FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT of 1934

                 For the quarterly period ended March 31, 1999
   --------------------------------------------------------------------------

                                       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)

<TABLE>
<CAPTION>

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


400 East South Street
Orlando, Florida                                                                         32801
------------------------------------------------------              ------------------------------------------------
      (Address of principal executive offices)                                        (Zip Code)


Registrant's telephone number
(including area code)                                                               (407) 650-1000
                                                                    ------------------------------------------------
</TABLE>


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


<PAGE>


                                    CONTENTS


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                                                                                Page
<S> <C>
Part I.

         Item 1.           Financial Statements:

                                    Condensed Balance Sheets                    

                                    Condensed Statements of Income              

                                    Condensed Statements of Partners' Capital   

                                    Condensed Statements of Cash Flows          

                                    Notes to Condensed Financial Statements     

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

         Item 3.           Quantitative and Qualitative Disclosures About
                                    Market Risk                                 

Part II.

         Other Information                                                      

</TABLE>


<PAGE>



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

<TABLE>
<CAPTION>

                                                                             March 31,             December 31,
                                                                               1999                    1998
                                                                         ------------------     -------------------
<S> <C>
                               ASSETS

   Land and buildings on operating leases, less
       accumulated depreciation of $2,550,015 and
       $2,473,926                                                             $ 15,002,418            $ 15,078,507
   Net investment in direct financing leases                                     3,343,366               3,365,392
   Investment in joint ventures                                                  3,307,204               3,327,934
   Mortgage notes receivable, less deferred gain of
       $125,005 and $125,278                                                     1,238,427               1,241,056
   Cash and cash equivalents                                                       918,362                 856,825
   Receivables, less allowance for doubtful accounts
       of $28,853 in 1999 and 1998                                                   4,628                  78,478
   Prepaid expenses                                                                 10,579                   4,116
   Accrued rental income, less allowance for doubtful
       accounts of $9,845 in 1999 and 1998                                       1,226,001               1,205,528
   Other assets                                                                     60,422                  60,422
                                                                         ------------------     -------------------

                                                                              $ 25,111,407            $ 25,218,258
                                                                         ==================     ===================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                             $   32,996              $    2,885
   Escrowed real estate taxes payable                                                6,941                   5,834
   Distributions payable                                                           675,000                 675,000
   Due to related parties                                                           15,710                  25,111
   Rents paid in advance and deposits                                               53,205                  49,027
                                                                         ------------------     -------------------
       Total liabilities                                                           783,852                 757,857

   Commitments (Note 3)

   Minority interest                                                               146,344                 146,605

   Partners' capital                                                            24,181,211              24,313,796
                                                                         ------------------     -------------------

                                                                              $ 25,111,407            $ 25,218,258
                                                                         ==================     ===================

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


<PAGE>


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

<TABLE>
<CAPTION>
                                                                                        Quarter Ended
                                                                                          March 31,
                                                                                   1999               1998
                                                                               --------------    ---------------
<S> <C>
Revenues:
    Rental income from operating leases                                            $ 492,724          $ 492,724
    Earned income from direct financing leases                                       101,876            104,375
    Contingent rental income                                                           1,510              9,420
    Interest and other income                                                         39,558             43,990
                                                                               --------------    ---------------
                                                                                     635,668            650,509
                                                                               --------------    ---------------

Expenses:
    General operating and administrative                                              35,336             33,112
    Professional services                                                              4,419              5,281
    State and other taxes                                                             13,055              2,688
    Depreciation                                                                      76,089             76,089
    Transaction costs                                                                 33,273                 --
                                                                               --------------    ---------------
                                                                                     162,172            117,170
                                                                               --------------    ---------------

Income Before Minority Interest in Income of
    Consolidated Joint Venture, Equity in
    Earnings of Unconsolidated Joint Ventures, and
    Gain on Sale of Land and Building                                                473,496            533,339

Minority Interest in Income of Consolidated
    Joint Venture                                                                     (4,649 )           (4,660 )

