  Industrial  Banking  Groups within Merrill  Lynch's  investment  banking
division and had administrative responsibility for a group of bankers and client
relationships, including the firm's transportation group. From September 1996 to
March  1997,  Mr.  McWilliams  served as  Chairman  of Merrill  Lynch's  Private
Advisory Services. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton  University  in 1977 and a Masters of Business  Administration  with a
concentration in finance from the University of Chicago in 1983.

         John T. Walker,  age 39, is the Chief  Operating  Officer and Executive
Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc.
and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL
Real Estate  Advisors,  Inc. 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 B.S. in Accountancy and is a certified  public
accountant.

         Lynn E. Rose,  age 49, a  certified  public  accountant,  has served as
Chief  Financial  Officer of CNL Group,  Inc. since December 1993, has served as
Secretary of CNL Group,  Inc. since 1987, and served as Controller of CNL Group,
Inc. from 1987 until  December  1993. In addition,  Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services,  Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, served as a director and Secretary of CNL Realty Advisors,  Inc. since its
inception in 1991 through  December 31, 1997, at which time CNL Realty Advisors,
Inc.  merged with  Commercial  Net Lease Realty,  Inc.,  Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial
Net Lease Realty, Inc. from 1992 to February 1996,  Secretary of CNL Income Fund
Advisors,  Inc.  since its inception in 1994 to December  1995,  and a director,
Secretary and Treasurer of CNL Fund Advisors,  Inc. since 1994 and has served as
a director,  Secretary and  Treasurer of CNL Real Estate  Advisors,  Inc.  since
January  1997.  Ms.  Rose also has  served as  Secretary  and  Treasurer  of CNL
American  Properties  Fund,  Inc.  since 1994,  and has served as Secretary  and
Treasurer of CNL American  Realty Fund, Inc. since 1996. Ms. Rose also currently
serves as Secretary  for  approximately  50  additional  corporations.  Ms. Rose
oversees the management information services, administration,  legal compliance,
accounting,   tenant  compliance,  and  reporting  for  over  300  corporations,
partnerships,  and joint ventures.  Prior to joining CNL, Ms. Rose was a partner
with Robert A. Bourne in the accounting firm of Bourne & Rose,  P.A.,  Certified
Public  Accountants.  Ms. Rose holds a B.A. in Sociology  from the University of
Central Florida. She was licensed as a certified public accountant in 1979.



                                       39

<PAGE>



         Jeanne A. Wall,  age 39, has served as Chief  Operating  Officer of CNL
Investment  Company and of CNL  Securities  Corp.  since  November  1994 and has
served as Executive Vice President of CNL Investment Company since January 1991.
In 1984,  Ms. Wall joined CNL  Securities  Corp.  In 1985,  Ms. Wall became Vice
President of CNL Securities Corp., in 1987, she became Senior Vice President and
in July 1997, she became  Executive  Vice  President of CNL Securities  Corp. In
this  capacity,  Ms. Wall serves as national  marketing  and sales  director and
oversees  the  national  marketing  plan  for the CNL  investment  programs.  In
addition, Ms. Wall oversees product development,  partnership administration and
investor  services for  programs  offered  through  participating  brokers,  and
corporate  communications for CNL Group, Inc. and Affiliates.  Ms. Wall also has
served  as  Senior  Vice  President  of  CNL  Institutional  Advisors,  Inc.,  a
registered  investment  advisor,  from 1990 to 1993,  as Vice  President  of CNL
Realty  Advisors,  Inc.  since  its  inception  in 1991  through  1997,  as Vice
President of  Commercial  Net Lease  Realty,  Inc.  from 1992 through  1997,  as
Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as Executive
Vice President of CNL American  Properties  Fund,  Inc. since 1994. In addition,
Ms. Wall has served as Executive  Vice  President  of CNL Real Estate  Advisors,
Inc. since January 1997 and as Executive  Vice President of CNL American  Realty
Fund,  Inc.  since 1996. Ms. Wall holds a B.A. in Business  Administration  from
Linfield College and is a registered  principal of CNL Securities Corp. Ms. Wall
currently serves as a trustee on the board of the Investment Program Association
and on the Direct  Participation  Program committee for the National Association
of Securities Dealers (NASD).

