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                  June 30, 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)


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


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
                                    --------




                                                                         Page
                                                                         ----

Part I.

   Item 1.     Financial Statements:

                    Condensed Balance Sheets                               1

                    Condensed Statements of Income                         2

                    Condensed Statements of Partners' Capital              3

                    Condensed Statements of Cash Flows                     4

                    Notes to Condensed Financial Statements                5-8

   Item 2.     Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                    9-14

   Item 3.     Quantitative and Qualitative Disclosures About
                    Market Risk                                            14

Part II.

   Other Information                                                       15-17



<PAGE>




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


                                                                       June 30,         December 31,
                                                                         1999               1998
                                                                   ----------------   ---------------
<S> <C>
                               ASSETS

   Land and buildings on operating leases, less
       accumulated depreciation of $2,459,373 and
       $2,473,926, respectively                                       $ 14,127,414       $ 15,078,507
   Net investment in direct financing leases                             3,320,665          3,365,392
   Investment in joint ventures                                          3,413,821          3,327,934
   Mortgage notes receivable, less deferred gain of
       $124,725 and $125,278, respectively                               1,235,728          1,241,056
   Cash and cash equivalents                                               906,629            856,825
   Restricted cash                                                       1,063,383                 --
   Receivables, less allowance for doubtful accounts
       of $16,679 and $28,853, respectively                                  2,499             78,478
   Prepaid expenses                                                         13,021              4,116
   Accrued rental income, less allowance for doubtful
       accounts of $9,845 in 1999 and 1998                               1,175,747          1,205,528
   Other assets                                                             60,422             60,422
                                                                 ------------------  -----------------

                                                                      $ 25,319,329       $ 25,218,258
                                                                 ==================  =================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                     $   89,920         $    2,885
   Escrowed real estate taxes payable                                        4,249              5,834
   Distributions payable                                                   675,000            675,000
   Due to related parties                                                   25,464             25,111
   Rents paid in advance and deposits                                       43,712             49,027
                                                                 ------------------  -----------------
       Total liabilities                                                   838,345            757,857

   Commitments and Contingencies (Note 5)

   Minority interest                                                       146,060            146,605

   Partners' capital                                                    24,334,924         24,313,796
                                                                 ------------------  -----------------

                                                                      $ 25,319,329       $ 25,218,258
                                                                 ==================  =================



           See accompanying notes to condensed financial statements.
<PAGE>


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

                                                               Quarter Ended                   Six Months Ended
                                                                  June 30,                         June 30,
                                                            1999           1998              1999            1998
                                                         ------------   ------------     -------------    ------------
Revenues:
    Rental income from operating leases                    $ 490,454      $ 498,467         $ 983,178       $ 991,191
    Earned income from direct financing leases               101,201        103,779           203,077         208,154
    Contingent rental income                                   2,169          2,958             3,679          12,378
    Interest and other income                                 44,581         41,148            84,139          85,138
                                                         ------------   ------------     -------------    ------------
                                                             638,405        646,352         1,274,073       1,296,861
                                                         ------------   ------------     -------------    ------------

Expenses:
    General operating and administrative                      28,491         34,550            63,827          67,662
    Professional services                                      7,366          7,313            11,785          12,594
    State and other taxes                                         --             40            13,055           2,728
    Depreciation and amortization                             74,630         76,089           150,719         152,178
    Transaction costs                                         78,624             --           111,897              --
                                                         ------------   ------------     -------------    ------------
                                                             189,111        117,992           351,283         235,162
                                                         ------------   ------------     -------------    ------------

Income Before Minority Interest in Income of
    Consolidated Joint Venture, Equity in Earnings
    of Unconsolidated Joint Ventures, and
    Gain on Sale of Land and Buildings                       449,294        528,360           922,790       1,061,699

Minority Interest in Income of Consolidated
    Joint Venture                                             (4,631 )       (4,596 )          (9,280 )        (9,256 )

Equity in Earnings of Unconsolidated Joint Ventures          195,079         73,260           268,374         151,193

Gain on Sale of Land and Buildings                           188,971            252           189,244             499
                                                         ------------   ------------     -------------    ------------

Net Income                                                 $ 828,713      $ 597,276        $1,371,128      $1,204,135
                                                         ============   ============     =============    ============

Allocation of Net Income:
    General partners                                        $  8,053       $  5,972         $  13,477       $  12,041
    Limited partners                                         820,660        591,304         1,357,651       1,192,094
                                                         ------------   ------------     -------------    ------------

                                                           $ 828,713      $ 597,276        $1,371,128      $1,204,135
                                                         ============   ============     =============    ============

Net Income Per Limited Partner Unit                         $  0.027       $  0.020         $   0.045       $   0.040
                                                         ============   ============     =============    ============

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





           See accompanying notes to condensed financial statements.