Equity in Earnings of Unconsolidated Joint Ventures                                   73,295             77,933

Gain on Sale of Land and Building                                                        273                247
                                                                               --------------    ---------------

Net Income                                                                         $ 542,415          $ 606,859
                                                                               ==============    ===============

Allocation of Net Income:
    General partners                                                               $   5,424          $   6,069
    Limited partners                                                                 536,991            600,790
                                                                               --------------    ---------------

                                                                                   $ 542,415          $ 606,859
                                                                               ==============    ===============

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

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


<PAGE>


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


                                                                          Quarter Ended           Year Ended
                                                                            March 31,            December 31,
                                                                               1999                  1998
                                                                        -------------------    ------------------
<S> <C>
General partners:
    Beginning balance                                                          $   205,744            $  181,085
    Net income                                                                       5,424                24,659
                                                                        -------------------    ------------------
                                                                                   211,168               205,744
                                                                        -------------------    ------------------

Limited partners:
    Beginning balance                                                           24,108,052            24,366,693
    Net income                                                                     536,991             2,441,359
    Distributions ($0.023 and $0.090 per
       limited partner unit, respectively)                                        (675,000 )          (2,700,000 )
                                                                        -------------------    ------------------
                                                                                23,970,043            24,108,052
                                                                        -------------------    ------------------

Total partners' capital                                                       $ 24,181,211          $ 24,313,796
                                                                        ===================    ==================


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

<PAGE>


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

<TABLE>
<CAPTION>

                                                                                      Quarter Ended
                                                                                        March 31,
                                                                                 1999               1998
                                                                            ---------------    ---------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                                    $ 738,569          $ 749,233
                                                                            ---------------    ---------------

    Cash Flows from Investing Activities:
       Collections on mortgage notes receivable                                      2,878              2,600
       Other                                                                            --             13,255
                                                                            ---------------    ---------------
          Net cash provided by investing activities                                  2,878             15,855
                                                                            ---------------    ---------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                                          (675,000 )         (675,000 )
       Distributions to holder of minority interest                                 (4,910 )           (4,818 )
                                                                            ---------------    ---------------
          Net cash used in financing activities                                   (679,910 )         (679,818 )
                                                                            ---------------    ---------------

Net Increase in Cash and Cash Equivalents                                           61,537             85,270

Cash and Cash Equivalents at Beginning of Quarter                                  856,825            761,317
                                                                            ---------------    ---------------

Cash and Cash Equivalents at End of Quarter                                      $ 918,362          $ 846,587
                                                                            ===============    ===============

Supplemental Schedule of Non-Cash Financing
    Activities:

       Distributions declared and unpaid at end of
          quarter                                                                $ 675,000          $ 675,000
                                                                            ===============    ===============
</TABLE>
           See accompanying notes to condensed financial statements.



<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     Quarters Ended March 31, 1999 and 1998


1.       Basis of Presentation:

         The accompanying  unaudited  condensed  financial  statements have been
         prepared in accordance  with the  instructions  to Form 10-Q and do not
         include  all  of the  information  and  note  disclosures  required  by
         generally  accepted  accounting  principles.  The financial  statements
         reflect all adjustments,  consisting of normal  recurring  adjustments,
         which are, in the opinion of management,  necessary to a fair statement
         of the results for the interim periods presented. Operating results for
         the quarter ended March 31, 1999,  may not be indicative of the results
         that may be expected for the year ending December 31, 1999.  Amounts as
         of December 31, 1998, included in the financial  statements,  have been
         derived from audited financial statements as of that date.

         These unaudited financial statements should be read in conjunction with
         the financial statements and notes thereto included in Form 10-K of CNL
         Income Fund VII, Ltd. (the  "Partnership")  for the year ended December
         31, 1998.

         The  Partnership  accounts  for its 83 percent  interest in San Antonio
         #849 Joint Venture using the  consolidation  method.  Minority interest
         represents the minority joint venture partners'  proportionate share of
         the  equity  in  the  Partnership's  consolidated  joint  venture.  All
         significant   intercompany   accounts   and   transactions   have  been
         eliminated.

