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, 2002

                                       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 o             (I.R.S. Employer Identification No.)
  incorporation or organization)

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

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

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

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

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

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

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

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

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Exchange Act Rule 12b-2): Yes____ No X - -----

         Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 30,000,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market 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,   totaled
$26,550,000, and were used to acquire 42 Properties, including interests in nine
Properties  owned by joint  ventures in which the  Partnership is a co-venturer,
and to establish a working capital reserve for Partnership purposes.

         As of December 31, 1999, the Partnership  owned 27 Properties  directly
and held  interests in 13 Properties  through joint venture or tenancy in common
arrangements.  During the year ended December 31, 2000, the Partnership sold its
Property  in  Pueblo,   Colorado  and  reinvested  the  net  sales  proceeds  as
tenants-in-common, with affiliates of the General Partners, to purchase and hold
one restaurant  Property in Colorado  Springs,  Colorado.  The Partnership  also
liquidated  Halls Joint  Venture and used the pro rata share of the  liquidation
proceeds it received to enter into a joint venture arrangement,  TGIF Pittsburgh
Joint Venture, to purchase and hold one restaurant Property. In addition, during
2000, the Partnership sold its three Properties in  Jacksonville,  Florida;  one
Property  in Lake City,  Florida;  one  Property in  Brunswick,  Georgia and one
Property in  Friendswood,  Texas.  In  addition,  during 2000,  the  Partnership
purchased an additional interest in Duluth Joint Venture from CNL Income Fund V,
Ltd. and CNL Income Fund XV, Ltd.,  affiliates of the General  Partners.  During
the year ended  December  31, 2001,  the  Partnership  purchased  an  additional
interest in TGIF Pittsburgh  Joint Venture from CNL Income Fund XVIII,  Ltd., an
affiliate of the General Partners.  During 2001, the Partnership  reinvested the
net  sales  proceeds  from  the  sale  of  three  of  its  Properties   (two  in
Jacksonville,  Florida  and one in Lake City,  Florida)  in a Property  in Baton
Rouge,  Louisiana that was acquired from CNL Funding 2001-A, LP, an affiliate of
the General  Partners.  The Partnership  also used the proceeds from the sale of
the Property in  Friendswood,  Texas and the proceeds from the  promissory  note
related to the 1995 sale of the Property in Florence,  South  Carolina to invest
in CNL VII & XVII  Lincoln  Joint  Venture  with  an  affiliate  of the  General
Partners to purchase and hold one  restaurant  Property  and used the  remaining
proceeds  from the  promissory  note to invest  in CNL VII,  XV  Columbus  Joint
Venture  with an affiliate  of the General  Partners to  construct  and hold one
restaurant  Property.  In  addition,  during  2001,  the  Partnership  sold  its
Properties  in  Daytona  Beach,  Gainesville,   and  Saddlebrook,   Florida.  In
connection  with  the  sale of the  Property  in  Daytona  Beach,  Florida,  the
Partnership accepted a promissory note in the principal sum of $103,581.  During
2002, the Partnership collected the outstanding principal balance in full.

         During the year ended December 31, 2002, CNL Restaurant Investments II,
in which the  Partnership  owns an 18% interest,  sold its Property in Columbus,
Ohio and used the proceeds from the sale to acquire a Property in Dallas, Texas.
In addition,  during 2002,  CNL  Restaurant  Investments II sold its property in
Pontiac,  Michigan and the  Partnership  used a portion of the return of capital
for its pro-rata  share of the net sales  proceeds  relating to this Property to
make an additional  contribution of approximately $63,900 to CNL Mansfield Joint
Venture.  In 2002, the Partnership also used a portion of the net sales proceeds
from the 2001 sale of its  properties in  Saddlebrook,  Gainesville  and Daytona
Beach,  Florida  to enter  into a joint  venture  arrangement,  Arlington  Joint
Venture,  with an  affiliate  of the General  Partners,  to hold one  restaurant
property.   Also  during  2002,  CNL  Mansfield  Joint  Venture,  in  which  the
Partnership  owns a 79%  interest,  sold its  Property in  Mansfield,  Texas and
reinvested the proceeds in a Property in Arlington, Texas.


<PAGE>


         As of December 31, 2002, the Partnership  owned 18 Properties  directly
and held interests in 17 Properties  indirectly through joint venture or tenancy
in common arrangements.  The Properties are, in general,  leased on a triple-net
basis with the lessees  responsible  for all repairs and  maintenance,  property
taxes, insurance and utilities.

         The  Partnership  holds  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  consider  factors such as potential  capital
appreciation,  net cash flow and  federal  income  tax  considerations.  Certain
lessees also have been granted options to purchase Properties,  generally at the
Property's  then fair market  value after a specified  portion of the lease term
has elapsed.  The  Partnership has no obligation to sell all or any portion of a
Property  at any  particular  time,  except as may be  required  under  property
purchase options granted to certain lessees.

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 six to 20 years (the  average  being 16 years),  and expire
between 2004 and 2022. Generally, the leases are on a triple-net basis, with the
lessee  responsible for all repairs and maintenance,  property taxes,  insurance
and  utilities.  The leases of the  Properties  provide for minimum  base annual
rental payments  (payable in monthly  installments)  ranging from  approximately
$30,000 to $259,900.  The majority of the leases  provide for  percentage  rent,
based on sales in excess of a specified amount. In addition,  some of the leases
provide that,  commencing in specified lease years  (generally  ranging from the
sixth to the eleventh lease year), the annual base rent required under the terms
of the lease will increase.

         Generally,  the  leases  of the  Properties  provide  for  two to  five
five-year  renewal  options  subject  to the same  terms and  conditions  as the
initial lease.  Lessees of 26 of the  Partnership's 35 Properties also have been
granted options to purchase  Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed.  Fair market value will
be determined  through an appraisal by an independent  appraisal firm. Under the
terms of certain leases,  the option purchase price may equal the  Partnership's
original cost to purchase the Property  (including  acquisition  costs),  plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.

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

         During  2002,  the  Partnership  reinvested  the net sales  proceeds it
received  from the 2001 sale of the  Property in  Gainesville,  Florida and an a
portion of the net sales proceeds from the sale of the Property in  Saddlebrook,
Florida in a joint  venture  Property in Dallas,  Texas owned by CNL  Restaurant
Investments II. The Partnership also reinvested the remaining portion of the net
sales proceeds from the 2001 sale of the Property in Saddlebrook,  Florida and a
portion of the net sales proceeds from the sale of the joint venture Property in
Columbus,  Ohio,  owned  by CNL  Restaurant  Investments  II in a joint  venture
Property in Arlington, Texas owned by Arlington Joint Venture.

         In addition,  during 2002, CNL Mansfield  Joint Venture  reinvested the
net sales proceeds from the sale of its Property in Mansfield,  Texas in another
Property in Arlington, Texas.

         The lease terms for these three Properties are  substantially  the same
as the Partnership's other leases, as described above.

Major Tenants

         During  2002,  two  lessees  (or groups of  affiliated  tenants) of the
Partnership and its consolidated joint venture,  (i) Golden Corral  Corporation,
and (ii) Jack in the Box Inc. and Jack in the Box Eastern Division,  L.P. (which
are  affiliated  entities  under  common  control  of  Jack  in  the  Box  Inc.)
(hereinafter  referred to as "Jack in the Box Inc."), each contributed more than
10% of the  Partnership's  total rental  revenues and mortgage  interest  income
(including rental revenues from the Partnership's consolidated joint venture and
the   Partnership's   share  of  rental  revenues  from   Properties   owned  by
unconsolidated  joint  ventures  and  Properties  owned with  affiliates  of the
General Partners as  tenants-in-common).  As of December 31, 2002, Golden Corral
Corporation  was the lessee under leases relating to six restaurants and Jack in
the Box 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  two  lessees  each  will  continue  to  contribute  more  than 10% of the
Partnership's  total  rental  revenues in 2003.  In addition,  three  Restaurant
Chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral"), Hardee's,
and Jack in the Box, each accounted for more than 10% of the Partnership's total
rental revenues and mortgage  interest income in 2002 (including rental revenues
from the Partnership's consolidated joint venture and the Partnership's share of
rental  revenues from  Properties  owned by  unconsolidated  joint  ventures and
Properties owned with affiliates of the General Partners as  tenants-in-common).
In 2003, it is anticipated that these three Restaurant Chains each will continue
to account for more than 10% of the Partnership's total rental revenues to which
the Partnership is entitled under the terms of the leases.  Any failure of these
lessees or Restaurant Chains will materially affect the Partnership's  income if
the Partnership is not able to re-lease the Properties in a timely manner. As of
December 31, 2002, Golden Corral Corporation leased Properties with an aggregate
carrying value in excess of 20% of the total assets of the Partnership.

Joint Venture and Tenancy in Common Arrangements

         The  Partnership  has  entered  into the  following  joint  venture and
tenancy in common arrangements as of December 31, 2002:
<TABLE>
<CAPTION>

             Entity Name             Year     Ownership                Partners                      Property
<S>     <C>    <C>    <C>    <C>    <C>    <C>

    San Antonio  #849 Joint          1990      83.30 %      Various Third Party Partners     San Antonio,TX
         Venture

    CNL Restaurant Investments II    1991       18.00%      CNL Income Fund VIII, Ltd.       Dallas, TX
                                                            CNL Income Fund IX, Ltd.         Hastings, MN
                                                                                             New Castle, IN
                                                                                             Raceland, LA
                                                                                             San Antonio, TX

    Des Moines Real Estate Joint     1992       4.79%       CNL Income Fund XI, Ltd.         Des Moines, WA
         Venture                                            CNL Income Fund XII, Ltd.

    CNL Mansfield  Joint Venture     1997       79.00%      CNL Income Fund XVII, Ltd.       Arlington, TX

    CNL Income Fund II,  Ltd. and    1997       53.00%      CNL Income Fund II, Ltd.         Smithfield, NC
         CNL Income Fund VII,
         Ltd., Tenants in Common

    CNL Income Fund III, Ltd.,       1997       35.64%      CNL Income Fund III, Ltd.        Miami, FL
         CNL Income Fund VII,                               CNL Income Fund X, Ltd.
         Ltd., CNL Income Fund X,                           CNL Income Fund XIII, Ltd.
         Ltd. and CNL Income Fund
         XIII, Ltd., Tenants in
         Common

</TABLE>

<PAGE>


<TABLE>
<CAPTION>



<S>     <C>    <C>    <C>    <C>    <C>    <C>

    CNL Income Fund VII, Ltd.,       1999       71.00%      CNL Income Fund  IX, Ltd.        Montgomery, AL
         and CNL Income Fund IX,
         Ltd., Tenants in Common

    Duluth Joint Venture             1999       56.00%      CNL Income Fund XIV, Ltd.        Duluth, GA

    TGIF Pittsburgh Joint Venture    2000       36.88%      CNL Income Fund XV, Ltd.         Homestead, PA
                                                            CNL Income Fund XVI, Ltd.
                                                            CNL Income Fund XVIII, Ltd.

    CNL Income Fund VII, Ltd. and    2000       43.00%      CNL Income Fund XII, Ltd.        Colorado Springs, CO
         CNL Income Fund XII,
         Ltd., Tenants in Common

    CNL VII & XVII Lincoln Joint     2001       14.00%      CNL Income Fund XVII, Ltd.       Lincoln, NE
         Venture

    CNL VII, XV Columbus Joint       2001       68.75%      CNL Income Fund XV, Ltd.         Columbus, GA
         Venture

    Arlington Joint Venture          2002       79.00%      CNL Income Fund XVI, Ltd.        Arlington, TX
</TABLE>

         CNL  Restaurant  Investments  II was  formed  to hold  six  Properties,
however, all other joint ventures or tenancies in common were formed to hold one
Property.  Currently, CNL Restaurant Investments II owns five Properties because
the joint venture sold a Property and  distributed the net sales proceeds to the
Partnership and the other co-venturers, as described below. Each CNL Income Fund
is an affiliate of the General Partners and is a limited  partnership  organized
pursuant to the laws of the state of Florida.  The  Partnership  has  management
control of San Antonio #849 Joint Venture and shares management  control equally
with the affiliates of the General Partners for the other joint ventures.

         The joint  venture and tenancy in common  arrangements  provide for the
Partnership and its partners to share in all costs and benefits in proportion to
each partner's  percentage  interest in the business entity. The Partnership and
its partners are also jointly and  severally  liable for all debts,  obligations
and other  liabilities of the joint venture or tenancy in common.  Net cash flow
from  operations  is  distributed  to each  joint  venture  or tenancy in common
partner in accordance  with its respective  percentage  interest in the business
entity.

         San Antonio #849 Joint  Venture,  Des Moines Real Estate Joint Venture,
CNL  Mansfield  Joint Venture and Duluth Joint Venture each have an initial term
of 20 years  and,  after  the  expiration  of the  initial  term,  continues  in
existence  from year to year  unless  terminated  at the option of either  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
its joint  venture  partner  to  dissolve  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.  CNL VII & XVII
Lincoln Joint Venture, CNL VII, XV Columbus Joint Venture, TGIF Pittsburgh Joint
Venture and Arlington  Joint Venture each have an initial term of 30 years.  CNL
Restaurant  Investment  II's joint  venture  agreement  does not provide a fixed
term, but continues in existence until terminated by any of the joint venturers.

         During  2002,  the  Partnership  reinvested  a portion of the net sales
proceeds  from the 2001  sale of the  Property  in  Saddlebrook,  Florida  and a
portion of the net sales proceeds from the sale of the joint venture Property in
Columbus Ohio, owned  indirectly by CNL Restaurant  Investments II, in Arlington
Joint Venture, to purchase and hold one Property.

         The joint  venture  and  tenancy  in common  agreements  restrict  each
party's  ability to sell,  transfer  to assign  its joint  venture or tenancy in
common interest  without first offering it for sale to its partner,  either upon
such terms and conditions as to which the parties may agree or, in the event the
parties cannot agree, on the same terms and conditions as any offer from a third
party to purchase such joint venture or tenancy in common interest.

         During  2002,  CNL  Restaurant  Investments  II sold  its  Property  in
Columbus,  Ohio and used the majority of the proceeds from the sale to acquire a
property in Dallas,  Texas. In addition during 2002, CNL Restaurant  Investments
II sold its property in Pontiac, Michigan and the Partnership used the return of
capital  for its  pro-rata  share of the net  sales  proceeds  relating  to this
Property  to  make  a  contribution  to  CNL  Mansfield  Joint  Venture  to  pay
construction  costs.  During 2002, CNL Mansfield Joint Venture sold its Property
in  Mansfield,  Texas and used the proceeds to acquire a Property in  Arlington,
Texas. In addition, during 2002, the Partnership used the proceeds from the sale
of several  Properties  during 2001 to enter into a joint  venture  arrangement,
Arlington Joint Venture,  with an affiliate of the General  Partners to hold one
restaurant Property.

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

Certain Management Services

         RAI Restaurants,  Inc. (formerly known as CNL Restaurants XVIII, 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. CNL APF Partners, LP assigned its rights in, and
its  obligations  under,  the management  agreement with the  Partnership to RAI
Restaurants,  Inc.  ("Advisor")  effective January 1, 2002. All of the terms and
conditions of the management agreement,  including the payment of fees, remained
unchanged.  Under this  agreement,  the Advisor is  responsible  for  collecting
rental  payments,  inspecting the Properties and the tenants' books and records,
assisting the  Partnership  in responding to tenant  inquiries and notices,  and
providing  information to the Partnership about the status of the leases and the
Properties.  The Advisor also assists the General  Partners in  negotiating  the
leases.  For these  services,  the  Partnership had agreed to pay the Advisor 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  property  management
agreement, the property management fee is subordinated to receipt by the Limited
Partners of an aggregate, ten percent,  cumulative,  noncompounded annual return
on their adjusted capital contributions (the "10% Preferred Return"), calculated
in  accordance  with  the  Partnership's   limited  partnership  agreement  (the
"Partnership  Agreement").  In any year in which the Limited  Partners  have not
received the 10% Preferred Return, no property management fee will be paid.

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

Competition

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



<PAGE>


Employees

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


Item 2.  Properties

         As of December 31, 2002, the Partnership owned 35 Properties. Of the 35
Properties,  18  are  owned  by the  Partnership  in fee  simple,  13 are  owned
indirectly  through joint  venture  arrangements  and four are owned  indirectly
through tenancy in common arrangements. See Item 1. Business - Joint Venture and
Tenancy in Common Arrangements. The Partnership is not permitted to encumber its
Properties  under the terms of its partnership  agreement.  Reference is made to
the Schedule of Real Estate and  Accumulated  Depreciation  for a listing of the
Properties and their  respective  costs including  acquisition  fees and certain
acquisition expenses.

Description of Properties

         Land. The Partnership's  Property sites range from approximately 20,600
to 110,200  square  feet  depending  upon  building  size and local  demographic
factors.  Sites  purchased  by  the  Partnership  are  in  locations  zoned  for
commercial use which have been reviewed for traffic patterns and volume.