<PAGE>


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


                                                          Six Months Ended               Year Ended
                                                              June 30,                  December 31,
                                                                1999                        1998
                                                          -----------------           ------------------

General partners:
    Beginning balance                                           $  205,744                   $  181,085
    Net income                                                      13,477                       24,659
                                                          -----------------           ------------------
                                                                   219,221                      205,744
                                                          -----------------           ------------------

Limited partners:
    Beginning balance                                           24,108,052                   24,366,693
    Net income                                                   1,357,651                    2,441,359
    Distributions ($0.045 and $0.090 per
       limited partner unit, respectively)                      (1,350,000 )                 (2,700,000 )
                                                          -----------------           ------------------
                                                                24,115,703                   24,108,052
                                                          -----------------           ------------------

Total partners' capital                                        $24,334,924                  $24,313,796
                                                          =================           ==================





           See accompanying notes to condensed financial statements.

<PAGE>


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


                                                                           Six Months Ended
                                                                               June 30,
                                                                        1999               1998
                                                                   ---------------    ---------------

Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                          $1,405,372         $1,401,833
                                                                   ---------------    ---------------

    Cash Flows from Investing Activities:
       Proceeds from sale of land and building                          1,059,954                 --
       Increase in restricted cash                                     (1,061,529 )               --
       Collections on mortgage notes receivable                             5,832              5,267
       Other                                                                   --             13,255
                                                                   ---------------    ---------------
          Net cash provided by investing activities                         4,257             18,522
                                                                   ---------------    ---------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                               (1,350,000 )       (1,350,000 )
       Distributions to holder of minority interest                        (9,825 )           (9,663 )
                                                                   ---------------    ---------------
          Net cash used in financing activities                        (1,359,825 )       (1,359,663 )
                                                                   ---------------    ---------------

Net Increase in Cash and Cash Equivalents                                  49,804             60,692

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

Cash and Cash Equivalents at End of Period                              $ 906,629          $ 822,009
                                                                   ===============    ===============

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 and Six Months Ended June 30, 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 and six months ended June 30, 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 partner's  proportionate share of
         the  equity  in  the  Partnership's  consolidated  joint  venture.  All
         significant   intercompany   accounts   and   transactions   have  been
         eliminated.

2.       Land and Buildings on Operating Leases:

         In June 1999, the Partnership sold its property in Maryville, Tennessee
         to the tenant in  accordance  with the purchase  option under the lease
         agreement to purchase the property,  for  $1,068,802,  and received net
         sales  proceeds of  $1,059,954,  resulting  in a gain of  $188,691  for
         financial reporting purposes.  This property was originally acquired by
         the Partnership in 1990 at a cost of approximately $890,700,  excluding
         acquisition fees and miscellaneous acquisition expenses; therefore, the
         Partnership sold this property for a total of approximately $169,300 in
         excess of its original purchase price.

3.       Investment in Joint Ventures:

         In June 1999,  Halls Joint  Venture,  in which the  Partnership  owns a
         51.1% interest,  sold its property to the tenant in accordance with the
         purchase option under the lease agreement for $891,915,  resulting in a
         gain to the joint  venture  of  approximately  $239,300  for  financial
         reporting  purposes.  The property was originally  contributed to Halls
         Joint Venture in 1990 and had a total cost of  approximately  $672,000,
         excluding  acquisition  fees and  miscellaneous  acquisition  expenses;
         therefore,  the  joint  venture  sold the  property  for  approximately
         $219,900 in excess of its original purchase price.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
              Quarters and Six Months Ended June 30, 1999 and 1998


3.       Investment in Joint Ventures - Continued:

         The following presents the combined,  condensed  financial  information
         for all of the Partnership's investments in joint ventures at:

                                                      June 30,      December 31,
                                                        1999            1998
                                                   --------------  -------------
               Land and buildings on operating
                   leases, less accumulated
                   depreciation                      $ 9,892,904    $ 10,612,379
               Cash                                        4,133           3,763
               Restricted cash                           887,114              --
               Receivables                                    32          21,249
               Accrued rental income                     129,946         178,775
               Other assets                                1,129           1,116
               Liabilities                                 9,019           8,916
               Partners' capital                      10,906,239      10,808,366
               Revenues                                  630,777       1,324,602
               Gain on sale of land and building         239,336              --
               Net income                                719,130       1,028,391

         The Partnership recognized income totaling $268,374 and $151,193 during
         the six months ended June 30, 1999 and 1998,  respectively,  from these
         joint  ventures,  $195,079  and $73,260 of which was earned  during the
         quarters ended June 30, 1999 and 1998, respectively.