2.       Merger Transaction:

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
         of Merger with CNL American Properties Fund, Inc. ("APF"),  pursuant to
         which the Partnership would be merged with and into a subsidiary of APF
         (the  "Merger").  As  consideration  for the Merger,  APF has agreed to
         issue 3,202,371  shares of its common stock,  par value $0.01 per share
         (the "APF  Shares")  which,  for the  purposes  of  valuing  the merger
         consideration,  have been  valued by APF at $10.00 per APF  Share,  the
         price paid by APF investors in three  previous  public  offerings,  the
         most recent of which was completed in December 1998. In order to assist
         the general  partners in evaluating the proposed merger  consideration,
         the  general  partners  retained  Valuation  Associates,  a  nationally
         recognized real estate  appraisal  firm, to appraise the  Partnership's
         restaurant   property   portfolio.   Based  on  Valuation   Associates'
         appraisal,  the Partnership's  property portfolio and other assets were
         valued on a going  concern  basis  (meaning the  Partnership  continues
         unchanged)  at  $31,543,529  as of December 31,  1998.  Legg Mason Wood
         Walker, Incorporated has rendered a fairness opinion that the APF Share
         consideration,  payable  by  APF,  is fair  to the  Partnership  from a
         financial  point of view.  The APF Shares are expected to be listed for
         trading  on  the  New  York  Stock  Exchange   concurrently   with  the
         consummation of the Merger, and, therefore, would be freely tradable at
         the option of the


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
                     Quarters Ended March 31, 1999 and 1998


2.       Merger Transaction - Continued:

         former limited  partners.  At a special meeting of the partners that is
         expected  to be held in the third  quarter  of 1999,  limited  partners
         holding  in  excess  of 50% of the  Partnership's  outstanding  limited
         partnership  interests must approve the Merger prior to consummation of
         the transaction. If the limited partners at the special meeting approve
         the  Merger,  APF will  own the  properties  and  other  assets  of the
         Partnership.  The general partners intend to recommend that the limited
         partners of the  Partnership  approve the Merger.  In  connection  with
         their recommendation,  the general partners will solicit the consent of
         the limited  partners at the special  meeting.  If the limited partners
         reject  the  Merger,  the  Partnership  will  bear the  portion  of the
         transaction  costs  based upon the  percentage  of "For"  votes and the
         general partners will bear the portion of such transaction  costs based
         upon the percentage of "Against" votes and abstentions.

         On May 5,  1999,  four  limited  partners  in several of the CNL Income
         Funds  filed  a  lawsuit  against  the  general  partners  and  APF  in
         connection  with  the  proposed  Merger  (see  Part II - Item 1.  Legal
         Proceedings).  The general partners and APF believe that the lawsuit is
         without  merit and  intend to defend  vigorously  against  the  claims.
         Because the lawsuit was so recently  filed,  it is premature to further
         comment on the lawsuit at this time.

3.       Commitments:

         During the  quarter  ended  March 31,  1999,  one of the  Partnership's
         tenants decided to exercise the option under its three lease agreements
         to  purchase  three  of  the   Partnership's   Burger  King  properties
         (including  one  property  owned  by  a  joint  venture  in  which  the
         Partnership owns a 51.1%  interest).  The general partners believe that
         the anticipated sales price for each property exceeds the Partnership's
         net carrying value  attributable to each of the respective  properties.
         As of May 13, 1999, the sales had not occurred.


<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

         CNL Income Fund VII,  Ltd.  (the  "Partnership")  is a Florida  limited
partnership  that was organized on August 18, 1989, to acquire for cash,  either
directly or through  joint  venture  arrangements,  both newly  constructed  and
existing  restaurants,  as  well  as  land  upon  which  restaurants  were to be
constructed  (the  "Properties"),  which are leased  primarily  to  operators of
national and regional  fast-food  restaurant  chains.  The leases  generally are
triple-net leases, with the lessees responsible for all repairs and maintenance,
property taxes,  insurance and utilities.  As of March 31, 1999, the Partnership
owned 40 Properties,  which included  interests in ten Properties owned by joint
ventures in which the Partnership is a co-venturer and two Properties owned with
affiliates as tenants-in-common.

