<PAGE>

                                    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             September 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.)


450 South Orange Avenue
Orlando, Florida                                                32801
---------------------------------------------       ----------------------------
  (Address of principal executive offices)                    (Zip Code)


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


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             9-16

         Item 3.      Quantitative and Qualitative Disclosures About
                           Market Risk                                     17

Part II.

         Other Information                                                 18-20
<PAGE>

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

<TABLE>
<CAPTION>
                                                              September 30,           December 31,
                                                                  1999                    1998
                                                           ------------------     -------------------
<S>                                                        <C>                    <C>
                               ASSETS
                               ------

   Land and buildings on operating leases, less
       accumulated depreciation of $2,530,913 and
       $2,473,926, in 1999 and 1998, respectively               $ 14,055,874            $ 15,078,507
   Net investment in direct financing leases                       3,297,269               3,365,392
   Investment in joint ventures                                    3,404,231               3,327,934
   Mortgage notes receivable, less deferred gain of
       $124,438 and $125,278, in 1999 and 1998,
       respectively                                                  996,776               1,241,056
   Cash and cash equivalents                                       1,130,778                 856,825
   Restricted cash                                                 1,075,182                      --
   Receivables, less allowance for doubtful accounts
       of $16,679 and $28,853, in 1999 and 1998,
       respectively                                                    4,589                  78,478
   Prepaid expenses                                                    9,834                   4,116
   Accrued rental income, less allowance for doubtful
       accounts of $9,845 in 1999 and 1998                         1,195,928               1,205,528
   Other assets                                                       60,422                  60,422
                                                           ------------------     -------------------

                                                                $ 25,230,883            $ 25,218,258
                                                           ==================     ===================

                  LIABILITIES AND PARTNERS' CAPITAL
                  ---------------------------------

   Accounts payable                                             $    135,704            $      2,885
   Escrowed real estate taxes payable                                  4,617                   5,834
   Distributions payable                                             675,000                 675,000
   Due to related parties                                             15,584                  25,111
   Rents paid in advance and deposits                                 71,495                  49,027
                                                           ------------------     -------------------
       Total liabilities                                             902,400                 757,857

   Commitments and Contingencies (Note 7)

   Minority interest                                                 145,785                 146,605

   Partners' capital                                              24,182,698              24,313,796
                                                           ------------------     -------------------

                                                                $ 25,230,883            $ 25,218,258
                                                           ==================     ===================
</TABLE>

           See accompanying notes to condensed financial statements.

                                       1
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                         CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                               Quarter Ended                  Nine Months Ended
                                                               September 30,                    September 30,
                                                            1999           1998              1999            1998
                                                         ------------   ------------     -------------    ------------
<S>                                                      <C>            <C>              <C>              <C>
Revenues:
    Rental income from operating leases                  $   465,767    $   492,759      $  1,448,945     $ 1,483,950
    Earned income from direct financing leases               100,506        103,164           303,583         311,318
    Contingent rental income                                   3,197          4,829             6,876          17,207
    Interest and other income                                 51,251         42,300           135,390         127,438
                                                         ------------   ------------     -------------    ------------
                                                             620,721        643,052         1,894,794       1,939,913
                                                         ------------   ------------     -------------    ------------

Expenses:
    General operating and administrative                      31,954         37,062            95,781         104,724
    Professional services                                      5,417          3,973            17,202          16,567
    State and other taxes                                         --             --            13,055           2,728
    Depreciation and amortization                             71,540         76,089           222,259         228,267
    Transaction costs                                         58,043             --           169,940              --
                                                         ------------   ------------     -------------    ------------
                                                             166,954        117,124           518,237         352,286
                                                         ------------   ------------     -------------    ------------

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                       453,767        525,928         1,376,557       1,587,627

Minority Interest in Income of Consolidated
    Joint Venture                                             (4,674)        (4,665)          (13,954)        (13,921)

Equity in Earnings of Unconsolidated Joint
    Ventures                                                  73,394         78,287           341,768         229,480

Gain on Sale of Land and Buildings                               287            259           189,531             758
                                                         ------------   ------------     -------------    ------------

Net Income                                               $   522,774    $   599,809      $  1,893,902     $ 1,803,944
                                                         ============   ============     =============    ============

Allocation of Net Income:
    General partners                                     $     5,228    $     5,998      $     18,705     $    18,039
    Limited partners                                         517,546        593,811         1,875,197       1,785,905
                                                         ------------   ------------     -------------    ------------

                                                         $   522,774    $   599,809      $  1,893,902     $ 1,803,944
                                                         ============   ============     =============    ============

Net Income Per Limited Partner Unit                      $     0.017    $     0.020      $      0.063     $     0.060
                                                         ============   ============     =============    ============

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

           See accompanying notes to condensed financial statements.

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                    Nine Months Ended                Year Ended
                                                      September 30,                 December 31,
                                                           1999                         1998
                                                ---------------------------    -----------------------
<S>                                             <C>                            <C>
General partners:
    Beginning balance                                      $   205,744                  $   181,085
    Net income                                                  18,705                       24,659
                                                      -----------------           ------------------
                                                               224,449                      205,744
                                                      -----------------           ------------------

Limited partners:
    Beginning balance                                       24,108,052                   24,366,693
    Net income                                               1,875,197                    2,441,359
    Distributions ($0.068 and $0.090 per
       limited partner unit, respectively)                  (2,025,000)                  (2,700,000)
                                                      -----------------           ------------------
                                                            23,958,249                   24,108,052
                                                      -----------------           ------------------

Total partners' capital                                    $24,182,698                  $24,313,796
                                                      =================           ==================
</TABLE>

           See accompanying notes to condensed financial statements.