4.       Restricted Cash:

         As of June 30, 1999, the net sales proceeds of $1,059,954 from the sale
         of the  property in  Maryville,  Tennessee,  plus  accrued  interest of
         $3,429, were being held in an  interest-bearing  escrow account pending
         the  release  of funds by the escrow  agent to  acquire  an  additional
         property.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
              Quarters and Six Months Ended June 30, 1999 and 1998


5.       Commitments and Contingencies:

         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 1,601,186  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 $20.00 per APF  Share,  the
         price  paid by APF  investors  (after an  adjustment  for a one for two
         reverse stock split  effective June 3, 1999) 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. 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 fourth 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 11,  1999,  four  limited  partners in several of the CNL Income
         Funds  served  a  lawsuit  against  the  general  partners  and  APF in
         connection  with the proposed  Merger.  On July 8, 1999, the plaintiffs
         amended  the  complaint  to add three  additional  limited  partners as
         plaintiffs.  Additionally,  on June 22,  1999,  a  limited  partner  in
         certain of the CNL Income  Funds  served a lawsuit  against the general
         partners, APF, CNL Fund Advisors, Inc. and certain of its affiliates in
         connection  with the  proposed  Merger.  The general  partners  and APF
         believe  that the  lawsuits  are  without  merit  and  intend to defend
         vigorously against the claims. See Part II - Item 1. Legal Proceedings.



<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
              Quarters and Six Months Ended June 30, 1999 and 1998


5.       Commitments and Contingencies - Continued:

         During the six months ended June 30,  1999,  the  Partnership  received
         notice from a tenant deciding to exercise the purchase option under its
         lease agreement relating to the Burger King property in Jefferson City,
         Tennessee.  The general  partners  believe that the  anticipated  sales
         price for this property  exceeds the  Partnership's  net carrying value
         attributable  to the property.  As of August 6, 1999,  the sale 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 June 30, 1999, the Partnership
owned 38 Properties,  which included interests in nine Properties owned by joint
ventures in which the Partnership is a co-venturer and two Properties owned with
affiliates of the general partners as tenants-in-common.

Capital Resources
-----------------

         The  Partnership's  primary  source of capital for the six months ended
June 30, 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 $1,405,372 and
$1,401,833  for the six months ended June 30, 1999 and 1998,  respectively.  The
increase in cash from  operations  for the six months  ended June 30,  1999,  as
compared to the six months ended June 30, 1998, is primarily a result of changes
in the Partnership's working capital.

         Other sources and uses of capital included the following during the six
months ended June 30, 1999.

         In June 1999, the Partnership sold its Property in Maryville, Tennessee
to the tenant in accordance  with the purchase  option under the lease agreement
to purchase the  Property,  for  $1,068,802  and received net sales  proceeds of
$1,059,954,  resulting in a gain of $188,691 for financial  reporting  purposes.
This Property was originally  acquired by the Partnership in 1990 and had a cost
of  approximately   $890,700,   excluding  acquisition  fees  and  miscellaneous
acquisition  expenses;   therefore,   the  Partnership  sold  the  Property  for
approximately  $169,300 in excess of its original purchase price. As of June 30,
1999,  the net sales proceeds of  $1,059,954,  plus accrued  interest of $3,429,
were being held in an  interest-bearing  escrow  account  pending the release of
funds by the  escrow  agent to  acquire  an  additional  Property.  The  general
partners  believe that the transaction,  or a portion  thereof,  relating to the
sale  of the  Property  in  Maryville,  Tennessee  and the  reinvestment  of the
proceeds will qualify as a like-kind exchange transaction for federal income tax
purposes.  However, the Partnership  anticipates that it will distribute amounts
sufficient to enable the limited partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the general  partners),  resulting from
the sale.

         In June 1999,  Halls Joint  Venture,  in which the  Partnership  owns a
51.1% interest,  sold its Property to the tenant in accordance with the purchase
option under the lease agreement for $891,915,  resulting in a gain to the joint
venture of approximately $239,300 for financial reporting purposes. The Property
was  originally  contributed to Halls Joint Venture in 1990 and had a total cost
to the joint venture of approximately  $672,000,  excluding acquisition fees and
miscellaneous  acquisition  expenses;  therefore,  the  joint  venture  sold the
Property for  approximately  $219,900 in excess of its original  purchase price.
The  general  partners  believe  that the  transaction,  or a  portion  thereof,
relating to the sale of the Property in Halls Joint Venture and the reinvestment
of the proceeds  will qualify as a like-kind  exchange  transaction  for federal
income tax purposes.