Liquidity and Capital Resources

         The  Partnership's  primary  source of capital for the  quarters  ended
March 31, 1999 and 1998, was cash from operations  (which includes cash received
from tenants,  distributions from joint ventures,  and interest and other income
received,  less cash paid for expenses).  Cash from  operations was $738,569 and
$749,233  for the  quarters  ended  March 31, 1999 and 1998,  respectively.  The
decrease in cash from  operations  for the  quarter  ended  March 31,  1999,  as
compared to the quarter  ended March 31, 1998,  is primarily a result of changes
in the  Partnership's  working  capital  and  changes in income and  expenses as
described in "Results of Operations" below.

         Currently,  rental income from the Partnership's Properties is invested
in money market accounts or other short-term,  highly liquid investments pending
the  Partnership's  use of such  funds to pay  Partnership  expenses  or to make
distributions  to the partners.  At March 31, 1999, the Partnership had $918,362
invested in such short-term investments, as compared to $856,825 at December 31,
1998. The funds remaining at March 31, 1999, after payment of distributions  and
other  liabilities,  will be used to meet the Partnership's  working capital and
other needs.

         Total liabilities of the Partnership,  including payable,  increased to
$783,852 at March 31, 1999,  from $757,857 at December 31, 1998. The increase in
liabilities at March 31, 1999 is primarily a result of the Partnership  accruing
transaction  costs relating to the proposed Merger with CNL American  Properties
Fund, Inc.  ("APF"),  as described  below. The general partners believe that the
Partnership  has  sufficient  cash on hand to meet its current  working  capital
needs.

         During the  quarter  ended  March 31,  1999,  one of the  Partnership's
tenants  decided to  exercise  the option  under its three lease  agreements  to
purchase  three of the  Partnership's  Burger  King  Properties  (including  one
Property  owned  by a  joint  venture  in  which  the  Partnership  owns a 51.1%
interest).  The general  partners  believe that the anticipated  sales price for
each Property exceeds the Partnership's net carrying value  attributable to each
of the respective Properties. As of May 13, 1999, the sales had not occurred.



<PAGE>


Liquidity and Capital Resources - Continued

         Based on cash from operations,  the Partnership declared  distributions
to the limited  partners of $675,000  for each of the  quarters  ended March 31,
1999 and 1998. This  represents  distributions  for each  applicable  quarter of
$0.023 per unit.  No  distributions  were made to the general  partners  for the
quarters  ended March 31, 1999 and 1998. No amounts  distributed  to the limited
partners for the quarters  ended March 31, 1999 and 1998,  are required to be or
have been  treated by the  Partnership  as a return of capital  for  purposes of
calculating   the   limited   partners'   return  on  their   adjusted   capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.