         The following  table lists the  Properties  owned,  either  directly or
indirectly,  by the Partnership as of December 31, 2002 by state.  More detailed
information  regarding  the  location  of the  Properties  is  contained  in the
Schedule of Real Estate and Accumulated Depreciation.

                State                       Number of Properties

                Alabama                                 1
                Arizona                                 1
                Colorado                                1
                Florida                                 3
                Georgia                                 3
                Indiana                                 1
                Louisiana                               2
                Michigan                                1
                Minnesota                               1
                Nebraska                                1
                North Carolina                          1
                Ohio                                    6
                Pennsylvania                            1
                Tennessee                               2
                Texas                                   9
                Washington                              1
                                                   -------
                TOTAL PROPERTIES                       35
                                                   =======


<PAGE>


         Buildings.  Generally, each of the Properties owned, either directly or
indirectly,  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.  The
buildings   generally  are  rectangular   and  are   constructed   from  various
combinations of stucco,  steel, wood, brick and tile. The sizes of the buildings
owned by the Partnership range from approximately 700 to 10,600 square feet. All
buildings on Properties are  freestanding and surrounded by paved parking areas.
Buildings are suitable for  conversion to various uses,  although  modifications
may be  required  prior  to use for  other  than  restaurant  operations.  As of
December  31,  2002,  the  Partnership  had  no  plans  for  renovation  of  the
Properties.  Depreciation  expense is computed for  buildings  and  improvements
using the  straight-line  method using depreciable lives of 40 years for federal
income tax purposes.

         As of December 31, 2002, the aggregate cost of the Properties  owned by
the   Partnership   (including   its   consolidated   joint   venture)  and  the
unconsolidated joint ventures (including the Properties owned through tenancy in
common  arrangements),  for federal  income tax  purposes  was  $22,539,464  and
$16,104,595, respectively.

         The following  table lists the  Properties  owned,  either  directly or
indirectly, by the Partnership as of December 31, 2002 by Restaurant Chain.

                Restaurant Chain                  Number of Properties

                Bennigan's                                     1
                Burger King                                    6
                Checkers                                       1
                Chevy's Fresh Mex                              1
                Donatos Pizzeria                               1
                Golden Corral                                  6
                Hardee's                                       6
                IHOP                                           1
                Jack in the Box                                4
                KFC                                            1
                Rally's                                        1
                Roadhouse Grill                                1
                Sonny's Bar-B-Q                                1
                Taco Bell                                      1
                Taco Cabana                                    2
                TGI Friday's                                   1
                                                          -------
                TOTAL PROPERTIES                              35
                                                          =======

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

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

         Leases.  The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term  "triple  net"  basis,  meaning  that the  tenant is  responsible  for
repairs, maintenance, property taxes, utilities and insurance.



<PAGE>


         At December 31, 2002, 2001, 2000, 1999, and 1998, all of the Properties
were occupied.  The following is a schedule of the average rent per Property for
each of the years ended December 31:
<TABLE>
<CAPTION>

                                   2002              2001              2000               1999               1998
                               -------------     -------------    ---------------     --------------     --------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Rental Revenues (1)             $ 2,832,401       $ 2,686,849        $ 2,801,210        $ 2,902,968         $2,879,831
Properties                               35                35                 35                 40                 40
Average Rent per
     Property                     $  80,926         $  76,767          $  80,035          $  72,574          $  71,996
</TABLE>

(1)      Rental revenues include the Partnership's share of rental revenues from
         the Properties  owned  indirectly  through joint venture and tenancy in
         common arrangements.

         The following is a schedule of lease expirations for leases in place as
of December 31, 2002 for the next ten years and thereafter.
<TABLE>
<CAPTION>

                                                                                     Percentage of
             Expiration Year          Number              Annual Rental              Gross Annual
                                     of Leases               Revenues                Rental Income
             -----------------    ----------------       -----------------     --------------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

              2003                        --                 $     --                      --
              2004                         1                  137,061                   4.77%
              2005                         7                  540,511                  18.81%
              2006                         1                   63,128                   2.20%
              2007                        --                       --                      --
              2008                         2                  122,134                   4.25%
              2009                        --                       --                      --
              2010                         9                  730,546                  25.42%
              2011                        --                       --                      --
              2012                         4                  299,895                  10.44%
              Thereafter                  11                  980,459                  34.11%
                                      -------       ------------------           -------------
              Total                       35             $  2,873,734                 100.00%
                                      =======       ==================           =============

</TABLE>

         Leases  with Major  Tenants.  The terms of each of the leases  with the
Partnership's  major  tenants as of December  31,  2002 (see Item 1.  Business -
Major  Tenants),  are  substantially  the  same as  those  described  in Item 1.
Business - Leases.

         Golden Corral  Corporation  leases six Golden Corral  restaurants.  The
initial term of each lease is 15 years (expiring  between 2004 and 2015) and the
average  minimum  base  annual  rent is  approximately  $155,000  (ranging  from
approximately $137,100 to $186,600).

         Jack in the Box  Inc.  leases  four  Jack in the Box  restaurants.  The
initial  term of each lease is 10 to 20 years  (expiring  between 2010 and 2018)
and the average minimum base annual rent is approximately $121,400 (ranging from
approximately $101,100 to $140,900).


Item 3. Legal Proceedings

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


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

         Not applicable.


<PAGE>


                                     PART II


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

(a)          As of March 10,  2003,  there were  3,132  holders of record of the
Units.  There  is no  public  trading  market  for  the  Units,  and  it is  not
anticipated  that a public  market  for the Units  will  develop.  During  2002,
Limited  Partners  who wished to sell their Units may have offered the Units for
sale pursuant to the Partnership's  distribution reinvestment plan (the "Plan"),
and  Limited  Partners  who wished to have their  distributions  used to acquire
additional  Units (to the extent Units were  available for  purchase),  may have
done so pursuant to such Plan.  The General  Partners have the right to prohibit
transfers of Units. From inception through December 31, 2002, the price paid for
any Unit transferred  pursuant to the Plan was $.95 per Unit. The price paid for
any Unit transferred  other than pursuant to the Plan was subject to negotiation
by the purchaser  and the selling  Limited  Partner.  The  Partnership  will not
redeem or repurchase Units.

         The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2002 and 2001 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>

                                             2002 (1)                                 2001 (1)
                               --------------------------------------    -----------------------------------
                                  High         Low         Average         High         Low        Average
                                 --------    ---------    -----------    ---------    --------    ----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

      First Quarter                 $ .79         $ .60         $  .66           (2)        (2 )         (2 )
      Second Quarter                   (2   )        (2  )          (2  )        (2)        (2 )         (2 )
      Third Quarter                   .95           .95            .95         1.00        .54          .73
      Fourth Quarter                 1.00           .60            .83          .88        .60          .82
</TABLE>

(1)      A total of  $118,320  and  161,877  Units were  transferred  other than
         pursuant  to the Plan for the years ended  December  31, 2002 and 2001,
         respectively.

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

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

         For each of the years ended December 31, 2002 and 2001, the Partnership
declared cash distributions of $2,700,000 to the Limited Partners. Distributions
of $675,000  were  declared to the Limited  Partners at the close of each of the
Partnership's  calendar  quarters  during 2002 and 2001.  These amounts  include
monthly  distributions  made in arrears  for the  Limited  Partners  electing to
receive  distributions on this basis. No amounts distributed to partners for the
years ended  December 31, 2002 and 2001, are required to be or have been treated
by the  Partnership  as a return of capital  for  purposes  of  calculating  the
Limited   Partners'   return  on  their  adjusted  capital   contributions.   No
distributions have been made to the General Partners to date.

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

(b)      Not applicable.



<PAGE>


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

                                             2002            2001            2000           1999           1998
                                         --------------  -------------- --------------- -------------- --------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Year ended December 31:
   Continuing Operations:
      Revenues                             $ 1,886,389     $ 2,043,814     $ 2,404,733    $ 2,581,576    $ 2,655,726
      Equity in earnings of joint
         ventures                            1,027,311         717,096         456,050        429,997        311,081

   Net Income (1)                            2,343,522       2,215,570       3,221,515      2,545,690      2,466,018

   Net Income per Unit:
      Continuing operations                      0.078           0.074           0.107          0.084          0.081

   Cash distributions declared               2,700,000       2,700,000       2,700,000      2,700,000      2,700,000

   Cash distributions declared per
      Unit                                       0.090           0.090           0.090          0.090          0.090

   At December 31:
      Total assets                         $24,712,885    $ 25,073,220     $25,607,914   $ 25,146,133   $ 25,218,258
      Total partners' capital               23,840,093      24,196,571      24,681,001     24,159,486     24,313,796
</TABLE>

(1)      Net income for the years ended December 31, 2001, 2000, 1999, and 1998,
         includes $382,122, $878,347,  $189,826, and $1,025, respectively,  from
         gains on sale of assets.

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


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

         The  Partnership was organized on August 18, 1989, to acquire for cash,
either directly or through joint venture  arrangements,  both newly  constructed
and  existing  restaurant  Properties,  as well as land  upon  which  restaurant
Properties  were to be constructed,  which are leased  primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally  triple-net leases, with the lessees generally  responsible
for all repairs and maintenance,  property taxes,  insurance and utilities.  The
leases  provide  for  minimum  base annual  rental  amounts  (payable in monthly
installments)  ranging from approximately  $30,000 to $259,900.  The majority of
the leases provide for  percentage  rent based on sales in excess of a specified
amount.  In addition,  the majority of the leases  provide  that,  commencing in
specified  lease years  (generally  the sixth lease year),  the annual base rent
required under the terms of the lease will increase. As of December 31, 2000 and
2001, the Partnership  owned 20 and 18 Properties  directly and held interest in
15 and 17  Properties  indirectly  through  joint  venture  or tenancy in common
arrangements.  As of December  31, 2002,  the  Partnership  owned 18  Properties
directly and held interest in 17 Properties  indirectly through joint venture or
tenancy in common arrangements.

Capital Resources

         Cash  from  operating  activities  was  $2,648,131,   $2,479,263,   and
$2,620,009, for the years ended December 31, 2002, 2001, and 2000, respectively.
The  increase in cash from  operating  activities  during 2002 and the  decrease
during 2001,  each as compared to the previous  year, was a result of changes in
the Partnership's working capital and changes in income and expenses.

         Other  significant  sources  and uses of cash  included  the  following
during the years ended December 31, 2002, 2001, and 2000.
<PAGE>

         The Partnership  had a mortgage note  receivable  relating to a sale in
1995  of  a  Property  in  Florence,  South  Carolina.  In  February  2001,  the
Partnership  received  a  balloon  payment  of  $1,115,301  which  included  the
outstanding  principal balance and $14,419 of accrued interest.  The Partnership
used the  majority  of the net sales  proceeds to acquire a Property in Lincoln,
Nebraska,  and a  Property  in  Columbus,  Georgia,  each of which is held  with
affiliates of the General Partners as tenants-in-common.

         During 2000, the Partnership  and the joint venture partner  liquidated
Halls  Joint  Venture  and  the  Partnership  received  approximately  $460,900,
representing its pro rata share of the liquidation  proceeds.  In June 2000, the
Partnership  used a  portion  of the net  sales  proceeds  from  the sale of the
Property  to enter  into a joint  venture  arrangement,  TGIF  Pittsburgh  Joint
Venture,  with CNL Income  Fund XV,  Ltd.,  CNL Income Fund XVI,  Ltd.,  and CNL
Income Fund XVIII, Ltd., each a Florida limited  partnership and an affiliate of
the  General  Partners,  to purchase  and hold one  restaurant  Property.  As of
December 31, 2000, the  Partnership  owned a 17.16%  interest in the profits and
losses of the joint  venture.  In January  2001,  the  Partnership  acquired  an
additional  19.72%  interest in TGIF Pittsburgh  Joint Venture,  from CNL Income
Fund XVIII, Ltd. for an aggregate purchase price of approximately  $500,000.  As
of December 31, 2002, the Partnership owned a 36.88% interest in the profits and
losses of this joint venture.

         During 2000, the Partnership  contributed  approximately  $969,300,  to
purchase land and pay for  construction  costs relating to Duluth Joint Venture.
In October 2000, the  Partnership  acquired an additional 45% interest in Duluth
Joint  Venture  from CNL Income Fund V, Ltd. and CNL Income Fund XV, Ltd. for an
aggregate purchase price of approximately $610,000. As of December 31, 2002, the
Partnership had a 56% interest in the profits and losses of this joint venture.

         In June 2000, the Partnership sold its Property in Pueblo, Colorado, to
a third party and received net sales proceeds of $1,005,000, resulting in a gain
of $97,056.  In August 2000, the Partnership  used the majority of the net sales
proceeds to acquire an interest  in a Property  in Colorado  Springs,  Colorado,
from CNL BB Corp., an affiliate of the General Partners, for a purchase price of
$2,226,134 to be held as  tenants-in-common  with CNL Income Fund XII,  Ltd., an
affiliate of the General  Partners.  CNL BB Corp. had purchased and  temporarily
held  title to this  property  in order to  facilitate  the  acquisition  of the
property by the  Partnership  and CNL Income Fund XII,  Ltd. The purchase  price
paid  represents  the costs  incurred  by CNL BB Corp.  to acquire and carry the
Property.

         In September  2000,  the  Partnership  sold its Property in  Brunswick,
Georgia,   its  Property  in  Lake  City,  Florida,   and  three  Properties  in
Jacksonville, Florida, to separate third parties and received net sales proceeds
of approximately  $2,392,300,  resulting in a total gain of $619,495. In January
2001, the Partnership  reinvested the net sales proceeds received from the sales
of two  Properties  in  Jacksonville,  Florida  and the  Property  in Lake City,
Florida in a Jack in the Box Property in Baton Rouge,  Louisiana  for a purchase
price of approximately  $1,495,700.  The Partnership  acquired the Property from
CNL Funding 2001-A,  LP, an affiliate of the General  Partners.  The Partnership
reinvested  the  remaining  net  sales  proceeds  in  additional  joint  venture
Properties.  A  portion  of the  transaction  relating  to the  sales  of  these
Properties  and  the  reinvestment  of the  net  sales  proceeds  in  additional
Properties  qualified as a like-kind exchange transaction for federal income tax
purposes.

         In addition,  in December  2000, the  Partnership  sold its Property in
Friendswood,  Texas to its tenant and  received  net sales  proceeds of $725,000
resulting in a gain of $160,649.  In April 2001, the Partnership  used a portion
of these proceeds and a portion of the amount collected from the promissory note
accepted  in  connection  with the 1995 sale of a Property  in  Florence,  South
Carolina, to invest in a joint venture arrangement, CNL VII & XVII Lincoln Joint
Venture,  with CNL Income Fund XVII,  Ltd., a Florida  limited  partnership  and
affiliate of the General  Partners,  to purchase and hold a Property in Lincoln,
Nebraska for a total purchase price of  $1,740,374.  The joint venture  acquired
the Property from CNL BB Corp.,  an affiliate of the General  Partners,  who had
purchased and temporarily  held title to the Property in order to facilitate the
acquisition  of the  Property  by the joint  venture.  The  purchase  price paid
represents the costs incurred by CNL BB Corp. to acquire and carry the Property.
As of December 31, 2002, the Partnership owned a 14% interest in the profits and
losses of the joint venture.  In addition,  in August 2001, the Partnership used
the other portion of the amount  collected from the promissory note to invest in
a joint venture arrangement, CNL VII, XV Columbus Joint Venture, with CNL Income
Fund XV,  Ltd.,  a Florida  limited  partnership  and  affiliate  of the General
Partners,  to purchase and construct one restaurant  Property.  During 2001, the
Partnership  contributed  approximately  $1,025,500 to purchase land and pay for
construction costs relating to the joint venture and contributed  $76,700 during
2002 to complete the construction.  As of December 31, 2002, the Partnership had
a 68.75% interest in the profits and losses of this joint venture.
<PAGE>

         In November 2001, the Partnership  sold its Properties in Daytona Beach
and  Gainesville,  Florida to the tenant in accordance  with the purchase option
under the lease agreement and received aggregate net sales proceeds of $499,813,
resulting in a gain of $184,894. In connection with the sales of the Properties,
the  Partnership  received  $396,232 in cash and  accepted  an  uncollateralized
promissory  note in the amount of  $103,581  related to the  Property in Daytona
Beach,  Florida. In October 2002, the Partnership received a payment of $114,304
which  included  the  outstanding  principal  balance  and  $10,723  of  accrued
interest.

         In December 2001,  the  Partnership  sold its Property in  Saddlebrook,
Florida to a third party and received net sales proceeds of $698,050,  resulting
in a gain of $74,232.  The Partnership  used the net sales proceeds to invest in
additional joint venture Properties.