         Steven D. Shackelford, age 34, has served as Chief Financial Officer of
CNL Fund Advisors,  Inc. since September 1996 and as Chief Financial  Officer of
CNL American  Properties  Fund, Inc. since January 1997. From March 1995 to July
1996, he was a senior manager in the national office of Price  Waterhouse  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 served
as a manager in the Price  Waterhouse,  Paris,  France  office  serving  several
multinational  clients. Mr. Shackelford was an audit staff and audit senior from
1986 to 1992 in the Orlando, Florida office of Price Waterhouse.  Mr Shackelford
received  a  B.A.  in  Accounting,  with  honors,  and  a  Masters  of  Business
Administration   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 February 28, 1998, 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 February 28, 1998, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>

                                                            Amount and Nature of
        Title of Class              Name of Partner         Beneficial Ownership     Percent of Class
        --------------              ---------------         --------------------     ----------------
<S> <C>
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.  There are no  arrangements
which at a subsequent date may result in a change in control of the Registrant.


                                       40

<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, 1997,  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>

                                                                                              Amount Incurred
         Type of Compensation                                                                  For the Year
              and Recipient                       Method of Computation                   Ended December 31, 1997
         --------------------                     ---------------------                   -----------------------
<S> <C>
Reimbursement  to affiliates  for        Operating  expenses are  reimbursed      Operating expenses  incurred  on
operating  expenses                      at the lower of cost or 90  percent      behalf of the Partnership:
                                         of the prevailing rate at which          $74,968
                                         comparable services could have
                                         been obtained in the same                Accounting and administrative
                                         geographic area.  Affiliates of the      services: $77,078
                                         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-            One percent of the sum of gross            $ - 0 -
ment fee to 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   Property   owned   with  an
                                         affiliate     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
                                         do  not  receive  their  10%  Preferred
                                         Return  in  any  particular   year,  no
                                         management  fees will be due or payable
                                         for such year.

</TABLE>





                                       41

<PAGE>



<TABLE>
<CAPTION>


                                                                                              Amount Incurred
         Type of Compensation                                                                  For the Year
              and Recipient                       Method of Computation                   Ended December 31, 1997
         --------------------                     ---------------------                   -----------------------
<S> <C>
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, sub-
ordinated share of Partnership net       A deferred, subordinated share                    $ - 0 -
cash flow                                equal to one percent of Partnership
                                         distributions of net cash flow,
                                         subordinated to certain minimum
                                         returns to the Limited Partners.

General Partners' deferred, sub-         A deferred, subordinated share
ordinated share of Partnership net       equal to five percent of                          $ - 0 -
sales proceeds from a sale or sales      Partnership distributions of such
                                         net sales proceeds, subordinated to
                                         certain minimum returns to the
                                         Limited Partners.
</TABLE>






                                       42

<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 Accountants

                  Balance Sheets at December 31, 1997 and 1996

                  Statements of Income for the years ended December 31, 1997,
                  1996 and 1995

                  Statements of Partners' Capital for the years ended December
                  31, 1997, 1996 and 1995

                  Statements of Cash Flows for the years ended December 31,
                  1997, 1996 and 1995

                  Notes to Financial Statements

          2.  Financial Statement Schedules

                  Schedule         II - Valuation  and  Qualifying  Accounts for
                                   the years ended  December 31, 1997,  1996 and
                                   1995

                  Schedule III - Real Estate and Accumulated Depreciation at
                  December 31, 1997

                  Notes to Schedule III - Real Estate and Accumulated
                  Depreciation at December 31, 1997

                  Schedule IV - Mortgage Loans on Real Estate at December 31,
                  1997

                  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 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 3.1 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.)


                                       43

<PAGE>



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

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

                  27       Financial Data Schedule (Filed herewith.)

          (b)     The Registrant  filed no reports on Form 8-K during the period
                  from October 1, 1997 through December 31, 1997.

                                       44

<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 13th day of
March, 1998.

                                    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>


               Signature                                  Title                                    Date
<S> <C>
/s/ Robert A. Bourne                     President, Treasurer and  Director                   March 13, 1998
---------------------------------        (Principal  Financial  and Accounting
Robert A. Bourne                         Officer)


/s/ James M. Seneff, Jr.                 Chief Executive Officer and Director                 March 13, 1998
---------------------------------       (Principal Executive  Officer)
James M. Seneff, Jr.