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

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

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with APF,  pursuant to which the Partnership  would be merged with and
into a subsidiary of APF (the "Merger").  APF is a real estate  investment trust
whose primary  business is the ownership of  restaurant  properties  leased on a
long-term,  "triple-net" basis to operators of national and regional  restaurant
chains.  APF has agreed to issue shares of its common stock, par value $0.01 per
share (the "APF Shares"),  as consideration for the Merger. As consideration for
the Merger, APF has agreed to issue 3,202,371 APF Shares which, for the purposes
of valuing the merger  consideration,  have been valued by APF at $10.00 per APF
Share, the price paid by APF investors in three previous public  offerings,  the
most  recent of which was  completed  in December  1998.  In order to assist the
general  partners in evaluating the proposed merger  consideration,  the general
partners  retained  Valuation  Associates,  a nationally  recognized real estate
appraisal firm, to appraise the  Partnership's  restaurant  property  portfolio.
Based on Valuation Associates'  appraisal,  the Partnership's property portfolio
and other assets were valued on a going concern basis  (meaning the  Partnership
continues  unchanged) at  $31,543,529  as of December 31, 1998.  Legg Mason Wood
Walker,  Incorporated  has  rendered  a  fairness  opinion  that  the APF  Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view.  The APF Shares are  expected  to be listed for trading on the New York
Stock Exchange  concurrently with the consummation of the Merger, and therefore,
would be freely  tradable  at the option of the former  limited  partners.  At a
special meeting of the partners that is expected to be held in the third quarter
of  1999,  limited  partners  holding  in  excess  of 50%  of the  Partnership's
outstanding  limited  partnership  interests  must  approve the Merger  prior to
consummation of the transaction.  If the limited partners at the special meeting
approve  the  Merger,  APF will  own the  Properties  and  other  assets  of the
Partnership.  The general partners intend to recommend that the limited partners
of the Partnership approve the Merger. In connection with their  recommendation,
the general partners will solicit the consent of the limited

<PAGE>


Liquidity and Capital Resources - Continued

partners at the special meeting.  If the limited partners reject the Merger, the
Partnership  will bear the  portion  of the  transaction  costs  based  upon the
percentage of "For" votes and the general partners will bear the portion of such
transaction costs based upon the percentage of "Against" votes and abstentions.

         On May 5,  1999,  four  limited  partners  in several of the CNL Income
Funds filed a lawsuit  against the general  partners and APF in connection  with
the  proposed  Merger  (see Part II - Item 1. Legal  Proceedings).  The  general
partners and APF believe that the lawsuit is without  merit and intend to defend
vigorously against the claims.  Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.

Results of Operations

         During  the  quarters  ended  March 31,  1999 and March 31,  1998,  the
Partnership and its consolidated joint venture,  San Antonio #849 Joint Venture,
owned and leased 29 wholly  owned  Properties  to  operators  of  fast-food  and
family-style  restaurant  chains. In connection  therewith,  during the quarters
ended  March 31,  1999 and 1998,  the  Partnership  and its  consolidated  joint
venture,  earned  $594,600 and  $597,099,  respectively,  in rental  income from
operating leases and earned income from direct financing leases.

         During the  quarters  ended  March 31, 1999 and 1998,  the  Partnership
owned  and  leased  nine  Properties  indirectly  through  other  joint  venture
arrangements and owned two Properties, indirectly with affiliates of the general
partners as  tenants-in-common.  In  connection  therewith,  during the quarters
ended March 31,  1999 and 1998,  the  Partnership  earned  $73,295 and  $77,933,
respectively,  attributable to net income earned by these  unconsolidated  joint
ventures.

         Operating expenses,  including  depreciation expense, were $162,172 and
$117,170  for the  quarters  ended  March 31, 1999 and 1998,  respectively.  The
increase in  operating  expenses  during the quarter  ended March 31,  1999,  is
partially  due to the fact that during the quarter  ended  March 31,  1999,  the
Partnership  incurred  $33,273  in  transaction  costs  related  to the  general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating  the proposed  Merger with APF, as described above in "Liquidity and
Capital  Resources." If the limited partners reject the Merger,  the Partnership
will bear the  portion of the  transaction  costs based upon the  percentage  of
"For" votes and the general  partners will bear the portion of such  transaction
costs based upon the percentage of "Against" votes and abstentions.

         In  addition,  the increase in  operating  expenses  during the quarter
ended  March 31,  1999,  as compared to the  quarter  ended March 31,  1998,  is
partially  attributable to the Partnership  incurring additional state taxes due
to changes in tax laws of a state in which the Partnership conducts business.



<PAGE>


Results of Operations - Continued

         As a result of the sale of the Property in Florence, South Carolina, in
August  1995,  and  recording  the  gain  using  the  installment   method,  the
Partnership  recognized a gain for financial reporting purposes of $273 and $247
for the quarters ended March 31, 1999 and 1998, respectively.