         During 2002, the Partnership used the proceeds from the sale of several
of its Properties in 2001 to enter into a joint venture  arrangement,  Arlington
Joint Venture, with CNL Income Fund XVI, Ltd., a Florida limited partnership and
an affiliate of the General  Partners.  The joint venture acquired a Property in
Arlington,  Texas at an  approximate  cost of $1,003,600.  In addition,  in June
2002,  CNL  Restaurant  Investments  II,  in which the  Partnership  owns an 18%
interest, sold its Property in Columbus, Ohio to the tenant for a sales price of
approximately  $1,219,600  and  received  net sales  proceeds  of  approximately
$1,215,700, resulting in a gain of $448,300. The joint venture used the proceeds
from this sale to acquire a Property in Dallas,  Texas at an approximate cost of
$1,147,400.  The joint  ventures  acquired  these  Properties  from CNL  Funding
2001-A,  LP, a Delaware  limited  partnership  and an  affiliate  of the General
Partners.  The purchase price paid by the joint ventures  represented  the costs
incurred by CNL Funding  2001-A,  LP to acquire  and carry the  Properties.  The
transaction  relating  to the sale of the  Property  in  Columbus,  Ohio and the
reinvestment  of the net sales proceeds was structured to qualify as a like-kind
exchange transaction for federal income tax purposes.

         In June 2002, CNL  Restaurant  Investments II also sold its Property in
Pontiac,  Michigan to the tenant for a sales price of $725,000  and received net
sales  proceeds of  approximately  $722,600.  The sale resulted in a loss to the
joint  venture of  approximately  $189,800.  The tenant  exercised its option to
purchase the Property under the terms of the lease.  As of December 31, 2002 the
Partnership received $129,888,  representing its pro rata share of the net sales
proceeds as a return of capital.

         In August  2002,  CNL  Mansfield  Joint  Venture  sold its  property in
Mansfield,  Texas to the tenant for a sales price of $1,045,000 and received net
sales proceeds of approximately $1,011,500, resulting in a gain of approximately
$269,800.  In September 2002, CNL Mansfield Joint Venture used the proceeds from
the sale of the Property and an additional contribution of approximately $63,900
received from the Partnership to acquire a Property in Arlington, Texas from CNL
Net Lease Investors,  L.P.  ("NLI"),  a California  limited  partnership,  at an
approximate cost of $1,089,900. The sale of the Property and the reinvestment of
the net sales  proceeds  was  structured  to  qualify  as a  like-kind  exchange
transaction for federal income tax purposes. During 2002, and prior to the joint
venture's acquisition of this Property,  CNL Financial LP Holding, LP ("CFN"), a
Delaware limited partnership,  and CNL Net Lease Investors GP Corp. ("GP Corp"),
a Delaware  corporation,  purchased the limited  partner's  interest and general
partner's  interest,  respectively,  of  NLI.  Prior  to  this  transaction,  an
affiliate of the Partnership's general partners owned a 0.1% interest in NLI and
served as a general partner of NLI. The original  general partners of NLI waived
their rights to benefit from this transaction. The acquisition price paid by CFN
for the limited partner's interest was based on the portfolio acquisition price.
The joint venture  acquired the Property in  Arlington,  Texas at CFN's cost and
did not pay  any  additional  compensation  to CFN  for the  acquisition  of the
Property. Each CNL entity is an affiliate of the Partnership's General Partners.

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

         Currently,  rental income from the  Partnership's  Properties,  any net
sales proceeds from the sale of Properties  pending  reinvestment  in additional
Properties,  and any amounts collected from the promissory notes are invested in
money market accounts or other  short-term,  highly liquid  investments  such as
demand  deposit  accounts  at  commercial  banks,   money  market  accounts  and
certificates  of deposit  with less than a 90-day  maturity  date,  pending  the
Partnership's  use  of  such  funds  to  pay  Partnership  expenses,  invest  in
additional  Properties,  or make distributions to the partners.  At December 31,
2002, the  Partnership had $972,797  invested in such short-term  investments as
compared to  $1,747,363  at December  31,  2001.  The  decrease in cash and cash
equivalents  was the result of the  Partnership  (i) investing the proceeds from
Properties sold in 2001 in Arlington Joint Venture, (ii) contributing amounts to
pay constructions  costs related to CNL VII, XV Columbus Joint Venture and (iii)
contributing  amounts  toward  the  Property  acquired  by CNL  Mansfield  Joint
Venture.  The decrease in cash and cash  equivalents was partially offset by the
collection of a promissory  note in October  2002. As of December 31, 2002,  the
average  interest rate earned on the rental income  deposited in demand  deposit
accounts at commercial banks was approximately  one percent annually.  The funds
remaining  at  December  31,  2002,  after  payment of  distributions  and other
liabilities,  will be used to invest in  additional  Properties  and to meet the
Partnership's working capital needs.

Short-Term Liquidity

         The Partnership's  investment strategy of acquiring Properties for cash
and  leasing  them under  triple-net  leases to  operators  who  generally  meet
specified financial  standards  minimizes the Partnership's  operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.

         The Partnership's  short-term liquidity  requirements consist primarily
of the operating expenses of the Partnership.

         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.

         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 Partnership  generally  distributes cash from operating  activities
remaining after the payment of the operating expenses of the Partnership, to the
extent that the General  Partners  determine  that such funds are  available for
distribution.  Based  primarily  on 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, 2002,  2001, and 2000.  This
represents distributions of $0.090 per Unit for each of the years ended December
31, 2002, 2001, and 2000. No amounts distributed to the Limited Partners for the
years ended  December 31, 2002,  2001,  and 2000 are required to be or have been
treated by the  Partnership  as a return of capital for purposes of  calculating
the  Limited  Partners'  return on their  adjusted  capital  contributions.  The
Partnership  intends to continue to make  distributions  of cash  available  for
distribution to the Limited Partners on a quarterly basis.

         During 2000, the General  Partners waived their right to receive future
distributions  from the Partnership,  including both  distributions of operating
cash flow and  distributions  of  liquidation  proceeds,  to the extent that the
cumulative amount of such distributions  would exceed the balance in the General
Partners'  capital  account as of December  31, 1999.  Accordingly,  the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2002, 2001 and 2000.

         As of December  31, 2002 and 2001,  the  Partnership  owed  $13,151 and
$21,837,  respectively, to affiliates for accounting and administrative services
and other  amounts.  As of March 15, 2003,  the  Partnership  had reimbursed the
affiliates  for  these  amounts.  Other  liabilities,   including  distributions
payable,  of the Partnership  were $720,696 at December 31, 2002, as compared to
$713,022 at December 31, 2001. The General Partners believe that the Partnership
has sufficient cash on hand to meet its current working capital needs.
<PAGE>

Long-Term Liquidity

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

Critical Accounting Policies

         The  Partnership's  leases are  accounted  for under the  provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been  accounted  for using  either the direct  financing  or the  operating
method.  FAS 13 requires  management to estimate the economic life of the leased
property,  the residual  value of the leased  property and the present  value of
minimum lease payments to be received from the tenant.  In addition,  management
assumes  that all  payments  to be  received  under its leases are  collectible.
Changes in  management's  estimates or assumption  regarding  collectibility  of
lease  payments  could  result  in a change in  accounting  for the lease at the
inception of the lease.

         The Partnership  accounts for its  unconsolidated  joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is  appropriate  for entities that are partially
owned by the  Partnership,  but for which  operations of the investee are shared
with other partners.  The  Partnership's  joint venture  agreements  require the
consent of all partners on all key  decisions  affecting  the  operations of the
underlying Property.

         Management  reviews the  Partnership's  Properties  and  investments in
unconsolidated  entities  periodically  for  impairment  at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.  The assessment is based on the carrying amount
of the  Property  or  investment  at the date it is  tested  for  recoverability
compared to the sum of the estimated  future cash flows  expected to result from
its operation and sale through the expected holding period.  If an impairment is
indicated, the asset is adjusted to its estimated fair value.

         When the Partnership makes the decision to sell or commits to a plan to
sell a  Property  within  one  year,  its  operating  results  are  reported  as
discontinued operations.

Results of Operations

Comparison of year ended December 31, 2002 to year ended December 31, 2001

         Total rental revenues for the Partnership  and its  consolidated  joint
venture  were  $1,780,431  for the year ended  December  31, 2002 as compared to
$1,866,700  during the same period of 2001. The decrease in rental  revenues was
primarily  due to the sales of several of the  Partnership's  Properties  during
2001 and the  reinvestment  of the net sales  proceeds in a joint venture during
2002. As a result,  net income earned by joint ventures  increased in 2002 while
rental revenues decreased.  The decrease in rental revenues was partially offset
by the fact that in January 2001, the Partnership  reinvested a portion of these
net sales proceeds in a Property in Baton Rouge, Louisiana.

         The Partnership also earned $74,165 in contingent rental income for the
year ended December 31, 2002 as compared to $75,571 for the same period of 2001.

         During the year  ended  December  31,  2002 and 2001,  the  Partnership
earned $1,027,311 and $717,096, respectively,  attributable to net income earned
by  unconsolidated  joint  ventures.  The increase in net income earned by joint
ventures during the year ended December 31, 2002, as compared to the same period
of  2001,  was  primarily  due to the fact  that in June  2002,  CNL  Restaurant
Investments  II,  in  which  the  Partnership  owns an 18%  interest,  sold  its
Properties  in  Columbus,  Ohio  and  Pontiac,   Michigan  to  the  tenant.  The
Partnership recorded its pro-rata share of the gains resulting from the sales of
these  Properties.  The increase was also attributable to earnings received from
the new joint venture arrangements with affiliates of the General Partners,  CNL
VII & XVII Lincoln Joint Venture and CNL VII, XV Columbus Joint Venture acquired
in April and August 2001, respectively,  and Arlington Joint Venture acquired in
June 2002. The increase in net income earned by joint  ventures  during the year
ended December 31, 2002 was partially  offset by the fact that the tenant of the
Property  owned by Duluth Joint  Venture,  in which the  Partnership  owns a 56%
interest,  experienced financial  difficulties and ceased making rental payments
to the joint venture. As a result, Duluth Joint Venture stopped recording rental
revenues  during the quarter ended March 31, 2002.  During the second quarter of
2002, the tenant began making rental payments to the joint venture and the joint
venture recognized these amounts as rental revenues.  In addition,  during 2002,
the joint venture recorded a provision for write-down of assets of approximately
$65,800.  The provision  represented  the difference  between the Property's net
carrying value and its estimated fair value.
<PAGE>

         During the year ended  December  31,  2002,  two  lessees (or groups of
affiliated  tenants) of the Partnership and its consolidated joint venture,  (i)
Golden  Corral  Corporation,  and (ii) Jack in the Box Inc.  and Jack in the Box
Eastern  Division,  L.P. (which are affiliated  entities under common control of
Jack in the Box Inc.) (hereinafter  referred to as "Jack in the Box Inc."), each
contributed  more  than  10% of the  Partnership's  total  rental  revenues  and
mortgage  interest  income  (including  rental  revenues from the  Partnership's
consolidated  joint venture and the Partnership's  share of rental revenues from
Properties  owned by  unconsolidated  joint ventures and  Properties  owned with
affiliates  of the General  Partners as  tenants-in-common).  As of December 31,
2002,  Golden Corral  Corporation  was the lessee under a lease  relating to six
restaurants,  and Jack in the Box Inc. was the lessee  under leases  relating to
four  restaurants.  It is anticipated that, based on the minimum rental payments
required by the leases, Golden Corral Corporation and Jack in the Box Inc., each
will  continue to  contribute  more than 10% of the  Partnership's  total rental
revenues  during  2003.  In addition,  during the year ended  December 31, 2002,
three  Restaurant  Chains,  Golden  Corral,  Hardee's and Jack in the Box,  each
accounted  for more than 10% of the  Partnership's  total  rental  revenues  and
mortgage  interest  income  (including  rental  revenues from the  Partnership's
consolidated  joint venture and the Partnership's  share of rental revenues from
Properties  owned by  unconsolidated  joint ventures and  Properties  owned with
affiliates  of the  General  Partners  as  tenants-in-common).  In  2003,  it is
anticipated that these three Restaurant Chains each will continue to account for
more  than  10%  of  the  Partnership's  total  rental  revenues  to  which  the
Partnership  is  entitled  under the terms of the  leases.  Any failure of these
lessees or Restaurant Chains could materially affect the Partnership's income if
the Partnership is not able to re-lease the Properties in a timely manner.

         During the years ended December 31, 2002 and 2001, the Partnership also
earned  $31,793 and $101,543,  respectively,  in interest and other income.  The
decrease  in  interest  and other  income  during  2002 was  primarily  due to a
decrease in the average  cash balance as a result of the  reinvestment  of sales
proceeds in additional  Properties  through joint  venture  arrangements  during
2002, the  collection of the  promissory  note, as well as a decline in interest
rates.

         Operating expenses,  including  depreciation  expense and provision for
write-down  of assets,  were  $551,657  for the year ended  December 31, 2002 as
compared to $909,120 for the same period of 2001. Operating expenses were higher
during  2001 due to the fact  that the  Partnership  recorded  a  provision  for
write-down  of assets of $279,862  for the Property in  Saddlebrook,  Florida in
June 2001. The tenant ceased restaurant operations and vacated the Property. The
provision  represented the difference between the carrying value of the Property
and its  estimated  fair value at June 30, 2001.  In addition,  the  Partnership
incurred  expenses such as repairs and  maintenance and real estate taxes during
2001 in connection  with this Property.  The  Partnership  sold this Property in
December 2001.

         The decrease in operating expenses during 2002, as compared to the same
period  of  2001,  was  partially  offset  by the fact  that  during  2002,  the
Partnership  elected  to  reimburse  the  tenant of the  Properties  in El Paso,
Harlingen, and Odessa, Texas for certain renovation costs.

         In  addition,  the  decrease in  operating  expenses  during  2002,  as
compared  to the same  period of 2001,  was  partially  due to a decrease in the
costs incurred for administrative expenses for servicing the Partnership and its
Properties and due to the Partnership incurring less depreciation expense during
2002 as a result of the sale of several Properties in 2001.

         Effective  January  1,  2002,  the  Partnership  adopted  Statement  of
Financial  Accounting  Standards  No.  144  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets." This statement requires that a long-lived asset
be tested  for  recoverability  whenever  events  or  changes  in  circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived  asset is not recoverable if it exceeds the sum of the undiscounted
cash flows  expected  to result  from the use and  eventual  disposition  of the
asset.  The assessment is based on the carrying  amount of the asset at the date
it is tested for  recoverability.  An  impairment  loss is  recognized  when the
carrying  amount of a long-lived  asset exceeds its fair value. If an impairment
is recognized,  the adjusted  carrying  amount of a long-lived  asset is its new
cost basis.  The  statement  also  requires  that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a  discontinued  operation if the disposal  activity was
initiated subsequent to the adoption of the Standard.
<PAGE>

         During the year ended December 31 2002,  CNL Restaurant  Investments II
and CNL Mansfield Joint Venture  identified and sold three  Properties that each
met the criteria of this standard.  During 2002,  CNL Restaurant  Investments II
sold its  Property  in  Columbus,  Ohio to the tenant and  recognized  a gain of
approximately $448,300 and sold its Property in Pontiac,  Michigan to the tenant
resulting in a loss of approximately  $189,800. CNL Mansfield Joint Venture sold
its  Property  in  Mansfield,  Texas  and  recognized  a gain  of  approximately
$269,800.   The  financial   results  of  these   Properties  are  reflected  as
Discontinued  Operations in the condensed  joint venture  financial  information
presented in the footnotes to the accompanying financial statements. The tenants
exercised  their  option to  purchase  the  Properties  under the terms of their
respective  leases and the proceeds from the sales were reinvested in additional
income producing Properties.

Comparison of year ended December 31, 2001 to year ended December 31, 2000

         Total rental revenues for the Partnership  and its  consolidated  joint
venture  were  $1,866,700  for the year ended  December  31, 2001 as compared to
$2,145,945  during the same  period of 2000.  The  decrease  in rental  revenues
during 2001, as compared to 2000,  was primarily a result of the sale of several
Properties,  as described above. The decrease in rental revenues during 2001 was
also  partially due to the fact that the tenant of the Property in  Saddlebrook,
Florida  ceased  restaurant   operations  in  April  2001.  In  July  2001,  the
Partnership and the tenant  terminated the lease relating to the Property and as
a result,  the Partnership  stopped recording rental revenue.  In December 2001,
the Partnership sold the Property.

         Rental revenues were lower during 2001, as compared to 2000, due to the
fact that during 2000, the lease  relating to the Property in Marietta,  Georgia
was amended to provide for rent  reductions  from November 2000 through  October
2015. The decrease during 2001 as compared to 2000, was partially  offset by the
reinvestment  of a portion of the net sales proceeds  received  during 2000 in a
Property in Baton  Rouge,  Louisiana.  However,  as a result of the  Partnership
reinvesting  in joint  ventures  and in  Properties  owned  with  affiliates  as
tenants-in-common,  net income earned by unconsolidated joint ventures increased
in 2001.

         The Partnership also earned $75,571 in contingent rental income for the
year ended December 31, 2001 as compared to $91,842 for the same period of 2001.
The decrease in contingent  rental income during 2001, as compared to 2000,  was
primarily  attributable  to the sale of  several  Properties  during  2000.  The
decrease  during  2001 was  partially  offset by an  increase  in gross sales of
certain  restaurant  Properties,  the  leases of which  require  the  payment of
contingent rent.