         Currently,  rental income from the Partnership's Properties and any net
sales  proceeds  held by the  Partnership,  pending  reinvestment  in additional
Properties,  are invested in money market accounts or other  short-term,  highly
liquid  investments such as demand deposit at commercial banks,  certificates of
deposit,  and money  market  accounts  with less  than a 30-day  maturity  date,
pending the  Partnership's  use of such funds to pay Partnership  expenses or to
make  distributions  to the  partners.  At June 30, 1999,  the  Partnership  had
$906,629  invested in such  short-term  investments,  as compared to $856,825 at
December  31, 1998.  The funds  remaining  at June 30,  1999,  after  payment of
distributions  and  other  liabilities,  will be used to meet the  Partnership's
working capital and other needs.

Short-Term Liquidity
--------------------

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

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

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

         The Partnership  generally  distributes cash from operations  remaining
after the payment of operating  expenses of the Partnership,  to the extent that
the general partners  determine that such funds are available for  distribution.
Based on cash from  operations,  the Partnership  declared  distributions to the
limited  partners of  $1,350,000  for each of the six months ended June 30, 1999
and 1998 ($675,000 for each of the quarters ended June 30, 1999 and 1998).  This
represents  distributions  for each  applicable  six  months of $0.045  per unit
($0.023 per unit for each applicable quarter). No distributions were made to the
general  partners  for the quarters and six months ended June 30, 1999 and 1998.
No amounts distributed to the limited partners for the six months ended June 30,
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.

         Total liabilities of the Partnership,  including distributions payable,
increased to $838,345 at June 30, 1999,  from $757,857 at December 31, 1998. The
increase  in  liabilities  at  June  30,  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 six months ended June 30,  1999,  the  Partnership  received
notice from a tenant  deciding to exercise the  purchase  option under the lease
agreement relating to the Burger King Property in Jefferson City, Tennessee. The
general  partners  believe that the  anticipated  sales price for this  Property
exceeds the Partnership's net carrying value attributable to the Property. As of
August 6, 1999, the sale had not occurred.

Long-Term Liquidity
-------------------

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

Results of Operations
---------------------

         During the six months ended June 30, 1999 and 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 (which included one Property which was sold in 1999). The Partnership and
its consolidated joint venture,  earned $1,186,255 and $1,199,345 during the six
months  ended  June 30,  1999 and  1998,  respectively,  in rental  income  from
operating  leases and earned income from direct financing  leases,  $591,655 and
$602,246 of which was earned  during the quarters  ended June 30, 1999 and 1998,
respectively. Rental and earned income decreased approximately $8,100 during the
quarter and six months ended June 30,  1999,  as compared to the quarter and six
months ended June 30, 1998, primarily as a result of the sale of the Property in
Maryville, Tennessee, as described above in "Capital Resources."

         During the six months  ended June 30,  1999 and 1998,  the  Partnership
owned  and  leased  nine  Properties  indirectly  through  other  joint  venture
arrangements  (which included one Property in Halls Joint Venture which was sold
in 1999) and owned two  Properties,  indirectly  with  affiliates of the general
partners as tenants-in-common.  In connection  therewith,  during the six months
ended June 30, 1999 and 1998,  the  Partnership  earned  $268,374 and  $151,193,
respectively, $195,079 and $73,260 of which was earned during the quarters ended
June 30, 1999 and 1998, respectively. The increase in net income earned by joint
ventures is attributable to the fact that in June 1999, Halls Joint Venture,  in
which the Partnership owns a 51.1% interest,  recognized a gain of approximately
$239,300,  approximately $122,000 of which was allocated to the Partnership, for
financial  reporting  purposes  as a result of the sale of its  Property in June
1999,  as  described  above in "Capital  Resources."  Because the joint  venture
intends to reinvest the sales  proceeds in an additional  Property in 1999,  the
Partnership  does  not  anticipate  that the sale of the  Property  will  have a
material adverse effect on operations.

         Operating expenses,  including  depreciation expense, were $351,283 and
$235,162 for the six months ended June 30, 1999 and 1998, respectively, of which
$189,111 and $117,992 were incurred  during the quarters ended June 30, 1999 and
1998,  respectively.  The increase in operating  expenses during the quarter and
six months ended June 30, 1999,  was  primarily  due to the fact that during the
quarter and six months ended June 30, 1999, the Partnership incurred $78,624 and
$111,897,  respectively,  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  below.  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.