</TABLE>



<PAGE>



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

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                 -----------------------------------------------

                  Years Ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>


                                                              Additions                           Deductions
                                                      -----------------------------       -------------------------
                                                                                                          Collected
                                                                                                          or Deter-
                                    Balance at        Charged to         Charged to        Deemed         mined to        Balance
                                     Beginning         Costs and           Other          Uncollec-        be Col-        at End
Year     Description                  of Year          Expenses           Accounts          tible         lectible        of Year
----     -----------                  -------          --------           --------          -----         --------        -------
<S> <C>

1995     Allowance for
           doubtful
           accounts (a)             $177,042          $    886           $304,609(b)     $ 11,747        $    492        $470,298
                                    ========          ========           ========        ========        ========        ========


1996     Allowance for
           doubtful
           accounts (a)             $470,298          $     -            $ 11,187(b)     $412,202        $ 15,263        $ 54,020
                                    ========          ========           ========        ========        ========        ========


1997  Allowance for
        doubtful
        accounts (a)                $ 54,020          $     -            $  5,000(b)     $ 10,497        $  5,719        $ 42,804
                                    ========          ========           ========        ========        ========        ========
</TABLE>


         (a) Deducted from  receivables and accrued rental income on the balance
sheet.

         (b) Reduction of rental, earned and other income.



                                       F-1

<PAGE>



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

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
             -------------------------------------------------------

                                December 31, 1997


<TABLE>
<CAPTION>

                                                                                                 Costs Capitalized
                                                                                                    Subsequent
                                                                   Initial Cost                   To Acquisition
                                                           --------------------------         ----------------------
                                                                           Buildings
                                           Encum-                             and             Improve-      Carrying
                                          brances           Land          Improvements         ments         Costs
                                          -------           ----          ------------         -----         -----
<S> <C>
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               -            -
      Maryville, Tennessee                     -            419,766            545,880               -            -
      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, Florida                 -            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 Restaurants:
      Friendswood, Texas                       -            161,906                 -                -            -
      Arcadia, Florida                         -            175,020            333,759               -            -

</TABLE>


<PAGE>



<TABLE>
<CAPTION>

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





        $  534,421           $  507,133        $ 1,041,554          $   19,768          1994           10/96            (b)


           216,633              546,967            763,600             138,365          1988           01/90            (b)
           419,766              545,880            965,646             139,436          1986           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              28,915          1983           01/91            (b)
           149,701                   -             149,701                  -           1985           01/91            (i)



           502,364              815,831          1,318,195             210,998          1990           03/90            (b)
           481,748              857,185          1,338,933             221,146          1990           04/90            (b)
           745,506              802,132          1,547,638             194,783          1990           05/90            (b)
           503,799              890,878          1,394,677             218,774          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              94,510          1990           05/90            (b)


           161,906                   (f)           161,906                  -           1990           06/90            (d)
           175,020              333,759            508,779              82,388          1985           08/90            (b)
</TABLE>

                                       F-2

<PAGE>



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

       SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

                                December 31, 1997

<TABLE>
<CAPTION>


                                                                                             Costs Capitalized
                                                                                                 Subsequent
                                                           Initial Cost                       To Acquisition
                                                                         Buildings
                                         Encum-                             and             Improve-      Carrying
                                        brances           Land          Improvements         ments         Costs
<S> <C>
    Popeyes Famous Fried
      Chicken Restaurants:
        Jacksonville, Florida                -            128,398            139,768          136,262           -
        Lake City, Florida                   -            130,300            254,747          139,099           -
        Jacksonville, Florida                -            142,490            137,396          134,259           -
        Brunswick, Georgia                   -            104,720            251,955          150,888           -

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

    Shoney's Restaurants:
      Pueblo, Colorado                       -            492,230            559,769               -            -
      Saddlebrook, Florida                   -            427,238                 -           765,532           -

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

                                                       $8,430,465         $5,271,651       $3,850,317     $     -

Property of Joint Venture
  in Which the Partnership
  has a 51% Interest and has
  Invested in Under an
  Operating Lease:

    Burger King Restaurant:
      Knoxville, Tennessee                   -         $  283,961         $  430,406       $       -      $     -

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       $       -      $     -

</TABLE>

<PAGE>








<TABLE>
<CAPTION>



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

<S> <C>

           128,398              276,030            404,428              68,855          1985           04/90            (b)
           130,300              393,846            524,146              98,674          1985           04/90            (b)
           142,490              271,655            414,145              67,995          1985           04/90            (b)
           104,720              402,843            507,563              98,627          1974           04/90            (b)


           281,880              243,610            525,490              56,776          1990           01/91            (b)


           492,230              559,769          1,051,999             137,616          1989           08/90            (b)
           427,238              765,532          1,192,770             193,096          1990           04/90            (b)