         During the years  ended  December  31, 2001 and 2000,  the  Partnership
earned $717,096 and $456,050, respectively, attributable to net income earned by
unconsolidated   joint   ventures.   The  increase  in  net  income   earned  by
unconsolidated joint ventures during 2001, as compared to the previous year, was
primarily  due to the  Partnership  investing  in CNL VII & XVII  Lincoln  Joint
Venture in April 2001, CNL VII, XV Columbus  Joint Venture in August 2001,  TGIF
Pittsburgh  Joint Venture,  in June 2000,  and  Properties in Colorado  Springs,
Colorado and Montgomery,  Alabama,  with  affiliates of the General  Partners as
tenants-in-common in August 2000 and November 1999,  respectively.  In addition,
the increase in net income earned by unconsolidated  joint ventures during 2001,
as compared to 2000,  was partially the result of the  Partnership  acquiring an
additional 45% interest in Duluth Joint Venture in October 2000.

         During the years  ended  December  31, 2001 and 2000,  the  Partnership
earned $101,543 and $166,946,  respectively,  in interest and other income.  The
decrease in interest and other  income  during  2001,  as compared to 2000,  was
primarily  attributable to the Partnership collecting the outstanding balance of
the mortgage  note  related to the 1995 sale of the Property in Florence,  South
Carolina  during 2001. The decrease in interest and other income during 2001 was
partially  offset by an  increase  in  interest  income  earned on the net sales
proceeds relating to the sale of several  Properties pending the reinvestment of
the net sales proceeds in additional Properties.
<PAGE>

         Operating expenses,  including  depreciation expense, were $909,120 for
the year ended  December 31, 2001 as compared to $498,933 for the same period of
2000.  Operating expenses were higher in 2001 because the Partnership recorded a
provision  for  write-down  of assets of  $279,862  related to the  Property  in
Saddlebrook,  Florida.  The Partnership also incurred  insurance and real estate
tax expenses in connection with this Property.

         The increase in operating expenses during 2001, was also partially
attributable to an increase in the costs incurred for administrative expenses
for servicing the Partnership and its Properties. In addition, the increase in
operating expenses during 2001, as compared to 2000, was partially due to the
Partnership incurring additional state taxes in states in which the Partnership
conducts business. The increase in operating expenses during 2001, as compared
to 2000, was partially offset by a decrease in depreciation expense as a result
of the sales of several Properties during 2001 and 2000.

         The  Partnership  incurred  $35,134  during 2000 in  transaction  costs
related to the General Partners retaining financial and legal advisors to assist
them in  evaluating  and  negotiating  a proposed  merger  with APF.  The merger
negotiations were terminated in March 2000.

         During 2001, the Partnership  collected the outstanding  balance of the
mortgage  note  relating  to the 1995 sale of the  Property in  Florence,  South
Carolina.  During 2001 and 2000, the Partnership recognized $122,996 and $1,147,
respectively, of previously deferred gains related to the sale of this Property.
The Partnership recorded the sale using the installment method, and as such, the
gain was deferred and recognized as income  proportionally as payments under the
mortgage note were collected.

         As a result of the sales of several  Properties  during  2001 and 2000,
the Partnership recognized gains totaling $382,122 and $878,347, respectively.

         The  restaurant  industry  has been  relatively  resilient  during this
volatile time with steady performance during 2002. However, the industry remains
in a state of cautious optimism.  Restaurant  operators expect their business to
be better in 2003,  according to a nationwide  survey  conducted by the National
Restaurant  Association,   but  are  concerned  by  the  budget  deficits  being
experienced  by many states and the  potential  of new taxes on the  industry to
alleviate the situation.

         The  Partnership's  leases  as of  December  31,  2002,  are  generally
triple-net  leases and  contain  provisions  that the General  Partners  believe
mitigate  the adverse  effect of  inflation.  Such  provisions  include  clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified  level and/or  automatic  increases in base rent at specified  times
during the term of the lease.  Inflation,  overall,  has had a minimal effect on
results of operations of the  Partnership.  Continued  inflation  also may cause
capital  appreciation of the  Partnership's  Properties.  Inflation and changing
prices, however, also may have an adverse impact on the sales of the restaurants
and on potential capital appreciation of the Properties.

         In January  2003,  FASB issued FASB  Interpretation  No. 46 ("FIN 46"),
"Consolidation  of Variable  Interest  Entities"  to expand upon and  strengthen
existing  accounting  guidance that  addresses when a company should include the
assets,   liabilities   and  activities  of  another  entity  in  its  financial
statements.  To improve financial  reporting by companies involved with variable
interest  entities (more  commonly  referred to as  special-purpose  entities or
off-balance sheet  structures),  FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's  residual returns or both. Prior to FIN 46, a company  generally
included  another entity in its  consolidated  financial  statements  only if it
controlled  the entity  through  voting  interests.  Consolidation  of  variable
interests  entities will provide more complete  information about the resources,
obligations,   risks  and  opportunities  of  the  consolidated   company.   The
consolidation  requirements  of FIN 46 apply  immediately  to variable  interest
entities  created  after  January 31, 2003,  and to older  entities in the first
fiscal year or interim period beginning after June 15, 2003. Management believes
adoption  of this  standard  may result in either  consolidation  or  additional
disclosure  requirements with respect to the Partnership's  unconsolidated joint
ventures  or  Properties  held  with  affiliates  of  the  General  Partners  as
tenants-in-common,  which are currently  accounted for under the equity  method.
However,  such  consolidation  is  not  expected  to  significantly  impact  the
Partnership's results of operations.


<PAGE>



Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.

Item 8.  Financial Statements and Supplementary Data


<PAGE>


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

                                    CONTENTS



                                                                 Page

Report of Independent Certified Public Accountants                20
Financial Statements:
     Balance Sheets                                               21
     Statements of Income                                         22
     Statements of Partners' Capital                              23
     Statements of Cash Flows                                  24-25
     Notes to Financial Statements                             26-39



<PAGE>




               Report of Independent Certified Public Accountants






To the Partners
CNL Income Fund VII, Ltd.

In our opinion,  the accompanying  balance sheets and the related  statements of
income,  of partners'  capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund VII, Ltd. (a Florida limited
partnership)  at December 31, 2002 and 2001,  and the results of its  operations
and its cash flows for each of the three years in the period ended  December 31,
2002 in conformity with accounting  principles  generally accepted in the United
States  of  America.  In  addition,  in our  opinion,  the  financial  statement
schedules listed in the index appearing under item 15(a)(2)  present fairly,  in
all  material  respects,   the  information  set  forth  therein  when  read  in
conjunction with the related financial  statements.  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 of these statements in accordance with auditing  standards  generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe that our audits provide a reasonable basis for our opinion.

As  described in Note 1 to the  financial  statements,  on January 1, 2002,  the
Partnership   adopted  Statement  of  Financial   Accounting  Standard  No.  144
"Accounting for the Impairment or Disposal of Long-Lived Assets."




/s/ PricewaterhouseCoopers LLP

Orlando, Florida
January 31, 2003



<PAGE>





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

                                 BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                     December 31,
                                                                              2002                  2001
                                                                         ----------------     -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                ASSETS

   Real estate properties with operating leases, net                        $ 11,109,588          $ 11,333,419
   Net investment in direct financing leases                                   2,344,317             2,452,964
   Investment in joint ventures                                                9,083,991             8,212,208
   Mortgage and other notes receivable, less deferred gain                            --               104,717
   Cash and cash equivalents                                                     972,797             1,747,363
   Receivables                                                                    68,597                74,097
   Due from related parties                                                           --                12,968
   Accrued rental income                                                       1,042,794             1,058,589
   Other assets                                                                   90,801                76,895
                                                                         ----------------     -----------------

                                                                            $ 24,712,885          $ 25,073,220
                                                                         ================     =================

                   LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                           $    4,551            $   12,306
   Distributions payable                                                         675,000               675,000
   Due to related parties                                                         13,151                21,837
   Rents paid in advance                                                          41,145                25,716
                                                                         ----------------     -----------------
            Total liabilities                                                    733,847               734,859

   Minority interest                                                             138,945               141,790

   Partners' capital                                                          23,840,093            24,196,571
                                                                         ----------------     -----------------

                                                                            $ 24,712,885          $ 25,073,220
                                                                         ================     =================

</TABLE>

                See accompanying notes to financial statements.

<PAGE>


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

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                      2002                 2001                2000
                                                                ------------------   ------------------   ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Revenues:
     Rental income from operating leases                            $   1,486,761        $   1,559,410      $  1,765,623
     Earned income from direct financing leases                           293,670              307,290           380,322
     Contingent rental income                                              74,165               75,571            91,842
     Interest and other income                                             31,793              101,543           166,946
                                                                ------------------   ------------------   ---------------
                                                                        1,886,389            2,043,814         2,404,733
                                                                ------------------   ------------------   ---------------
Expenses:
     General operating and administrative                                 237,355              273,351           173,205
     Property expenses                                                     61,025               75,250            13,488
     State and other taxes                                                 29,446               33,922            14,209
     Depreciation                                                         223,831              246,735           262,897
     Provision for write-down of assets                                        --              279,862                --
     Transaction costs                                                         --                   --            35,134
                                                                ------------------   ------------------   ---------------
                                                                          551,657              909,120           498,933
                                                                ------------------   ------------------   ---------------

Income Before Gain on Sale of Assets, Minority Interest in
     Income of Consolidated Joint Venture and Equity in
     Earnings of Unconsolidated Joint Ventures                          1,334,732            1,134,694         1,905,800

Gain on Sale of Assets                                                         --              382,122           878,347

Minority Interest in Income of Consolidated Joint Venture                 (18,521 )            (18,342 )         (18,682 )

Equity in Earnings of Unconsolidated Joint Ventures                     1,027,311              717,096           456,050
                                                                ------------------   ------------------   ---------------

Net Income                                                          $   2,343,522        $   2,215,570      $  3,221,515
                                                                ==================   ==================   ===============

Net Income Per Limited Partner Unit                                   $     0.078          $     0.074        $    0.107
                                                                ==================   ==================   ===============

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

                See accompanying notes to financial statements.


<PAGE>


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

                         STATEMENTS OF PARTNERS' CAPITAL

                  Years Ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>

                                              General Partners                                           Limited Partners
                                 --------------------------------------    ------------------------------------------------------
                                                        Accumulated                                               Accumulated
                                   Contributions          Earnings         Contributions      Distributions         Earnings
                                 ------------------   -----------------   ----------------   ----------------   -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

   Balance, December 31, 1999     $    1,000          $  229,931         $  30,000,000    $    22,946,178        $(25,577,623 )


       Distributions to limited
         partners ($0.090 per
         limited partner unit)            --                  --                    --         (2,700,000 )                --
       Net income                         --                  --                    --                 --           3,221,515
                                 ------------------   ------------       ----------------   ----------------   -----------------

   Balance, December 31, 2000          1,000             229,931             30,000,000        (28,277,623 )        26,167,693

       Distributions to limited
         partners ($0.090 per
         limited partner unit)            --                  --                     --         (2,700,000 )                --
       Net income                         --                  --                     --                 --           2,215,570
                                 ------------------   ------------       ----------------   ----------------   -----------------

   Balance, December 31, 2001           1,000             229,931            30,000,000        (30,977,623 )        28,383,263

       Distributions to limited
         partners ($0.090 per
         limited partner unit)             --                  --                    --         (2,700,000 )                --
       Net income                          --                  --                    --                 --           2,343,522
                                 -----------------   -----------------   ---------------   ----------------   -----------------

   Balance, December 31, 2002     $     1,000         $   229,931         $  30,000,000      $ (33,677,623 )     $  30,726,785
                                 ==================   =================   ================   ================   =================


                                                                                               Syndication
                                                                                                  Costs            Total
                                                                                              --------------   --------------

                                                                                              $  (3,440,000)    $24,159,486




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

                                                                                               (3,440,000 )     24,681,001



                                                                                                       --       (2,700,000 )
                                                                                                       --        2,215,570
                                                                                             --------------   --------------

                                                                                               (3,440,000 )     24,196,571



                                                                                                       --       (2,700,000 )
                                                                                                       --        2,343,522
                                                                                             -------------   --------------

                                                                                             $ (3,440,000 )    $23,840,093
                                                                                            ==============   ==============

</TABLE>
                 See accompanying notes to financial statments.

<PAGE>


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

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                   Year Ended December 31,
                                                                       2002                  2001                2000
                                                                  ----------------    -------------------    ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Increase (Decrease) in Cash and Cash Equivalents:

Cash Flows from Operating Activities:
      Net Income                                                      $  2,343,522        $    2,215,570       $   3,221,515
                                                                  -----------------   -------------------   ------------------
       Adjustments to reconcile net income to net cash provided by operating
         activities:
             Depreciation                                                  223,831               246,735             262,897
             Amortization of net investment in direct
                financing leases                                           108,647                95,360             100,821
             Minority interest in income of consolidated joint
                venture                                                     18,521                18,342              18,682
             Gain on sale on real estate properties                             --              (382,122 )          (878,347  )
             Provision for loss on real estate properties                       --               279,862                  --
             Equity in earnings of unconsolidated joint
                ventures, net of distributions                             (66,871 )               9,531              53,738
             Decrease (increase) in receivables                              5,546                12,254             (13,707  )
             Decrease (increase) in due from related parties                12,922               (11,712 )            (1,256  )
             Decrease (increase) in interest receivable                      1,136                18,335             (13,064  )
             Decrease (increase) in other assets                           (13,906 )              10,635             (12,888  )
             Decrease (increase) in accrued rental income                   15,795                14,159             (59,795  )
             Decrease in accounts payable                                   (7,755 )             (19,109 )           (65,479  )
             Increase (decrease) in due to related parties                  (8,686 )             (45,978 )             8,684
             Increase (decrease) in rents paid in advance and
                deposits                                                    15,429                17,401              (1,792  )
                                                                  -----------------   -------------------   ------------------
                  Total adjustments                                        304,609               263,693            (601,506  )
                                                                  -----------------   -------------------   ------------------

Net Cash Provided by Operating Activities                                2,648,131             2,479,263            2,620,009
                                                                  -----------------   -------------------   ------------------
   Cash Flows from Investing Activities:
      Additions to real estate properties with operating leases                 --            (1,495,699 )                 --
      Proceeds from sale of real estate properties                              --             1,094,282            4,122,336
      Investment in certificate of deposit                                      --               100,000             (100,000 )
      Investment in joint ventures                                        (934,800 )          (1,769,135 )         (2,361,644 )
      Liquidating distribution from joint venture                               --                    --              461,208
      Return of capital from joint venture                                 129,888                    --                   --
      Decrease (increase) in restricted cash                                    --             1,503,682           (1,503,682 )
      Collections on mortgage notes receivable                             103,581             1,101,865               10,279
                                                                  -----------------   -------------------   ------------------
         Net cash (used in) provided by investing activities              (701,331 )             534,995              628,497
                                                                  -----------------   -------------------   ------------------

   Cash Flows from Financing Activities:
      Distributions to limited partners                                 (2,700,000 )          (2,700,000 )         (2,700,000 )
      Distributions to holders of minority interest                        (21,366 )             (20,920 )            (19,829 )
                                                                  -------------------  ------------------   ------------------
      Net cash used in financing activities                             (2,721,366 )          (2,720,920 )         (2,719,829 )
                                                                  -----------------   -------------------   ------------------

Net Increase (Decrease) in Cash and Cash Equivalents                      (774,566 )             293,338              528,677

Cash and Cash Equivalents at Beginning of Year                           1,747,363             1,454,025              925,348
                                                                  -----------------   -------------------   ------------------

Cash and Cash Equivalents at End of Year                              $    972,797        $    1,747,363         $  1,454,025
                                                                  =================   ===================   ==================

</TABLE>

<PAGE>


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

                      STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>

                                                                             Year Ended December 31,
                                                                    2001               2000              1999
                                                              -----------------   ---------------    --------------

<S>     <C>    <C>    <C>    <C>    <C>    <C>

Supplemental Schedule of Non-Cash Financing Activities:

         Promissory note accepted in exchange for
             sale of land and building                             $        --    $    103,581           $       --
                                                              =================   ===============    ==============

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


</TABLE>



<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2002, 2001, and 2000

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%  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
         acquisitions of real estate properties at cost,  including  acquisition
         and closing costs.  Real estate  properties are leased to third parties
         generally  on a  triple-net  basis,  whereby  the  tenant is  generally
         responsible  for  all  operating  expenses  relating  to the  property,
         including property taxes,  insurance,  maintenance and repairs.  During
         the years ended December 31, 2002, 2001, and 2000 tenants paid directly
         to real estate  taxing  authorities  $274,800,  $264,900 and  $267,600,
         respectively,  in real  estate  taxes in  accordance  with the terms of
         their triple net leases with the Partnership.

         The leases of the  Partnership  provide for base minimum  annual rental
         payments payable in monthly installments.  In addition,  certain leases
         provide for  contingent  rental  revenues  based on the tenants'  gross
         sales in  excess  of a  specified  threshold.  The  Partnership  defers
         recognition  of  the  contingent  rental  revenues  until  the  defined
         thresholds  are met.  The leases  are  accounted  for using  either the
         direct financing or the operating  methods.  Such methods are described
         below:

                 Directfinancing  method - 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).  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.
                 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 portion of these leases
                 are operating leases.