         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 $553 and $499
for the six months ended June 30, 1999 and 1998, respectively,  $280 and $252 of
which  was  recognized  during  the  quarters  ended  June 30,  1999  and  1998,
respectively. In addition, as a result of the sale of the Property in Maryville,
Tennessee, as described above in "Capital Resources," the Partnership recognized
a gain of $188,691 for financial  reporting  purposes during the quarter and six
months ended June 30, 1999. No  Properties  were sold during the quarter and six
months ended June 30, 1998.

Proposed Merger
---------------

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with APF,  pursuant to which the Partnership  would be merged with and
into a subsidiary of APF (the "Merger").  As consideration  for the Merger,  APF
has agreed to issue  1,601,186  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 $20.00 per APF Share,  the price paid
by APF  investors  (after an  adjustment  for a one for two reverse  stock split
effective June 3, 1999) 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. 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 fourth 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 11,  1999,  four  limited  partners in several of the CNL Income
Funds served a lawsuit  against the general  partners and APF in connection with
the proposed  Merger.  On July 8, 1999, the plaintiffs  amended the complaint to
add three additional limited partners as plaintiffs.  Additionally,  on June 22,
1999,  a limited  partner in certain  of the CNL Income  Funds  served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger.  The general partners and APF
believe  that the  lawsuits  are without  merit and intend to defend  vigorously
against the claims. See Part II - Item 1. Legal Proceedings.

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.  As  of  June  30,  1999  the
Partnership did not have any information or non-information  technology systems.
The general  partners  and  certain of the  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
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  certain of 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 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 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  that 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 their  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  will 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 their 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,  we  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.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         No material  changes in the  Partnership's  market risk  occurred  from
December 31, 1998 through June 30, 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 11, 1999,  four limited  partners in several CNL Income
             Funds served a derivative  and purported  class action lawsuit
             filed April 22, 1999  against the general  partners and APF in
             the  Circuit  Court of the Ninth  Judicial  Circuit  of Orange
             County,  Florida,  alleging that the general partners breached
             their fiduciary  duties and violated  provisions of certain of
             the CNL Income Fund partnership  agreements in connection with
             the proposed  Merger.  The plaintiffs are seeking  unspecified
             damages and equitable  relief. On July 8, 1999, the plaintiffs
             filed an amended  complaint which, in addition to naming three
             additional  plaintiffs,  includes  allegations  of aiding  and
             abetting and conspiring to breach fiduciary duties, negligence
             and  breach  of duty  of good  faith  against  certain  of the
             defendants and seeks additional  equitable relief. As amended,
             the caption of the case is Jon Hale,  Mary J. Hewitt,  Charles
             A. Hewitt,  Gretchen M. Hewitt  Bernard J. Schulte,  Edward M.
             and Margaret Berol Trust,  and Vicky Berol v. James M. Seneff,
             Jr.,  Robert  A.  Bourne,  CNL  Realty  Corporation,  and  CNL
             American Properties Fund, Inc., Case No. CIO-99-0003561.

             On June 22,  1999,  a limited  partner of  several  CNL Income
             Funds served a purported  class action lawsuit filed April 29,
             1999  against  the  general  partners  and  APF,  Ira  Gaines,
             individually  and on  behalf of a class of  persons  similarly
             situated,  v. CNL American  Properties  Fund,  Inc.,  James M.
             Seneff,  Jr., Robert A. Bourne,  CNL Realty  Corporation,  CNL
             Fund  Advisors,  Inc.,  CNL  Financial  Corporation  a/k/a CNL
             Financial Corp., CNL Financial  Services,  Inc. and CNL Group,
             Inc., Case NO. CIO-99-3796,  in the Circuit Court of the Ninth
             Judicial Circuit of Orange County, Florida,  alleging that the
             general partners  breached their fiduciary duties and that APF
             aided  and  abetted  their  breach  of  fiduciary   duties  in
             connection with the proposed Merger.  The plaintiff is seeking
             unspecified damages and equitable relief.

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.



<PAGE>


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 and as amended  June 4,
                           1999   (Filed  as   Appendix  B  to  the   Prospectus
                           Supplement for the Registrant, constituting a part of
                           Amendment No. 1 to 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.)

                    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.)


<PAGE>



             (b)    Reports on Form 8-K

                    No reports on Form 8-K were filed  during the quarter ended
                    June 30, 1999.



<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 9th day of August, 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)