           168,429              402,674            571,103              98,848          1990           06/90            (b)

        $8,430,465           $9,121,968        $17,552,433          $2,169,570








        $  283,961          $   430,406        $   714,367          $  113,341          1985           01/90            (b)








        $  345,696          $   651,985        $   997,681          $  136,114          1986           09/91            (b)
           350,479              623,615            974,094             130,190          1986           09/91            (b)
           277,192              982,200          1,259,392             205,051          1987           09/91            (b)
           174,019              986,879          1,160,898             206,028          1988           09/91            (b)
           264,239              662,265            926,504             138,259          1988           09/91            (b)
           155,553              657,159            812,712             137,193          1990           09/91            (b)

        $1,567,178          $ 4,564,103        $ 6,131,281          $  952,835
</TABLE>

                                       F-3

<PAGE>



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

       SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

                                December 31, 1997


<TABLE>
<CAPTION>

                                                                                                 Costs Capitalized
                                                                                                      Subsequent
                                                                Initial Cost                       To Acquisition
                                                                             Buildings
                                             Encum-                             and             Improve-      Carrying
                                            brances           Land          Improvements         ments         Costs
<S> <C>
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 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 Carolina                 -         $  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       $       -      $     -

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               -            -

</TABLE>



<PAGE>








<TABLE>
<CAPTION>



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

<S> <C>





        $  322,726          $   791,658        $ 1,114,384          $  137,507          1992           10/92            (b)







        $  297,295          $   482,914        $   780,209          $   12,778          1997           02/97            (b)







        $  264,272          $ 1,155,018        $ 1,419,290          $      949          1996           12/97            (b)







        $  976,357          $   974,016        $ 1,950,373          $       89          1995           12/97            (b)






             -                   (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)


</TABLE>


                                       F-4

<PAGE>



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

       SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

                                December 31, 1997


<TABLE>
<CAPTION>

                                                                                              Costs Capitalized
                                                                                                 Subsequent
                                                              Initial Cost                      To Acquisition
                                                                         Buildings
                                         Encum-                             and             Improve-      Carrying
                                        brances           Land          Improvements         ments         Costs
<S> <C>
    KFC Restaurants:
      Friendswood, Texas                     -                 -                  -           359,055           -

    Popeyes Famous Fried
      Chicken Restaurant:
        Jacksonville, Florida                -             78,842            146,035          142,348           -

                                                       $   78,842         $2,885,752       $  834,615     $     -

</TABLE>

<PAGE>








<TABLE>
<CAPTION>



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

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



             (f)                    (f)             (f)                 (e)             1985           04/90               (e)

                                                                  F-5
</TABLE>

<PAGE>



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

        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 1997


(a)      Transactions in real estate and accumulated  depreciation  during 1997,
         1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>

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

                      Balance, December 31, 1994       $19,700,344           $1,530,089
                      Dispositions                      (1,612,306)            (172,952)
                      Depreciation expense                      -               328,982

                      Balance, December 31, 1995        18,088,038            1,686,119
                      Acquisitions                       1,041,554                   -
                      Dispositions                      (1,333,831)            (138,862)
                      Depreciation expense                      -               317,957

                      Balance, December 31, 1996        17,795,761            1,865,214
                      Dispositions                        (243,328)                  -
                      Depreciation expense                      -               304,356

                      Balance, December 31, 1997       $17,552,433           $2,169,570


                  Property of Joint Venture in
                    Which the Partnership has a 51%
                    Interest and has Invested in
                    Under an Operating Lease:

                      Balance, December 31, 1994       $   714,367           $   70,300
                      Depreciation expense                      -                14,347

                      Balance, December 31, 1995           714,367               84,647
                      Depreciation expense                      -                14,347

                      Balance, December 31, 1996           714,367               98,994
                      Depreciation expense                      -                14,347

                      Balance, December 31, 1997       $   714,367           $  113,341

</TABLE>


                                       F-6

<PAGE>



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

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

                                December 31, 1997

<TABLE>
<CAPTION>

                                                                              Accumulated
                                                              Cost            Depreciation
<S> <C>
                  Properties of Joint Venture in
                    Which the Partnership has
                    an 18% Interest and has
                    Invested in Under Operating
                    Leases:

                      Balance, December 31, 1994          $ 6,131,281           $  496,424
                      Depreciation expense                         -               152,137

                      Balance, December 31, 1995            6,131,281              648,561
                      Depreciation expense                         -               152,137