                 Operating  method -  Property  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.

                 Accrued rental income represents the aggregate amount of income
                 recognized  on a  straight-line  basis in excess  of  scheduled
                 rental payments to date.

         Substantially all leases are for 10 to 20 years and provide for minimum
         and contingent  rentals.  The lease options  generally allow tenants to
         renew the leases for two to five 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.



<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2002, 2001, and 2000


1.       Significant Accounting Policies - Continued:

         When  the  properties  are  sold,  the  related  cost  and  accumulated
         depreciation  for operating  leases and the net  investment  for direct
         financing leases,  plus any accrued rental income, are removed from the
         accounts and gains or losses from sales are  reflected  in income.  The
         general  partners of the Partnership  review  properties for impairment
         whenever events or changes in circumstances  indicate that the carrying
         amount of the assets may not be  recoverable  through  operations.  The
         general partners  determine whether an impairment in value has occurred
         by comparing the estimated future  undiscounted  cash flows,  including
         the  residual  value of the  property,  with the  carrying  cost of the
         individual  property.  If an impairment  is  indicated,  the assets are
         adjusted to their fair value.

         When the  collection  of amounts  recorded as rental or other income is
         considered  to be  doubtful,  a  provision  is  made  to  increase  the
         allowance for doubtful accounts. If amounts are subsequently determined
         to be  uncollectible,  the  corresponding  receivable and allowance for
         doubtful accounts are decreased accordingly.

         Investment in Joint Ventures - The  Partnership  accounts for its 83.3%
         interest  in San Antonio  #849 Joint  Venture  using the  consolidation
         method.   Minority  interest  represents  the  minority  joint  venture
         partner's  proportionate  share  of the  equity  in  the  Partnership's
         consolidated joint venture. All significant  intercompany  accounts and
         transactions have been eliminated.

         The  Partnership's  investments in CNL Restaurant  Investments  II, Des
         Moines Real Estate Joint Venture,  CNL Mansfield Joint Venture,  Duluth
         Joint  Venture,  and  TGIF  Pittsburgh  Joint  Venture,  CNL VII & XVII
         Lincoln Joint Venture and CNL VII, XV Columbus Joint Venture, Arlington
         Joint Venture and a property in Smithfield,  North Carolina, a property
         in Miami, Florida, a property in Montgomery, Alabama, and a property in
         Colorado  Springs,  Colorado,  for which each of the four properties is
         held as tenants-in-common  with affiliates of the general partners, are
         accounted  for  using  the  equity  method  since  each  joint  venture
         agreement  requires  the consent of all  partners on all key  decisions
         affecting the operations of the underlying property.

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

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

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

<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


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

         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 represent a reduction of
         Partnership  equity  and a  reduction  in the  basis of each  partner's
         investment.

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

         Reclassification   -  Certain  items  in  the  prior  years'  financial
         statements  have been  reclassified  to conform  to 2002  presentation,
         including a change in  presentation of the statement of cash flows from
         the direct to the indirect method. These reclassification had no effect
         on total partners' capital, net income or cash flows.

         Statement  of  Financial  Accounting  Standards  No. 144 ("FAS  144") -
         Effective  January  1,  2002,  the  Partnership  adopted  Statement  of
         Financial  Accounting  Standards No. 144 "Accounting for the Impairment
         or Disposal of  Long-Lived  Assets."  This  statement  requires  that a
         long-lived  asset be  tested  for  recoverability  whenever  events  or
         changes in  circumstances  indicate that its carrying amount may not be
         recoverable.   The  carrying  amount  of  a  long-lived  asset  is  not
         recoverable  if it  exceeds  the  sum of the  undiscounted  cash  flows
         expected to result from the use and eventual  disposition of the asset.
         The assessment is based on the carrying amount of the asset at the date
         it is tested for recoverability.  An impairment loss is recognized when
         the carrying amount of a long-lived asset exceeds its fair value. If an
         impairment is recognized,  the adjusted carrying amount of a long-lived
         asset is its new cost  basis.  The  statement  also  requires  that the
         results of  operations of a component of an entity that either has been
         disposed  of or is  classified  as  held  for  sale  be  reported  as a
         discontinued   operation  if  the  disposal   activity  was   initiated
         subsequent to the adoption of the Standard.

         FASB  Interpretation  No. 46 ("FIN 46") - In January 2003,  FASB issued
         FASB  Interpretation  No. 46 ("FIN  46"),  "Consolidation  of  Variable
         Interest  Entities" to expand upon and strengthen  existing  accounting
         guidance  that  addresses  when a company  should  include  the assets,
         liabilities   and   activities  of  another  entity  in  its  financial
         statements.  To improve financial  reporting by companies involved with
         variable    interest   entities   (more   commonly   referred   to   as
         special-purpose  entities  or  off-balance  sheet  structures),  FIN 46
         requires that a variable  interest entity be considered by a company if
         that  company is subject to a majority  risk of loss from the  variable
         interest  entity's  activities or entitled to receive a majority of the
         entity's residual returns or both. Prior to FIN 46, a company generally
         included another entity in its consolidated  financial  statements only
         if it controlled the entity through voting interests.  Consolidation of
         variable  interests  entities  will provide more  complete  information
         about  the  resources,  obligations,  risks  and  opportunities  of the
         consolidated  company.  The consolidation  requirements of FIN 46 apply
         immediately  to variable  interest  entities  created after January 31,
         2003,  and to older entities in the first fiscal year or interim period
         beginning  after June 15, 2003.  Management  believes  adoption of this
         standard may result in either  consolidation  or additional  disclosure
         requirements  with respect to the  Partnership's  unconsolidated  joint
         ventures or properties held with affiliates of the general  partners as
         tenants-in-common,  which are currently  accounted for under the equity
         method.  However,  such  consolidation is not expected to significantly
         impact the Partnership's results of operations.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


2.       Real Estate Properties with Operating Leases:
         --------------------------------------------

         Real estate properties with operating leases consisted of the following
         at December 31:
<TABLE>
<CAPTION>

                                                                        2002                 2001
                                                                  -----------------    -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                 Land                                                 $  6,756,854         $  6,756,854
                 Buildings                                               6,714,927            6,714,927
                                                                  -----------------    -----------------
                                                                        13,471,781           13,471,781

                 Less accumulated depreciation                          (2,362,193 )         (2,138,362 )
                                                                  -----------------    -----------------
                                                                      $ 11,109,588         $ 11,333,419
                                                                  =================    =================
</TABLE>

         In June 2000, the Partnership sold its property in Pueblo, Colorado, to
         a third party and received net sales proceeds of $1,005,000,  resulting
         in a gain of $97,056.  In August 2000, the  Partnership  reinvested the
         majority  of the  net  sales  proceeds  in an  additional  Property  in
         Colorado Springs,  Colorado as  tenants-in-common  with CNL Income Fund
         XII,  Ltd.,  a Florida  limited  partnership  and an  affiliate  of the
         general partners.

         In September  2000,  the  Partnership  sold its property in  Brunswick,
         Georgia,  its property in Lake City,  Florida,  and three properties in
         Jacksonville,  Florida,  for which the land and  building of one of the
         properties  was  classified as a direct  financing  lease,  to separate
         third parties for a total of approximately  $2,404,800 and received net
         sales proceeds of approximately  $2,392,300,  resulting in a total gain
         of $619,495.

         In addition,  in December  2000, the  Partnership  sold its property in
         Friendswood,  Texas,  for which the building was classified as a direct
         financing  lease,  to the tenant in accordance with the purchase option
         under  the  lease  agreement  for  $725,000,  resulting  in a  gain  of
         $160,649.

         In January 2001,  the  Partnership  reinvested  the net sales  proceeds
         received  from the 2000  sales  of  three  of its  properties,  (two in
         Jacksonville,  Florida and one in Lake City, Florida), in a Property in
         Baton Rouge, Louisiana at an approximate cost of $1,495,700.

         In addition,  in November 2001, the Partnership  sold its properties in
         Daytona Beach and Gainesville,  Florida and received net sales proceeds
         of $499,813,  resulting in a gain of $184,894.  In connection  with the
         sales of the properties,  the Partnership received $396,232 in cash and
         accepted a promissory note in the amount of $103,581.

         During the year ended December 31, 2001, the Partnership  established a
         provision for write-down of assets in the amount of $279,862,  relating
         to the  property  in  Saddlebrook,  Florida.  The  tenant  vacated  the
         property and ceased restaurant  operations.  The provision  represented
         the  difference  between  the net  carrying  value of the  property  at
         September  30, 2001 and its  estimated  fair  value.  In  addition,  in
         December  2001,  the  Partnership  sold its  property  in  Saddlebrook,
         Florida and  received net sales  proceeds of  $698,050,  resulting in a
         gain of $74,232.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


2.       Real Estate Properties with Operating Leases - Continued:
         --------------------------------------------------------

         The following is a schedule of the future minimum lease payments to be
         received on noncancellable operating leases at December 31, 2002:

                        2003                    $   1,481,956
                        2004                        1,480,939
                        2005                        1,178,653
                        2006                          973,102
                        2007                          951,805
                        Thereafter                  4,580,051
                                                --------------
                                                $  10,646,506
                                                ==============

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

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

                                                                               2002                 2001
                                                                         -----------------    -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

          Minimum lease payments receivable                                 $   3,223,555        $   3,625,871
          Estimated residual values                                               768,233              768,233
          Less unearned income                                                 (1,647,471 )         (1,941,140 )
                                                                         -----------------    -----------------

          Net investment in direct financing leases                         $   2,344,317        $   2,452,964
                                                                         =================    =================
</TABLE>

         The  following  is a schedule of future  minimum  lease  payments to be
         received on direct financing leases at December 31, 2002:

                             2003              $    402,342
                             2004                   402,342
                             2005                   402,342
                             2006                   402,342
                             2007                   402,342
                             Thereafter           1,211,845
                                              --------------
                                              $   3,223,555
                                              ==============

4.       Investment in Joint Ventures:
         ----------------------------

         The Partnership has an 18% interest,  a 4.79% interest,  a 79% interest
         and  56%  interest  in  the  profits  and  losses  of  CNL   Restaurant
         Investments  II, Des Moines Real Estate Joint  Venture,  CNL  Mansfield
         Joint Venture,  and Duluth Joint Venture,  respectively.  The remaining
         interests  in  these  joint  ventures  are  held by  affiliates  of the
         Partnership which have the same general partners.  The Partnership also
         has a 53% interest in a property in Smithfield, North Carolina, with an
         affiliate  of the  general  partners,  as  tenants-in-common,  a 35.64%
         interest  in a property in Miami,  Florida,  with an  affiliate  of the
         general partners, as tenants-in-common, a 71% interest in a property in
         Montgomery,  Alabama,  with an  affiliate of the general  partners,  as
         tenants-in-common and a 43% interest in a property in Colorado Springs,
         Colorado,   with   an   affiliate   of   the   general   partners,   as
         tenants-in-common.  Amounts  relating to its investment are included in
         investment in joint ventures.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


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

         In January 2001,  the  Partnership  acquired an additional  interest in
         TGIF  Pittsburgh  Joint  Venture  from CNL Income Fund XVIII,  Ltd.,  a
         Florida limited  partnership and an affiliate of the general  partners,
         for an  aggregate  purchase  price  of  approximately  $500,000.  As of
         December  31,  2002,  the  Partnership  owned a 36.88%  interest in the
         profits and losses of the joint venture.

         In April 2001, the Partnership used a portion of the net sales proceeds
         from the sale of its  property in  Friendswood,  Texas and a portion of
         the 2001  collection of a promissory note to enter into a joint venture
         arrangement, CNL VII & XVII Lincoln Joint Venture, with CNL Income Fund
         XVII,  Ltd.,  an  affiliate  of  the  general  partners,  to  hold  one
         restaurant property.  The joint venture acquired this property from CNL
         BB Corp.,  an  affiliate  of the general  partners.  As of December 31,
         2002, the Partnership owned a 14% interest in the profits and losses of
         the joint venture.

         In August 2001, the Partnership used the remaining  portion of the 2001
         collection   of  a  promissory   note  to  enter  into  joint   venture
         arrangement,  CNL VII, XV Columbus Joint Venture,  with CNL Income Fund
         XV,  Ltd.,  an  affiliate of the general  partners,  to  construct  one
         restaurant property in Columbus,  Georgia. As of December 31, 2001, the
         Partnership had contributed  approximately  $1,025,500 to purchase land
         and pay for  construction  costs relating to the joint venture.  During
         2002, the Partnership contributed $76,700 to complete the construction.
         As of December 31, 2002, the Partnership owned a 68.75% interest in the
         profits and losses of the joint venture.

         In June 2002, CNL Restaurant  Investments  II, in which the Partnership
         owns an 18% interest, sold its property in Columbus, Ohio to the tenant
         for a sales price of  approximately  $1,219,600  and received net sales
         proceeds of approximately $1,215,700,  resulting in a gain of $448,300.
         In  addition,  in June 2002,  CNL  Restaurant  Investments  II sold its
         property  in  Pontiac,  Michigan  to the  tenant  for a sales  price of
         $725,000  and received net sales  proceeds of  approximately  $722,600,
         resulting in a loss of $189,800.  The tenants exercised their option to
         purchase the properties under the terms of their respective leases. The
         Partnership received $129,888 as a return of capital from the net sales
         proceeds,   and  used  approximately   $63,900  to  pay  an  additional
         contribution to CNL Mansfield Joint Venture. The joint venture used the
         proceeds  from the sale of the property in Columbus,  Ohio to acquire a
         property in Dallas,  Texas at an approximate  cost of  $1,147,400.  The
         joint venture  acquired this property from CNL Funding  2001-A,  LP, an
         affiliate  of the general  partners.  The  financial  results for these
         properties  are reflected as  Discontinued  Operations in the condensed
         financial information presented below.

         In addition,  in June 2002, the  Partnership  used a portion of the net
         sales  proceeds from the 2001 sale of its  properties  in  Saddlebrook,
         Gainesville  and Daytona  Beach,  Florida to enter into a joint venture
         arrangement,  Arlington Joint Venture,  with CNL Income Fund XVI, Ltd.,
         an affiliate of the general partners,  to hold one restaurant property.
         The joint venture  acquired this property from CNL Funding 2001-A,  LP,
         an affiliate  of the general  partners.  As of December  31, 2002,  the
         Partnership had contributed  approximately  $792,900 for a 79% interest
         in the profits and losses of the joint venture.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


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

         In May 2002, CNL Mansfield Joint Venture, in which the Partnership owns
         a 79% interest,  entered into  negotiations with the tenant to sell the
         property  in  Mansfield,   Texas.  As  a  result,   the  joint  venture
         reclassified  the  assets  relating  to this  property  from  land  and
         building on operating  leases and accrued  rental income to real estate
         held for sale.  The  property was recorded at the lower of its carrying
         amount or fair value less cost to sell. In addition,  the joint venture
         stopped   recording   depreciation   and  accrued  rental  income  upon
         identifying  the property as held for sale.  In August 2002,  the joint
         venture sold the property to the tenant for a sales price of $1,045,000
         and received net sales proceeds of approximately $1,011,500,  resulting
         in a gain  of  approximately  $269,800.  The  joint  venture  used  the
         proceeds  from the sale of the  property  in  Mansfield,  Texas  and an
         additional  contribution  of  approximately  $63,900  received from the
         Partnership,  as described  above,  to acquire a property in Arlington,
         Texas from CNL Net Lease  Investors,  L.P., at an  approximate  cost of
         $1,089,900.  CNL Net  Lease  Investors,  L.P.  is an  affiliate  of the
         general partners. The financial results for this property are reflected
         as  Discontinued  Operations  in the  condensed  financial  information
         presented below.

         As of December 31, 2002, CNL Restaurant  Investments II owns and leases
         five  properties  to  operators of national  fast-food or  family-style
         restaurants.  Des Moines Joint  Venture,  CNL Mansfield  Joint Venture,
         Duluth Joint Venture,  TGIF  Pittsburgh  Joint Venture,  CNL VII & XVII
         Lincoln Joint Venture, CNL VII, XV Columbus Joint Venture and Arlington
         Joint  Venture each own and lease one property to operators of national
         fast-food or family-style restaurants. In addition, the Partnership and
         affiliates,  in four separate tenancy in common arrangements,  each own
         and  lease  one  property  to  national   fast-food   or   family-style
         restaurants.