Year 2000 Readiness Disclosure

         The Year  2000  problem  concerns  the  inability  of  information  and
non-information  technology  systems to  properly  recognize  and  process  date
sensitive  information beyond January 1, 2000. The Partnership does not have any
information or  non-information  technology  systems.  The general  partners and
affiliates  of the general  partners  provide all services  requiring the use of
information  and  non-information  technology  systems  pursuant to a management
agreement  with  the  Partnership.  The  information  technology  system  of the
affiliates of the general partners  consists of a network of personal  computers
and servers built using  hardware and software from  mainstream  suppliers.  The
non-information technology systems of the affiliates of the general partners are
primarily  facility related and include building  security  systems,  elevators,
fire suppressions,  HVAC, electrical systems and other utilities. The affiliates
of the general partners have no internally  generated programmed software coding
to correct,  because  substantially  all of the software utilized by the general
partners and  affiliates is purchased or licensed from external  providers.  The
maintenance  of   non-information   technology   systems  at  the  Partnership's
Properties is the  responsibility of the tenants of the Properties in accordance
with the terms of the Partnership's leases.

         In early 1998, the general  partners and affiliates  formed a Year 2000
committee  (the "Y2K Team") for the purpose of  identifying,  understanding  and
addressing the various  issues  associated  with the Year 2000 problem.  The Y2K
Team  consists of the general  partners and members from the  affiliates  of the
general partners, including representatives from senior management,  information
systems,  telecommunications,  legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness  consists of  identifying  any systems  that are  date-sensitive  and,
accordingly,  could have potential  Year 2000  problems.  The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.

         The  information  system of the  affiliates of the general  partners is
comprised of hardware  and  software  applications  from  mainstream  suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and  manufacturers  to verify the Year 2000  compliance  of their  products.  In
addition,  the Y2K Team has also requested and is evaluating  documentation from
other   companies  with  which  the  Partnership  has  a  material  third  party
relationship,   including  the   Partnership's   tenants,   vendors,   financial
institutions and the  Partnership's  transfer agent. The Partnership  depends on
its  tenants  for  rents  and  cash  flows,   its  financial   institutions  for
availability of cash and its transfer agent to maintain and track investor

<PAGE>


Year 2000 Readiness Disclosure - Continued

information.  The Y2K Team has also  requested and is  evaluating  documentation
from the  non-information  technology systems providers of the affiliates of the
general  partners.  Although the general  partners  continue to receive positive
responses  from the  Companies  with  which  the  Partnership  has  third  party
relationships regarding their Year 2000 compliance,  the general partners cannot
be assured that the  tenants,  financial  institutions,  transfer  agent,  other
vendors and system  providers have adequately  considered the impact of the Year
2000. The general  partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.

         The general  partners and their  affiliates  have  identified  and have
implemented  upgrades for certain hardware equipment.  In addition,  the general
partners and their  affiliates have  identified  certain  software  applications
which will require upgrades to become Year 2000 compliant.  The general partners
expect all of these upgrades,  as well as any other necessary  remedial measures
on the  information  technology  systems  used in the  business  activities  and
operations of the Partnership,  to be completed by September 30, 1999, although,
the general  partners cannot be assured that the upgrade  solutions  provided by
the vendors have addressed all possible Year 2000 issues.  The general  partners
do not  expect  the  aggregate  cost of the Year 2000  remedial  measures  to be
material to the results of operations of the Partnership.

         The general  partners and affiliates have received  certification  from
the  Partnership's  transfer  agent  of its  Year  2000  compliance.  Due to the
material  relationship of the Partnership  with its transfer agent, the Y2K Team
is evaluating the Year 2000  compliance of the systems of the transfer agent and
expects to have the  evaluation  completed  by September  30, 1999.  Despite the
positive  response  from the transfer  agent and the  evaluation of the transfer
agent's system by the Y2K Team, the general  partners cannot be assured that the
transfer  agent has addressed  all possible Year 2000 issues.  In the event that
the  systems of the  transfer  agent are not Year 2000  compliant,  the  general
partners and their  affiliates  would have to allocate  resources to  internally
perform  the  functions  of the  transfer  agent.  The  general  partners do not
anticipate  that the additional  cost of these  resources  would have a material
impact on the Partnership.