                      Balance, December 31, 1996            6,131,281              800,698
                      Depreciation expense                         -               152,137

                      Balance, December 31, 1997          $ 6,131,281           $  952,835


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

                      Balance, December 31, 1994          $ 1,114,384           $   58,341
                      Depreciation expense                         -                26,388

                      Balance, December 31, 1995            1,114,384               84,729
                      Depreciation expense                         -                26,389

                      Balance, December 31, 1996            1,114,384              111,118
                      Depreciation expense                         -                26,389

                      Balance, December 31, 1997          $ 1,114,384           $  137,507


                  Property in Which the Partnership
                    has a 48.33% Interest as
                    Tenants-in-Common and has
                    Invested in Under an Operating
                    Lease:

                      Balance, December 31, 1994          $   881,033           $    9,720
                      Depreciation expense                         -                20,860

                      Balance, December 31, 1995              881,033               30,580
                      Depreciation expense                         -                20,860

                      Balance, December 31, 1996              881,033               51,440
                      Depreciation expense                         -                17,383
                      Dispositions                           (881,033)             (68,823)

                      Balance, December 31, 1997          $        -            $       -

</TABLE>


                                       F-7

<PAGE>



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

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

                                December 31, 1997
<TABLE>
<CAPTION>


                                                                            Accumulated
                                                            Cost            Depreciation
<S> <C>
                  Property of Joint Venture in
                    Which the Partnership has
                    an 79% Interest and has
                    Invested in Under Operating
                    Leases:

                      Balance, December 31, 1996        $        -            $       -
                      Acquisitions                          780,209                   -
                      Depreciation expense                       -                12,778

                      Balance, December 31, 1997        $   780,209           $   12,778


                  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, 1996        $        -            $       -
                      Acquisitions                        1,419,290                   -
                      Depreciation expense                       -                   949

                      Balance, December 31, 1997        $ 1,419,290           $      949


                  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, 1996        $        -            $       -
                      Acquisitions                        1,950,373                   -
                      Depreciation expense                       -                    89

                      Balance, December 31, 1997        $ 1,950,373           $       89
</TABLE>


















                                       F-8

<PAGE>



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

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

                                December 31, 1997



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

(c)      As of December 31, 1997, the aggregate cost of the Properties  owned by
         the  Partnership   and  its   consolidated   joint  venture,   and  the
         unconsolidated   joint   ventures   (including  the  Property  held  as
         tenants-in-common)  for federal income tax purposes was $21,303,689 and
         $10,187,585,  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 lease; 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.

















                                       F-9

<PAGE>



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

                   SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

                                December 31, 1997


<TABLE>
<CAPTION>
                                                                                                                        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      or Interest
<S> <C>
Perkins - Florence, SC
First Mortgage                       10.25%        July, 2000          (1)      $  -       $1,160,000    $1,011,428      $      -

Church's - Jacksonville, FL
First Mortgage                       10.00%       December, 2005       (2)         -          240,000       239,169             -

    Total                                                                       $  -       $1,400,000    $1,250,597(3)   $      -
</TABLE>



(1)      Monthly payments of principal and interest at an annual rate of 10.25%,
         with a balloon payment at maturity of $1,106,657.

(2)      Monthly payments of principal and interest at an annual rate of 10.00%,
         with a balloon payment at maturity of $218,252.

(3)      The tax carrying value of the notes is approximately $1,279,215,  which
         is net of deferred gain of $95,933.

(4) The changes in the carrying amounts are summarized as follows:
<TABLE>
<CAPTION>

                                                   1997                 1996                 1995
<S> <C>
         Balance at beginning of period         $1,259,495           $1,267,849           $       -

         New mortgage loans                             -                    -             1,400,000

         Interest earned                           140,188              140,822               47,887

         Collection of principal and
           interest                               (150,012)            (150,012)             (51,973)

         Deferred gain on sale of land
           and building                                 -                    -              (128,065)

         Recognition of deferred gain
           on sale of land and building                926                  836                   -

         Balance at end of period               $1,250,597           $1,259,495           $1,267,849
</TABLE>


                                      F-10

<PAGE>



                                    EXHIBITS


<PAGE>


                                  EXHIBIT INDEX


Exhibit Number                                                             Page

      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  3.1 to  Registration
                  Statement No. 33-31482 on Form S-11 and incorporated herein by
                  reference.)

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

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

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

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

        27                 Financial Data Schedule (Filed herewith.)

                                        i