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

                                                                            December 31,           December 31,
                                                                                2002                  2001
                                                                          ------------------     ----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

           Land and buildings on operating leases, net                        $ 19,271,302         $  16,405,484
           Net investment in direct financing lease                              1,743,852             1,765,740
           Real estate held for sale                                                     -             2,443,638
           Cash                                                                     52,263                62,669
           Receivables                                                               2,445               146,025
           Accrued rental income                                                   424,858               355,752
           Other assets                                                                512                 1,471
           Liabilities                                                             149,219               256,902
           Partners' capital                                                    21,346,013            20,923,877

</TABLE>


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


4.       Investment in Joint Ventures - Continued:
         ----------------------------------------
<TABLE>
<CAPTION>

                                                                            Years Ended December 31,
                                                                      2002            2001             2000
                                                                 ---------------  --------------  ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

           Continuing Operations:
           Revenues                                                 $ 2,289,015    $  2,111,821     $  1,349,662
           Expenses                                                    (450,972 )      (362,045 )       (264,642 )
           Provision for write-down of assets                           (65,755 )            --               --
                                                                 ---------------  --------------  ---------------
                 Income from Continuing Operations                    1,772,288       1,749,776        1,085,020
                                                                 ---------------  --------------  ---------------

           Discontinued Operations:

                 Revenues                                               167,216         200,960          311,630
                 Expenses                                               (25,973 )       (45,010 )        (70,570 )
                 Gain on disposal of assets                             528,296              --               --
                                                                 ---------------  --------------  ---------------
                 Income from Discontinued Operations                    669,539         155,950          241,060
                                                                 ---------------  --------------  ---------------
           Net Income                                               $ 2,441,827     $ 1,905,726      $ 1,326,080
                                                                 ===============  ==============  ===============
</TABLE>

         The Partnership  recognized income totaling $1,027,311,  $717,096,  and
         $456,050  for the  years  ended  December  31,  2002,  2001,  and 2000,
         respectively,  from these joint  ventures  and the  properties  held as
         tenants in common with affiliates.

5.       Allocations and Distributions:
         -----------------------------

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

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


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


5.       Allocations and Distributions - Continued:
         -----------------------------------------

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

         Effective  January  2000,  the general  partners  waived their right to
         receive  future  distributions  from the  Partnership,  including  both
         distributions  of operating cash flow and  distributions of liquidation
         proceeds,   to  the  extent   that  the   cumulative   amount  of  such
         distributions would exceed the balance in the general partners' capital
         account as of December  31,  1999.  Accordingly,  for years  commencing
         January  1,  2000 and  after,  the  Partnership's  net  income  will be
         allocated entirely among the limited partners.  However,  if losses are
         allocated to the general  partners in a year, an amount of income equal
         to the sum of such losses may be allocated  to the general  partners in
         succeeding years. Accordingly,  the general partners were not allocated
         any net income and did not  receive any  distribution  during the years
         ended December 31, 2002, 2001 and 2000.

         During each of the years ended  December 31, 2002,  2001, and 2000, the
         Partnership   declared   distributions   to  the  limited  partners  of
         $2,700,000.  No distributions have been made to the general partners to
         date.


 <PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


6.       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>

                                                                   2002               2001             2000
                                                               -------------      -------------     ------------

<S>     <C>    <C>    <C>    <C>    <C>    <C>

           Net income for financial reporting purposes          $ 2,343,522         $2,215,570      $ 3,221,515

           Effect of timing differences relating to
               depreciation                                         (17,790 )          (14,382 )        (19,345 )

           Effect of timing differences relating to
               gains/losses on property sales                            --            109,317         (832,083 )

           Provision for loss on assets                                  --            279,862               --

           Direct financing leases recorded as operating
               leases for tax reporting purposes                    108,647             95,360          100,821

           Effect of timing differences relating to equity
               in earnings of unconsolidated joint ventures        (318,050 )          (59,325 )         (6,585 )

           Accrued rental income                                     12,040             14,159          (59,795 )

           Rents paid in advance                                      4,628             17,901           (1,792 )

           Effect  of   timing   differences   relating   to
               minority interest of consolidated joint venture       12,630               (728 )            981

           Effect  of   timing   differences   relating   to
               allowance for doubtful accounts                           --               (504 )        (16,175 )

           Deduction of transaction  costs for tax reporting
              purposes                                                   --                 --         (179,206 )
                                                               -------------      -------------     ------------
           Net income for federal income tax purposes           $ 2,145,627         $2,657,230      $ 2,208,336
                                                               =============      =============     ============

</TABLE>


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


7.       Related Party Transactions:
         --------------------------

         One of the individual general partners, James M. Seneff, Jr., is one of
         the principal  shareholders of CNL Holdings,  Inc. The other individual
         general partner, Robert A. Bourne, serves as President and Treasurer of
         CNL Financial  Group,  Inc., a wholly owned subsidiary of CNL Holdings,
         Inc. CNL APF  Partners,  LP, a wholly owned  subsidiary of CNL American
         Properties Fund, Inc. ("APF") served as the Partnership's advisor until
         January 1, 2002,  when it assigned its rights and  obligations  under a
         management  agreement to RAI Restaurants,  Inc.  (formerly known as CNL
         Restaurants  XVIII,  Inc.). RAI Restaurants,  Inc. ("the Advisor") is a
         wholly owned  subsidiary of APF. The  individual  general  partners are
         stockholders and directors of APF.

         In connection therewith,  the Partnership has agreed to pay the Advisor
         an annual, noncumulative, subordinated management fee of one percent of
         the  sum  of  gross  revenues  from  properties  wholly  owned  by  the
         Partnership  and the  Partnership's  allocable  share of gross revenues
         from joint ventures and the properties held as  tenants-in-common  with
         affiliates,  but not in  excess  of  competitive  fees  for  comparable
         services.  These fees will be incurred  and will be payable  only after
         the limited  partners  receive their 10% Preferred  Return.  Due to the
         fact that these fees are  noncumulative,  if the limited  partners have
         not received  their 10%  Preferred  Return in any  particular  year, no
         management  fee will be due or payable  for such  year.  As a result of
         such threshold, no management fees were incurred during the years ended
         December 31, 2002, 2001, and 2000.

         The Advisor is also entitled to receive a deferred,  subordinated  real
         estate disposition fee, payable upon the sale of one or more properties
         based on the lesser of one-half of a competitive real estate commission
         or  three  percent  of the  sales  price  if  the  Advisor  provides  a
         substantial amount of services in connection with the sale. However, if
         the net sales  proceeds are  reinvested in a replacement  property,  no
         such  real  estate   disposition  fees  will  be  incurred  until  such
         replacement   property  is  sold  and  the  net  sales   proceeds   are
         distributed.  The  payment  of  the  real  estate  disposition  fee  is
         subordinated to the receipt by the limited  partners of their aggregate
         10% Preferred  Return,  plus their adjusted capital  contributions.  No
         deferred,  subordinated real estate  disposition fees were incurred for
         the years ended December 31, 2002, 2001, and 2000.

         During  the  years  ended  December  31,  2002,  2001,  and  2000,  the
         Partnership's   advisor  and  its  affiliate  provided  accounting  and
         administrative  services to the Partnership.  The Partnership  incurred
         $166,302,  $170,123, and $91,926 for the years ended December 31, 2002,
         2001, and 2000, respectively, for such services.

         In January 2001, the Partnership  acquired a property  located in Baton
         Rouge,  Louisiana from CNL Funding 2001-A,  LP, for a purchase price of
         approximately $1,495,700.  CNL Fund 2001-A, LP is a an affiliate of the
         general partners.  CNL Funding 2001-A, LP had purchased and temporarily
         held title to the property in order to facilitate  the  acquisition  of
         the  property  by the  Partnership.  The  purchase  price  paid  by the
         Partnership  represented the cost incurred by CNL Funding 2001-A, LP to
         acquire and carry the property.

         In April 2001, the Partnership and CNL Income Fund XVII, Ltd.,  through
         a joint  venture  arrangement,  CNL VII & XVII Lincoln  Joint  Venture,
         acquired a Golden Corral  property  from CNL BB Corp.,  an affiliate of
         the general  partners,  for a total purchase  price of $1,740,374.  CNL
         Income Fund XVII, Ltd. is an affiliate of the general partners.  CNL BB
         Corp.  had  purchased  and  temporarily  held title to this property in
         order to  facilitate  the  acquisition  of the  property  by the  joint
         venture.  The purchase price paid by the joint venture  represented the
         costs incurred by CNL BB Corp. to acquire and carry the property.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


7.       Related Party Transactions - Continued:
         --------------------------------------

         In June 2002, the Partnership  and CNL Income Fund XVI, Ltd.  through a
         joint  venture  arrangement,   Arlington  Joint  Venture,   acquired  a
         property,  in  Arlington,  Texas,  from CNL Funding  2001-A,  LP, for a
         purchase price of approximately  $1,003,600. In addition, in June 2002,
         CNL  Restaurant  Investments  II Joint  Venture  acquired a property in
         Dallas,  Texas from CNL  Funding  2001-A,  LP for a  purchase  price of
         approximately $1,147,400. CNL Funding 2001-A, LP is an affiliate of the
         general partners.  CNL Funding 2001-A, LP had purchased and temporarily
         held title to the properties in order to facilitate the  acquisition of
         the  properties by the joint  ventures.  The purchase price paid by the
         joint ventures represented the costs incurred by CNL Funding 2001-A, LP
         to acquire and carry the properties.

         In September 2002, CNL Mansfield  Joint Venture  acquired a property in
         Arlington,  Texas from CNL Net Lease  Investors,  L.P.  ("NLI"),  at an
         approximate  cost of  $1,089,900.  During 2002,  and prior to the joint
         venture's  acquisition of this property,  CNL Financial LP Holding,  LP
         ("CFN") and CNL Net Lease Investors GP Corp. ("GP Corp")  purchased the
         limited   partner's   interest   and   general   partner's    interest,
         respectively,  of NLI. Prior to this  transaction,  an affiliate of the
         Partnership's  general partners owned a 0.1% interest in NLI and served
         as a general  partner of NLI.  The  original  general  partners  of NLI
         waived their rights to benefit from this  transaction.  The acquisition
         price paid by CFN for the limited  partner's  interest was based on the
         portfolio acquisition price. The joint venture acquired the property in
         Arlington,  Texas  at  CFN's  cost  and  did  not  pay  any  additional
         compensation  to CFN for the  acquisition  of the  property.  Each  CNL
         entity is an affiliate of the Partnership's general partners.

         The  amounts  due to related  parties  totaled  $13,151  and $21,837 at
         December 31, 2002 and 2001, respectively.

8.       Concentration of Credit Risk:
         ----------------------------

         The  following  schedule  presents  total rental  revenues and mortgage
         interest  income  from  individual  lessees,  or  affiliated  groups of
         lessees,  each representing  more than 10% of the  Partnership's  total
         rental   revenues  and  mortgage   interest   income   (including   the
         Partnership's  share of total rental  revenues from the  unconsolidated
         joint  ventures  and  the  properties  held as  tenants-in-common  with
         affiliates  of the  general  partners)  for  each  of the  years  ended
         December 31:
<TABLE>
<CAPTION>

                                                                2002              2001               2000
                                                            -------------     -------------      -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                  Golden Corral Corporation                    $ 766,789         $ 763,975          $ 732,948
                  Jack in the Box Inc.                           366,284           349,985                N/A
                  Restaurant Management
                      Services, Inc.                                 N/A               N/A            328,244
                  Waving Leaves, Inc.                                N/A           283,072            289,268


</TABLE>

<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


8.       Concentration of Credit Risk - Continued:
         ----------------------------------------

         In addition,  the following schedule presents total rental revenues and
         mortgage  interest  income  from  individual  restaurant  chains,  each
         representing more than 10% of the  Partnership's  total rental revenues
         and mortgage  interest  income  (including the  Partnership's  share of
         total rental  revenues from the  unconsolidated  joint ventures and the
         properties held as  tenants-in-common  with affiliates) for each of the
         years ended December 31:
<TABLE>
<CAPTION>

                                                                 2002              2001               2000
                                                             -------------     --------------     -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

             Golden Corral Family
                 Steakhouse Restaurants                         $ 766,789          $ 763,975         $ 732,948
             Hardees                                              415,447            426,841           544,275
             Jack in the Box                                      366,284            349,985               N/A
             Burger King                                              N/A            305,348           313,857
</TABLE>

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

         The  information   denoted  by  N/A  indicates  that  for  each  period
         presented,  the tenant or restaurant  chain did not represent more than
         10% of the Partnership's total rental revenues.

9.       Selected Quarterly Financial Data:
         ---------------------------------

         The following table presents  selected  unaudited  quarterly  financial
         data for each full quarter during the years ended December 31, 2002 and
         2001:
<TABLE>
<CAPTION>

                2002 Quarter             First          Second          Third          Fourth             Year
         ---------------------------- ------------  ---------------  ------------  ---------------   ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

         Revenues                        $455,426       $  426,613     $ 486,651       $  517,699       $ 1,886,389
         Equity in earnings of
              joint ventures              155,988          244,877       426,399          200,047         1,027,311
         Net Income                       450,360          534,578       757,687          600,897         2,343,522
         Net Income per limited
              partner unit:                 0.015            0.018         0.025            0.020             0.078

</TABLE>



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2002, 2001, and 2000


9.       Selected Quarterly Financial Data - Continued:
         ---------------------------------------------
<TABLE>
<CAPTION>

                2001 Quarter             First           Second         Third          Fourth             Year
         ---------------------------- -------------   -------------  ------------  ---------------   ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

         Revenues                        $ 539,964       $ 496,159     $ 471,150       $  536,541       $ 2,043,814
         Equity in earnings of
              joint venture                162,637         176,240       185,282          192,937           717,096
         Net Income                        610,040         223,679       538,628          843,223         2,215,570
         Net Income per limited
               partner unit:                 0.020           0.008         0.018            0.028             0.074


</TABLE>

<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 American Properties Fund, Inc. ("APF"), CNL Fund
Advisors, Inc., CNL Financial Group, Inc. and their affiliates, all of which are
affiliates of the General Partners.

         James M. Seneff, Jr., age 56. Since 1971, Mr. Seneff has been active in
the  acquisition,  development,  and  management  of real estate  projects  and,
directly or through an  affiliated  entity,  has served as a general  partner or
co-venturer in over 100 real estate  ventures.  These ventures have involved the
financing,  acquisition,   construction,  and  leasing  of  restaurants,  office
buildings,  apartment  complexes,  hotels, and other real estate. Mr. Seneff has
served as Director  and  Chairman of the Board of APF, a public,  unlisted  real
estate  investment  trust,  since 1994.  Mr.  Seneff  served as Chief  Executive
Officer  of APF from 1994  through  August  1999,  and has  served  as  co-Chief
Executive  Officer of APF since  December 2000. Mr. Seneff served as Chairman of
the Board and Chief Executive Officer of CNL Fund Advisors,  Inc.,  formerly the
Partnership's advisor, until it merged with a wholly-owned  subsidiary of APF in
September  1999, and in June 2000, was re-elected to those positions of CNL Fund
Advisors, Inc. Mr. Seneff is a principal stockholder of CNL Holdings,  Inc., the
parent  company of CNL  Financial  Group,  Inc.  (formerly CNL Group,  Inc.),  a
diversified real estate company,  and has served as a Director,  Chairman of the
Board and  Chief  Executive  Officer  of CNL  Financial  Group,  Inc.  since its
formation in 1980.  CNL  Financial  Group,  Inc. is the parent  company,  either
directly or indirectly through subsidiaries,  of CNL Real Estate Services, Inc.,
CNL Capital Markets,  Inc., CNL Investment Company and CNL Securities Corp., all
of which are engaged in the  business of real estate  finance.  Mr.  Seneff also
serves as a Director,  Chairman of the Board and Chief Executive  Officer of CNL
Hospitality  Properties,  Inc., a public, unlisted real estate investment trust,
as well as, CNL  Hospitality  Corp.,  its advisor.  In addition,  he serves as a
Director,  Chairman of the Board and Chief  Executive  Officer of CNL Retirement
Properties,  Inc.,  a public,  unlisted  real  estate  investment  trust and its
advisor,  CNL  Retirement  Corp.  Since  1992,  Mr.  Seneff has also served as a
Director,  Chairman of the Board and Chief  Executive  Officer of Commercial Net
Lease Realty,  Inc., a public real estate investment trust that is listed on the
New York Stock Exchange.  Mr. Seneff has also served as a Director,  Chairman of
the Board and Chief Executive  Officer of CNL Securities  Corp.  since 1979; CNL
Investment  Company  since  1990;  and  CNL  Institutional  Advisors,   Inc.,  a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served  as a  Director  of First  Union  National  Bank of  Florida,  N.A.,  and
currently  serves as the  Chairman  of the Board of CNL  Bank,  an  independent,
state-chartered  commercial  bank. Mr. Seneff  previously  served on the Florida
State Commission on Ethics and is a former member and past Chairman of the State
of Florida Investment Advisory Council, which recommends to the Florida Board of
Administration  investments for various Florida employee  retirement  funds. The
Florida Board of Administration,  Florida's  principal  investment  advisory and
money  management  agency,  oversees the  investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration from
Florida State University in 1968.