         Based upon the progress the general  partners and affiliates  have made
in  addressing  the Year 2000 issues and their plan and timeline to complete the
compliance  program,  the  general  partners do not  foresee  significant  risks
associated  with Year 2000  compliance  at this time.  The general  partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership  being  affected  by them;  therefore,  they  have not  developed  a
comprehensive  contingency  plan.  However,  if the general  partners  and their
affiliates identify significant risks related to their Year 2000 compliance,  or
if their progress deviates from the anticipated  timeline,  the general partners
and their affiliates will develop  contingency plans as deemed necessary at that
time.



<PAGE>


ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         No material  changes in the  Partnership's  market risk  occurred  from
December  31,  1998  through   March  31,  1999.   Information   regarding   the
Partnership's  market risk at December 31, 1998 is included in its Annual Report
on Form 10-K for the year ended December 31, 1998.


<PAGE>


                           PART II. OTHER INFORMATION


Item 1.      Legal Proceedings.

             On May 5, 1999,  four  limited  partners in several of the CNL
             Income  Funds  filed a  lawsuit,  Jon  Hale,  Mary J.  Hewitt,
             Charles A. Hewitt,  and Gretchen M. Hewitt v. James M. Seneff,
             Jr.,  Robert  A.  Bourne,  CNL  Realty  Corporation,  and  CNL
             American  Properties Fund, Inc., Case No.  CIO-99-0003561,  in
             the  Circuit  Court of the Ninth  Judicial  Circuit  of Orange
             County,  Florida,  alleging that the Messrs. Seneff and Bourne
             and CNL Realty  Corporation,  as general  partners  of the CNL
             Income Funds, breached their fiduciary duties and violated the
             provisions  of  certain  of the CNL  Income  Fund  partnership
             agreements in connection with the proposed  acquisition of the
             CNL  Income   Funds  by  APF.  The   plaintiffs   are  seeking
             unspecified damages and equitable relief. The general partners
             and APF believe  that the lawsuit is without  merit and intend
             to defend vigorously against such claims.  Because the lawsuit
             was so recently  filed,  it is premature to further comment on
             the lawsuit at this time.

Item 2.      Changes in Securities.       Inapplicable.

Item 3.      Default upon Senior Securities.   Inapplicable.

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

Item 5.      Other Information.        Inapplicable.

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

               (a)      Exhibits

                     2.1        Agreement  and Plan of Merger by and between the
                                Registrant  and CNL  American  Properties  Fund,
                                Inc.  ("APF")  dated  March 11,  1999  (filed as
                                Appendix B to the Prospectus  Supplement for the
                                Registrant,   constituting   a   part   of   the
                                Registration  Statement of APF on Form S-4, File
                                No. 74329.)

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

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


<PAGE>



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

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

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

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

                     27         Financial Data Schedule (Filed herewith.)

               (b)      Reports on Form 8-K

                           Current  Report on Form 8-K dated  March 11, 1999 and
                           filed March 12, 1999,  describing the proposed merger
                           of the Partnership  with and into a subsidiary of CNL
                           American Properties Fund, Inc.



<PAGE>






                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

         DATED this 14th day of May, 1999


                 CNL INCOME FUND VII, LTD.

                     By:        CNL REALTY CORPORATION
                                General Partner


                              By:    /s/ James M. Seneff, Jr.
                                     -----------------------------------------
                                     JAMES M. SENEFF, JR.
                                     Chief Executive Officer
                                     (Principal Executive Officer)


                              By:    /s/ Robert A. Bourne
                                     -----------------------------------------
                                     ROBERT A. BOURNE
                                     President and Treasurer
                                     (Principal Financial and
                                     Accounting Officer)