         Robert A.  Bourne,  age 55. Mr.  Bourne has  participated  as a general
partner  or  co-venturer  in over  100  real  estate  ventures  involved  in the
financing,  acquisition,   construction,  and  leasing  of  restaurants,  office
buildings,  apartment complexes,  hotels, and other real estate. Mr. Bourne is a
Director  of APF.  Mr.  Bourne  served as  President  of APF from  1994  through
February  1999. He also served as Treasurer  from  February 1999 through  August
1999  and from May  1994  through  December  1994.  He also  served  in  various
executive  positions  with CNL Fund  Advisors,  Inc.  prior to its merger with a
wholly-owned subsidiary of APF including,  President from 1994 through September
1997, and Director from 1994 through August 1999. Mr. Bourne serves as President
and  Treasurer of CNL  Financial  Group,  Inc.;  Director,  Vice Chairman of the
Board, and Treasurer , and from 1997 until June 2002 served as President, of CNL
Hospitality  Properties,  Inc., a public, unlisted real estate investment trust;
as well as, Director,  Vice Chairman of the Board, and Treasurer,  and from 1997
until June 2002 served as President,  of CNL Hospitality Corp., its advisor.  In
addition,  Mr.  Bourne  serves as  Director,  Vice  Chairman  of the Board,  and
Treasurer,  and from 1997 until June 2002 served as President, of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
Director,  Vice Chairman of the Board,  and Treasurer,  and from 1997 until June
2002 served as President,  of its advisor,  CNL Retirement Corp. Mr. Bourne also
serves as a Director of CNL Bank. He has served as a Director  since 1992,  Vice
Chairman of the Board since February 1996, Secretary and Treasurer from February
1996 through  1997,  and  President  from July 1992 through  February  1996,  of
Commercial Net Lease Realty,  Inc., a public real estate investment trust listed
on the New York Stock  Exchange.  Mr. Bourne also serves as Director,  President
and Treasurer for various affiliates of CNL Financial Group, Inc. including, CNL
Investment Company, CNL Securities Corp. and CNL Institutional Advisors, Inc., a
registered  investment advisor for pension plans. Mr. Bourne began his career as
a certified public  accountant  employed by Coopers & Lybrand,  Certified Public
Accountants,  from 1971  through  1978,  where he attained  the  position of Tax
Manager in 1975.  Mr. Bourne  graduated  from Florida  State  University in 1970
where he received a B.A. in Accounting, with honors.
<PAGE>

         Curtis B.  McWilliams,  age 47. Mr.  McWilliams  has served as Co-Chief
Executive  Officer of APF since  December  2000 and  previously  served as Chief
Executive  Officer from  September  1999  through  December  2000.  Prior to the
acquisition of CNL Fund Advisors,  Inc., Mr.  McWilliams  served as President of
APF from  February  1999 until  September  1999.  From February 1998 to February
1999, he served as Executive  Vice President of APF. Mr.  McWilliams  joined CNL
Financial  Group,  Inc. in April 1997 and served as an Executive  Vice President
from October 1997 until September 1999. In addition,  Mr.  McWilliams  served as
President  of CNL Fund  Advisors,  Inc.  and CNL  Financial  Services,  Inc.,  a
corporation  engaged in the business of real estate  financing,  from April 1997
until the  acquisition of such entities by  wholly-owned  subsidiaries of APF in
September  1999.  From  September  1983 through March 1997,  Mr.  McWilliams was
employed by Merrill  Lynch & Co. The  majority of his career at Merrill  Lynch &
Co.  was in the  Investment  Banking  division  where he  served  as a  Managing
Director.  Mr.  McWilliams  received  a  B.S.E.  in  Chemical  Engineering  from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.

         Steven  D.  Shackelford,  age  39.  Mr.  Shackelford  was  promoted  to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief  Financial  Officer  since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors,  Inc. from September  1996 to September  1999.  From March
1995 to July 1996, Mr.  Shackelford  was a senior manager in the national office
of Price  Waterhouse LLP where he was responsible  for advising  foreign clients
seeking to raise capital and a public listing in the United States.  From August
1992 to March  1995,  he was a  manager  in the  Paris,  France  office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and  senior  from  1986 to 1992 in the  Orlando,  Florida  office of Price
Waterhouse.  Mr.  Shackelford  received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business  Administration  degree from Florida State
University and is a certified public accountant.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the Exchange Act requires the General  Partners,  the
officers of the  corporate  General  Partner,  and persons who own more than ten
percent  of  a  registered  class  of  the   Partnership's   equity   securities
(collectively,  the  "Reporting  Persons"),  to file  reports of  ownership  and
changes in  ownership  on Forms 3, 4 and 5 with the SEC.  Reporting  Persons are
required by SEC regulation to furnish the  Partnership  with copies of all Forms
3, 4 and 5 that they file.

         Based  solely on the  General  Partners'  review of the  copies of such
forms the  Partnership  has  received and written  representations  from certain
Reporting  Persons  that they  were not  required  to file  Forms 5 for the last
fiscal year, the General  Partners  believe that all Reporting  Persons complied
with all filing  requirements  applicable  to them with respect to  transactions
during fiscal 2002.




<PAGE>


Item 11.  Executive Compensation

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


Item 12.  Security Ownership of Certain Beneficial Owners and Management

         As of March 10,  2003,  no person was known to the  Registrant  to be a
beneficial owner of more than five percent of the Units.

         The following  table sets forth,  as of March 10, 2003,  the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>

                    Title of Class                           Name of Partner                 Percent of Class
                    --------------                           ---------------                 ----------------
<S>     <C>    <C>    <C>    <C>    <C>    <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.

         The Partnership does not have any equity compensation plans.


<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, 2002,  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, 2002
              -------------                          ---------------------                   -----------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Reimbursement     to    affiliates    for     Operating  expenses  are  reimbursed     Accounting    and     administrative
operating expenses                            at the  lower  of cost or 90% of the     services: $166,302
                                              prevailing rate at which
                                              comparable services could have
                                              been obtained in the same
                                              geographic area. Affiliates of the
                                              General Partners from time to time
                                              incur certain operating expenses
                                              on behalf of the Partnership for
                                              which the Partnership reimburses
                                              the affiliates without interest.

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


</TABLE>


<PAGE>


<TABLE>
<CAPTION>

                                                                                         Amount Incurred
          Type of Compensation                                                              For the Year
              and Recipient                          Method of Computation              Ended December 31, 2002
              -------------                          ---------------------         ----------------------------
<S>     <C>    <C>    <C>    <C>    <C>    <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,     A   deferred,   subordinated   share     $ - 0 -
sub-ordinated  share of  Partnership  net     equal to one percent of  Partnership
cash flow                                     distributions   of  net  cash  flow,
                                              subordinated   to  certain   minimum
                                              returns to the Limited Partners.

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

</TABLE>


<PAGE>


<TABLE>
<CAPTION>

                                                                                           Amount Incurred
          Type of Compensation                                                                For the Year
              and Recipient                          Method of Computation                Ended December 31, 2002
              -------------                          ---------------------         -----------------------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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


CNL Restaurant  Investments II acquired a Taco Cabana property in Dallas,  Texas
from CNL  Funding  2001-A,  LP,  an  affiliate  of the  general  partners  at an
approximated  cost of  $1,147,400.  CNL Funding  2001-A,  LP had  purchased  and
temporarily held title to the property in order to facilitate the acquisition of
the property by the joint venture.  The purchase price paid by the joint venture
represents the costs incurred by CNL Funding 2001-A, LP to acquire and carry the
property.

The Partnership  entered into a joint venture  arrangement  with CNL Income Fund
XVI,  Ltd.,  an  affiliate  of the  general  partners  to acquire a Taco  Cabana
property in Arlington,  Texas from CNL Funding  2001-A,  LP, an affiliate of the
general partners at an approximated  cost of $1,003,600.  CNL Funding 2001-A, LP
had purchased and temporarily held title to this property in order to facilitate
the acquisition of the property by the  Partnership.  The purchase price paid by
the  Partnership  represents  the costs incurred by CNL Funding  2001-A,  LP. to
acquire and carry the property.

Mansfield Joint Venture acquired a Jack in the Box property in Arlington,  Texas
from CNL Net Lease Investors, L.P. ("NLI"), an affiliate of the general partners
at an  approximated  cost of  $1,089,900.  During  2002,  and prior to the joint
venture's acquisition of this property, CNL Financial LP Holding, LP ("CFN") and
CNL Net Lease  Investors GP Corp.  ("GP Corp")  purchased the limited  partner's
interest and general  partner's  interest,  respectively,  of NLI. Prior to this
transaction,  an affiliate of the  Partnership's  general  partners owned a 0.1%
interest in NLI and served as a general  partner of NLI.  The  original  general
partners  of NLI waived  their  rights to  benefit  from this  transaction.  The
acquisition  price paid by CFN for the limited  partner's  interest was based on
the portfolio  acquisition  price.  The joint  venture  acquired the property in
Arlington,  Texas at CFN's cost and did not pay any additional  compensation  to
CFN for the acquisition of the property.  Each CNL entity is an affiliate of the
Partnership's general partners.
<PAGE>

Item 14. Controls and Procedures

         The  general  partners  maintain  a  set  of  disclosure  controls  and
procedures  designed to ensure that information  required to be disclosed in the
Partnership's  filings  under the  Securities  Exchange Act of 1934 is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
Securities and Exchange  Commission's  rules and forms. The principal  executive
and  financial  officers of the  corporate  general  partner have  evaluated the
Partnership's  disclosure  controls and  procedures  within 90 days prior to the
filing  of this  Annual  Report  on Form  10-K and  have  determined  that  such
disclosure controls and procedures are effective.

         Subsequent to the above evaluation,  there were no significant  changes
in internal  controls or other  factors  that could  significantly  affect these
controls,   including  any   corrective   actions  with  regard  to  significant
deficiencies and material weaknesses.

                                     PART IV
<TABLE>
<CAPTION>


Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

          1.  Financial Statements

                  Report of Independent Certified Public Accountants

                  Balance Sheets at December 31, 2002 and 2001

                  Statements of Income for the years ended December 31, 2002, 2001, and 2000

                  Statements of Partners' Capital for the years ended December 31, 2002, 2001, and 2000

                  Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000

                  Notes to Financial Statements

          2.  Financial Statement Schedules

                  Schedule II - Valuation and Qualifying Accounts for the years
                  ended December 31, 2002, 2001, and 2000

                  Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002

                  Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002

                  Schedule IV - Loans on Real Estate at December 31, 2002

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

          3.  Exhibits

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

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

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

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

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

                 **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.)

                 **10.4   Assignment  of  Management  Agreement  from  CNL  Fund
                          Advisors,  Inc. to CNL APF Partners,  LP. (Included as
                          Exhibit  10.4 to Form 10-Q filed  with the  Securities
                          and  Exchange  Commission  on  August  10,  2001,  and
                          incorporated herein by reference.)

                 **10.5   Assignment  of  Management   Agreement  from  CNL  APF
                          Partners,  LP to CNL Restaurants XVIII, Inc. (Included
                          as Exhibit 10.5 to Form 10-Q filed with the Securities
                          and  Exchange  Commission  on  August  13,  2002,  and
                          incorporated herein by reference.)

                 99.1     Certification of Chief Executive  Officer of Corporate
                          General Partner Pursuant to 18 U.S.C.  Section 1350 as
                          Adopted Pursuant to Section 906 of the  Sarbanes-Oxley
                          Act of 2002. (Filed herewith.)

                 99.2     Certification of Chief Financial  Officer of Corporate
                          General Partner Pursuant to 18 U.S.C.  Section 1350 as
                          Adopted Pursuant to Section 906 of the  Sarbanes-Oxley
                          Act of 2002. (Filed herewith.)

       (b)       The  Registrant  filed no reports on Form 8-K during the period
                 from October 1, 2002 through December 31, 2002.

       (c)       Not applicable.

       (d)       Other Financial Information

                 The   Partnership   is  required  to  file  audited   financial
                 information of one of its tenants  (Golden Corral  Corporation)
                 as a  result  of  this  tenant  leasing  more  than  20% of the
                 Partnership's  total  assets  for the year ended  December  31,
                 2002. Golden Corral Corporation is a privately-held company and
                 its financial  information is not available to the  Partnership
                 to  include  in this  filing.  The  Partnership  will file this
                 financial  information  under cover of a Form 10-K/A as soon as
                 it is available.

       **        previously filed


<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 27th day of
March, 2003.

                                           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>    <C>    <C>    <C>    <C>    <C>

/s/ Robert A. Bourne                       President,   Treasurer  and  Director              March 27, 2003
-------------------------------
    Robert A. Bourne                      (Principal Financial and Accounting  Officer)

/s/ James  M. Seneff,                      Chief Executive  Officer and Director              March 27, 2003
-------------------------------
    James M. Seneff, Jr.                  (Principal Executive  Officer)

</TABLE>



<PAGE>



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

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>

                                                     Additions                           Deductions
                                          ---------------------------------    -------------------------------

<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                                         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
----------    -----------------   --------------  ---------------  ----------------    -------------     ------------  ------------

  2000        Allowance for
                  doubtful
                  accounts (a)        $  26,524          $    --     $     504 (b)     $      -- (c)     $ 16,679      $ 10,349
                                  ==============  ===============  ================    =============     ============  ============

  2001        Allowance for
                  doubtful
                  accounts (a)        $  10,349          $    --     $    -- (b)       $   9,845 (c)      $   504        $   --
                                  ==============  ===============  ================    =============     ============  ============

  2002        Allowance for
                  doubtful
                  accounts (a)           $   --          $    --    $    --            $      --           $   --        $   --
                                  ==============  ===============  ================    =============     ============  ============
</TABLE>


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

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

              (c)  Amounts written off as uncollectible.


<PAGE>



                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                          OF CORPORATE GENERAL PARTNER

                 PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


         I, James M.  Seneff,  Jr.,  the Chief  Executive  Officer of CNL Realty
Corporation,  the  corporate  general  partner of CNL Income Fund VII, Ltd. (the
"registrant"), certify that:

           1.   I  have  reviewed  this  annual  report  on  Form  10-K  of  the
                registrant;

           2.   Based on my  knowledge,  this annual report does not contain any
                untrue  statement of a material fact or omit to state a material
                fact  necessary  to make the  statements  made,  in light of the
                circumstances   under  which  such  statements  were  made,  not
                misleading  with  respect to the period  covered by this  annual
                report;

           3.   Based on my  knowledge,  the  financial  statements,  and  other
                financial  information  included in this annual  report,  fairly
                present  in  all  material  respects  the  financial  condition,
                results of  operations  and cash flows of the  registrant as of,
                and for, the periods presented in this annual report;

           4.   The registrant's  other certifying officer and I are responsible
                for  establishing  and  maintaining   disclosure   controls  and
                procedures  (as defined in Exchange Act Rules 13a-14 and 15d-14)
                for the registrant and have:

                      a.  designed such  disclosure  controls and  procedures to
                          ensure  that  material  information  relating  to  the
                          registrant,  including its consolidated  subsidiaries,
                          is made known to us by others  within those  entities,
                          particularly  during the  period in which this  annual
                          report is being prepared;

                      b.  evaluated  the   effectiveness   of  the  registrant's
                          disclosure controls and procedures as of a date within
                          90 days prior to the filing date of this annual report
                          (the "Evaluation Date"); and

                      c.  presented in this annual report our conclusions  about
                          the  effectiveness  of  the  disclosure  controls  and
                          procedures   based  on  our   evaluation   as  of  the
                          Evaluation Date;

           5.   The registrant's  other certifying officer and I have disclosed,
                based  on  our  most  recent  evaluation,  to  the  registrant's
                auditors  and the  audit  committee  of  registrant's  board  of
                directors (or persons performing the equivalent functions):

                      a.  all   significant   deficiencies   in  the  design  or
                          operation of internal  controls which could  adversely
                          affect the  registrant's  ability to record,  process,
                          summarize   and   report   financial   data  and  have
                          identified for the registrant's  auditors any material
                          weaknesses in internal controls; and

                      b.  any fraud,  whether  or not  material,  that  involves
                          management  or other  employees who have a significant
                          role in the registrant's internal controls; and

           6.   The registrant's  other certifying  officer and I have indicated
                in this  annual  report  whether or not there  were  significant
                changes in  internal  controls  or in other  factors  that could
                significantly affect internal controls subsequent to the date of
                our most recent  evaluation,  including any  corrective  actions
                with regard to significant deficiencies and material weaknesses.

Date:  March 27, 2003


/s/ James M. Seneff, Jr.
---------------------------
 James M. Seneff, Jr.
Chief Executive Officer


<PAGE>


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                          OF CORPORATE GENERAL PARTNER

                 PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

         I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate  general  partner of CNL Income Fund VII, Ltd. (the  "registrant")
certify that:

           1.   I  have  reviewed  this  annual  report  on  Form  10-K  of  the
                registrant;

           2.   Based on my  knowledge,  this annual report does not contain any
                untrue  statement of a material fact or omit to state a material
                fact  necessary  to make the  statements  made,  in light of the
                circumstances   under  which  such  statements  were  made,  not
                misleading  with  respect to the period  covered by this  annual
                report;

           3.   Based on my  knowledge,  the  financial  statements,  and  other
                financial  information  included in this annual  report,  fairly
                present  in  all  material  respects  the  financial  condition,
                results of  operations  and cash flows of the  registrant as of,
                and for, the periods presented in this annual report;

           4.   The registrant's  other certifying officer and I are responsible
                for  establishing  and  maintaining   disclosure   controls  and
                procedures  (as defined in Exchange Act Rules 13a-14 and 15d-14)
                for the registrant and have:

                      a.  designed such  disclosure  controls and  procedures to
                          ensure  that  material  information  relating  to  the
                          registrant,  including its consolidated  subsidiaries,
                          is made known to us by others  within those  entities,
                          particularly  during the  period in which this  annual
                          report is being prepared;

                      b.  evaluated  the   effectiveness   of  the  registrant's
                          disclosure controls and procedures as of a date within
                          90 days prior to the filing date of this annual report
                          (the "Evaluation Date"); and

                      c.  presented in this annual report our conclusions  about
                          the  effectiveness  of  the  disclosure  controls  and
                          procedures   based  on  our   evaluation   as  of  the
                          Evaluation Date;

           5.   The registrant's  other certifying officer and I have disclosed,
                based  on  our  most  recent  evaluation,  to  the  registrant's
                auditors  and the  audit  committee  of  registrant's  board  of
                directors (or persons performing the equivalent functions):

                      a.  all   significant   deficiencies   in  the  design  or
                          operation of internal  controls which could  adversely
                          affect the  registrant's  ability to record,  process,
                          summarize   and   report   financial   data  and  have
                          identified for the registrant's  auditors any material
                          weaknesses  in  internal  controls;  and

                      b.  any fraud,  whether  or not  material,  that  involves
                          management  or other  employees who have a significant
                          role in the registrant's internal controls; and

           6.   The registrant's  other certifying  officer and I have indicated
                in this  annual  report  whether or not there  were  significant
                changes in  internal  controls  or in other  factors  that could
                significantly affect internal controls subsequent to the date of
                our most recent  evaluation,  including any  corrective  actions
                with regard to significant deficiencies and material weaknesses.

Date:  March 27, 2003


/s/ Robert A. Bourne
---------------------------
Robert A. Bourne
President and Treasurer


<PAGE>

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

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 2002

<TABLE>
<CAPTION>

                                                                   Costs Capitalized
                                                                   Subsequent To
                                            Initial Cost           Acquisition
                                  ---------------------- -----------------
                      Encum-                 Buildings anImprove-   Carrying
                      brances       Land      Improvements ments    Costs
                      --------    ---------- ---------------------- ------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Properties the Partnership
  has Invested in Under
  Operating Leases:

    Burger King Restaurants:
     Jefferson City, Tenn-ssee     $216,633    $546,967          -      -
     Sierra Vista, Arizon-          421,170           -          -      -

    Checkers Drive-In Restaurant:
     Winter Springs, Flor-da        397,536           -          -      -

    Donatos Pizza Restaurant:
     Marietta, Georgia   -          534,421     507,133          -      -

    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:
     Baton Rouge, Lousian-a         562,533     933,167          -      -
     San Antonio, Texas  -          525,720           -    381,591      -

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

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

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

                                  $6,756,854 $4,190,650  $2,524,277     -
                                  ========== =========== ========== ======

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

    Burger King Restaurants:
     San Antonio, Texas  -         $350,479    $623,615          -      -
     Raceland, Louisiana -          174,019     986,879          -      -
     New Castle, Indiana -          264,239     662,265          -      -
     Hastings, Minnesota -          155,553     657,159          -      -

    Taco Cabana Restaurants:
     Dallas, Texas       -          633,492     513,931          -      -
                                  ---------- ----------- ---------- ------
                                  $1,577,782 $3,443,849          -      -
                                  ========== =========== ========== ======
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, Washingt-n        $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:
     Arlington, Texas (I)-j)       $409,795    $680,086          -      -
                                  ========== =========== ========== ======

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

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

Property of Joint Venture in
   Which the Partnership has a 36.88%
   Interest and has Invested
   in Under an Operating Lease:

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

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

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

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

    Golden Corral Family
     Steakhouse Restaurants:
          Smithfield, Nor-h Carolin$264,272  $1,155,018          -      -
                                  ========== =========== ========== ======

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

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

Property of Joint Venture in
   Which the Partnership has a 14.00%
   Interest and has Invested
   in Under an Operating Lease:

     Golden Corral Family
       Steakhouse Restaurants:
           Lincoln, Nebra-ka (k)   $485,390  $1,264,417          -      -
                                  ========== =========== ========== ======

Property of Joint Venture in
   Which the Partnership has a 68.75%
   Interest and has Invested
   in Under an Operating Lease:

     Sonny's Bar-B-Q:
         Columbus, Georgi-         $408,880  $1,194,307          -      -
                                  ========== =========== ========== ======

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

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

Property of Joint Venture in
   Which the Partnership has a 79.00%
   Interest and has Invested
   in Under an Operating Lease:

     Taco Cabana Restaurant:
         Arlington, Texas-         $456,544    $547,070          -      -
                                  ========== =========== ========== ======

Properties the Partnership has
   Invested in Under Direct
   Financing Leases:

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

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

                                          -  $2,739,717   $333,212      -
                                  ========== =========== ========== ======

Property of Joint Venture in
   Which the Partnership has a 56%
    and has Invested in Under a Direct
   Financing Lease:

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

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

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



                                                                 Life on Which
              Net Cost Basis at Which                            Depreciation in
              Carried at Close of Period (c)     Date            Latest Income
   ---------------------------------
              Buildings and           Accumulatedof Con-Date     Statement is
     Land     Improvements  Total     DepreciatiostructiAcquired  Computed
   ---------  ----------------------  ------------------------------------

   $216,633    $546,967    $763,600   $229,526   1988   01/90      (b)
    421,170          (f)    421,170          -   1990   06/90      (d)


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


    534,421     507,133   1,041,554    104,290   1994   10/96      (b)



    502,364     815,831   1,318,195    346,970   1990   03/90      (b)
    481,748     857,185   1,338,933    364,010   1990   04/90      (b)
    745,506     802,132   1,547,638    328,471   1990   05/90      (b)
    503,799     890,878   1,394,677    367,253   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)


    562,533     933,167   1,495,700     62,211   2000   01/01      (b)
    525,720     381,591     907,311    158,108   1990   05/90      (b)


    175,020     333,759     508,779    138,015   1985   08/90      (b)


    281,880     243,610     525,490     97,378   1990   01/91      (b)


    168,429     402,674     571,103    165,961   1990   06/90      (b)
   ---------  ----------  ----------  ---------

   $6,756,854 $6,714,927  $13,471,781 $2,362,193
   =========  ==========  ==========  =========


</TABLE>
<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 2002


(a)           Transactions  in real  estate  and  accumulated  depreciation  are
summarized  below.  The balances in 2001,  2000,  and 1999 have been adjusted to
reflect  the  reclassification  of  properties  accounted  for  as  discontinued
operations.

<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                                               Cost            Depreciation
                                                                         -----------------    ----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

           Properties the Partnership has Invested
            in Under Operating Leases:

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

               Balance, December 31, 2000                                       13,522,600          2,225,560
               Acquisitions                                                      1,495,700                 --
               Dispositions                                                     (1,546,519)          (333,933 )
               Depreciation expense                                                     --            246,735
                                                                         -----------------    ----------------

               Balance, December 31, 2001                                       13,471,781          2,138,362
               Depreciation expense                                                     --            223,831
                                                                         -----------------    ----------------

               Balance, December 31, 2002                                    $  13,471,781       $  2,362,193
                                                                         =================    ================

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

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

               Balance, December 31, 2000                                       6,131,281            1,409,246
               Depreciation expense                                                    --              152,137
                                                                          ----------------     ---------------

               Balance, December 31, 2001                                       6,131,281            1,561,383
               Acquisitions                                                     1,147,423                   --
               Dispositions                                                    (2,257,073  )          (577,213 )
               Depreciation expense                                                    --              125,814
                                                                          ----------------     ---------------

               Balance, December 31, 2002                                   $   5,021,631          $ 1,109,984
                                                                          ================     ===============


</TABLE>

<PAGE>


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

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

                                December 31, 2002

<TABLE>
<CAPTION>

                                                                                               Accumulated
                                                                              Cost             Depreciation
                                                                         ----------------     ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

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

              Balance, December 31, 2000                                       1,114,384              216,673
              Depreciation expense                                                    --               26,389
                                                                         ----------------     ---------------

              Balance, December 31, 2001                                       1,114,384              243,062
              Depreciation expense                                                    --               26,389
                                                                         ----------------     ---------------

              Balance, December 31, 2002                                    $  1,114,384           $  269,451
                                                                         ================     ===============

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

              Balance, December 31, 2001 (i)                                    $     --      $           --
              Acquisition (j)                                                  1,089,881                  --
              Depreciation expense                                                    --              10,075
                                                                        -----------------    ----------------

              Balance, December 31, 2002                                    $  1,089,881       $      10,075
                                                                        =================    ================
</TABLE>


<PAGE>


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

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

                                December 31, 2002

<TABLE>
<CAPTION>

                                                                                            Accumulated
                                                                           Cost             Depreciation
                                                                     ------------------   -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

       Property of Joint Venture in Which the Partnership
         has a 36.88% Interest and has Invested in Under an Operating Lease:

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

            Balance, December 31, 2000                                       2,535,593              29,288
            Depreciation expense                                                    --              49,977
                                                                     ------------------   -----------------

            Balance, December 31, 2001                                       2,535,593              79,265
            Depreciation expense                                                    --              49,977
                                                                     ------------------   -----------------

            Balance, December 31, 2002                                   $   2,535,593         $   129,242
                                                                     ==================   =================

       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, 1999                                 $     1,419,290         $    77,951
            Depreciation expense                                                 --                 38,501
                                                                       ----------------    ----------------

            Balance, December 31, 2000                                      1,419,290              116,452
            Depreciation expense                                                   --               38,501
                                                                       ----------------    ----------------

            Balance, December 31, 2001                                      1,419,290              154,953
            Depreciation expense                                                   --               38,501
                                                                       ----------------    ----------------

            Balance, December 31, 2002                                  $   1,419,290         $    193,454
                                                                       ================    ================
</TABLE>



<PAGE>


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

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

                                December 31, 2002

<TABLE>
<CAPTION>
                                                                                             Accumulated
                                                                            Cost             Depreciation
                                                                      ------------------   -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

       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, 1999                                   $   1,950,373         $    65,023
             Depreciation expense                                                    --              32,467
                                                                      ------------------   -----------------

             Balance, December 31, 2000                                       1,950,373              97,490
             Depreciation expense                                                    --              32,467
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                       1,950,373             129,957
             Depreciation expense                                                    --              32,467
                                                                      ------------------   -----------------

             Balance, December 31, 2002                                   $   1,950,373          $  162,424
                                                                      ==================   =================

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

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

             Balance, December 31, 2000                                       1,943,654               7,210
             Reclassified to capital lease                                     (865,185 )            (7,210 )
             Depreciation expense (d)                                                --                  --
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                       1,078,469                  --
             Depreciation expense (d)                                                --                  --
                                                                      ------------------   -----------------

             Balance, December 31, 2002                                   $   1,078,469            $     --
                                                                      ==================   =================

</TABLE>


<PAGE>


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

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

                                December 31, 2002


<TABLE>
<CAPTION>
                                                                                             Accumulated
                                                                            Cost             Depreciation
                                                                      ------------------   -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

        Property of Joint Venture in Which the Partnership has a 14% Interest
          and has Invested in Under an Operating Lease:

             Balance, December 31, 2000                                 $            --        $         --
             Acquisition                                                      1,740,374                  --
             Depreciation expense                                                    --              31,374
                                                                      ------------------   -----------------

              Balance, December 31, 2001                                      1,740,374              31,374
             Capitalization of additional
                 construction costs (k)                                           9,433                  --
              Depreciation expense                                                   --              42,384
                                                                      ------------------   -----------------
             Balance, December 31, 2002                                   $   1,749,807         $    73,758
                                                                      ==================   =================

        Property of Joint Venture in Which the Partnership has a 68.75% Interest
          and has Invested in Under an Operating Lease:

             Balance, December 31, 2000                                   $         --            $     --
             Acquisition                                                      1,587,188                  --
             Depreciation expense                                                    --               3,317
                                                                      ------------------   -----------------

              Balance, December 31, 2001                                      1,587,188               3,317
              Acquisition                                                        15,999                  --
              Depreciation expense                                                   --              39,811
                                                                      ------------------   -----------------
              Balance, December 31, 2002                                 $     1,603,187              43,128
                                                                      ==================   =================

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

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

             Balance, December 31, 2000                                         584,126                  --
             Depreciation expense (d)                                                --                  --
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                         584,126                  --
             Depreciation expense (d)                                                --                  --
                                                                      ------------------   -----------------

             Balance, December 31, 2002                                    $    584,126            $     --
                                                                      ==================   =================
</TABLE>


<PAGE>


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

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

                                December 31, 2002
<TABLE>
<CAPTION>

                                                                                             Accumulated
                                                                            Cost             Depreciation
                                                                      ------------------   -----------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

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

             Balance, December 31, 2000                                       2,226,133              17,765
             Depreciation expense                                                    --              42,634
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                       2,226,133              60,399
             Depreciation expense                                                    --              42,634
                                                                      ------------------   -----------------
             Balance, December 31, 2002                                   $   2,226,133       $     103,033
                                                                      ==================   =================

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

             Balance, December 31, 2001                                   $          --       $          --
             Acquisition                                                      1,003,614                  --
             Depreciation expense                                                    --              10,637
                                                                      ------------------   -----------------
             Balance, December 31, 2002                                   $   1,003,614       $      10,637
                                                                      ==================   =================
</TABLE>


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

     (c) As of December 31, 2002, the aggregate cost of the Properties  owned by
         the  Partnership   and  its   consolidated   joint  venture,   and  the
         unconsolidated   joint  ventures  (including  the  Properties  held  as
         tenants-in-common) for federal income tax purposes was $ 22,539,464 and
         $ 16,104,595,  respectively. All of the leases are treated as operating
         leases for federal income tax purposes.

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

     (e) 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) 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.
<PAGE>

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

     (h) During  the year  ended  December  31,  2002,  the  Partnership  and an
         affiliate,  as a Joint  Venture,  purchased land and buildings from CNL
         Funding  2001-A,  LP, an  affiliate  of the  General  Partners,  for an
         aggregate cost of approximately $ 2,151,037.

     (i) In August 2002, Mansfield Joint Venture sold the property in Mansfield,
         Texas. As a result, the Joint Venture  reclassified the assets relating
         to this property from real estate with operating  leases to real estate
         held for sale.

     (j) During  the year  ended  December  31,  2002,  the  Partnership  and an
         affiliate, as a Joint Venture, purchased land and building from CNL Net
         Lease  Investors,  LP, an  affiliate  of the General  Partners,  for an
         aggregate cost of approximately $ 1,089,881.

     (k) During the year ended December 31, 2002, the joint venture  capitalized
         additional  costs paid to the developer upon final  construction  costs
         reconciliation.   In  connection  therewith,  the  building  value  was
         adjusted accordingly.


<PAGE>


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

                       SCHEDULE IV - LOANS ON REAL ESTATE

                                December 31, 2002

<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(2)        or Interest
------------------    ---------  -----------------   -----------   ----------    -------------   --------------     -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Church's-
Daytona Beach,
   Florida             12.34%     November 2004         (1)            $ --        $ 103,581     $                        $    --
                                                                                                 --
                                                                   ----------    -------------   --------------     -------------

    Total                                                              $ --        $ 103,581     $                        $    --
                                                                                                 --
                                                                   ==========    =============   ==============     =============

</TABLE>

     (1) Monthly  payments of interest only at an annual rate of 12.34%,  with a
         balloon payment at maturity of $103,581.

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

<TABLE>
<CAPTION>
                                                               2002               2001                 2000
                                                         ------------------   ---------------     ---------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

             Balance at beginning of period                   $   104,717        $  994,593          $  994,408

             New promissory note                                       --           103,581                  --

             Interest earned                                        9,587             9,243             113,379

             Collection of principal and interest                (114,304  )     (1,125,696  )         (114,341  )

             Recognition  of deferred  gain on sale
               of land and building                                    --           122,996               1,147

                                                         ------------------   ---------------     ---------------

             Balance at end of period                          $       --        $  104,717          $  994,593
                                                         ==================   ===============     ===============
</TABLE>


<PAGE>



                                  EXHIBIT INDEX


Exhibit Number

(a)      Exhibits

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

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

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

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

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

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

             10.4 Assignment of  Management  Agreement  from CNL Fund  Advisors,
                  Inc. to CNL APF  Partners,  LP.  (Included  as Exhibit 10.4 to
                  Form 10-Q filed with the Securities and Exchange Commission on
                  August 10, 2001, and incorporated herein by reference.)

             10.5 Assignment of Management  Agreement from CNL APF Partners,  LP
                  to CNL Restaurants  XVIII,  Inc.  (Included as Exhibit 10.5 to
                  Form 10-Q filed with the Securities and Exchange Commission on
                  August 13, 2002, and incorporated herein by reference.)

             99.1 Certification of Chief Executive  Officer of Corporate General
                  Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
                  to  Section  906 of the  Sarbanes-Oxley  Act of  2002.  (Filed
                  herewith.)

             99.2 Certification of Chief Financial  Officer of Corporate General
                  Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
                  to  Section  906 of the  Sarbanes-Oxley  Act of  2002.  (Filed
                  herewith.)


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                                  EXHIBIT 99.1



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                                  EXHIBIT 99.2