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      Nine Months Ended
                                                                        September 30,
                                                                   1999               1998
                                                              ---------------    ---------------
<S>                                                           <C>                <C>
Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                     $2,072,209         $2,085,545
                                                              ---------------    ---------------

    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                      243,093              8,004
       Other                                                              --             13,255
                                                              ---------------    ---------------
          Net cash provided by investing activities                  241,518             21,259
                                                              ---------------    ---------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                          (2,025,000)        (2,025,000)
       Distributions to holder of minority interest                  (14,774)           (14,570)
                                                              ---------------    ---------------
          Net cash used in financing activities                   (2,039,774)        (2,039,570)
                                                              ---------------    ---------------

Net Increase in Cash and Cash Equivalents                            273,953             67,234

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

Cash and Cash Equivalents at End of Period                        $1,130,778         $  828,551
                                                              ===============    ===============

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.

                                       4
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 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 nine months ended September 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.

                                       5
<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
           Quarters and Nine Months Ended September 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:
<TABLE>
<CAPTION>
                                                             September 30,     December 31,
                                                                  1999             1998
                                                            ---------------   --------------
                 <S>                                        <C>               <C>
                 Land and buildings on operating
                     leases, less accumulated
                     depreciation                              $ 9,826,507     $ 10,612,379
                 Cash                                                7,832            3,763
                 Restricted cash                                   896,957               --
                 Receivables                                            --           21,249
                 Accrued rental income                             138,071          178,775
                 Other assets                                        1,157            1,116
                 Liabilities                                         9,485            8,916
                 Partners' capital                              10,861,039       10,808,366
                 Revenues                                          949,099        1,324,602
                 Gain on sale of land and building                 239,336               --
                 Net income                                        967,686        1,028,391
</TABLE>
         The Partnership recognized income totaling $341,768 and $229,480 during
         the nine months ended September 30, 1999 and 1998, respectively, from
         these joint ventures, $73,394 and $78,287 of which was earned during
         the quarters ended September 30, 1999 and 1998, respectively.

4.       Mortgage Notes Receivables:
         --------------------------

         As of December 31, 1998, the Partnership had accepted two promissory
         notes in connection with the sale of two of its properties. During the
         nine months ended September 30, 1999, the Partnership collected the
         outstanding principal balance of $235,564 relating to the promissory
         note accepted in connection with the sale of the property in
         Jacksonville, Florida.

5.       Restricted Cash:
         ---------------

         As of September 30, 1999, the net sales proceeds of $1,059,954 from the
         sale of the property in Maryville, Tennessee, plus accrued interest of
         $15,228, were being held in an interest-bearing escrow account pending
         the release of funds by the escrow agent to acquire an additional
         property.

                                       6
<PAGE>

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


6.       Related Party Transactions:
         --------------------------

         On September 1, 1999, CNL American Properties Fund, Inc. ("APF"), an
         affiliate of the general partners, acquired CNL Fund Advisors, Inc.
         ("CFA"), an affiliate who provides certain services relating to
         management of the Partnership and its properties pursuant to a
         management agreement with the Partnership. As a result of this
         acquisition, CFA became a wholly owned subsidiary of APF; however, the
         terms of the management agreement between the Partnership and CFA
         remain unchanged and in effect.

7.       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"). 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 fair value of
         the Partnership's property portfolio and other assets was $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 first quarter of 2000,
         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

                                       7
<PAGE>

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


7.       Commitments and Contingencies - Continued:
         -----------------------------------------

         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. On September 23, 1999, the judge assigned to
         the two lawsuits entered an order consolidating the two cases. Pursuant
         to this order, the plaintiffs in these cases filed a consolidated and
         amended complaint on November 8, 1999. The various defendants,
         including the general partners, have 45 days to respond to that
         consolidated complaint. 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.

         During the nine months ended September 30, 1999, the Partnership
         received notice from a tenant 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 November 5, 1999, the sale had not
         occurred.

                                       8
<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 September 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 nine months ended
September 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
$2,072,209 and $2,085,545 for the nine months ended September 30, 1999 and 1998,
respectively. The decrease in cash from operations for the nine months ended
September 30, 1999, as compared to the nine months ended September 30, 1998, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.

     Other sources and uses of capital included the following during the nine
months ended September 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 September
30, 1999, the net sales proceeds of $1,059,954, plus accrued interest of
$15,228, 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, 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

                                       9
<PAGE>

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, and the reinvestment of the proceeds will qualify as a like-kind
exchange transaction for federal income tax purposes.

     As of December 31, 1998, the Partnership had accepted two promissory notes
in connection with the sale of two of its Properties. During the nine months
ended September 30, 1999, the Partnership collected the outstanding principal
balance of $235,564 relating to the promissory note accepted in connection with
the sale of the Property in Jacksonville, Florida. The Partnership intends to
reinvest the amounts collected in an additional Property.

     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 accounts 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 September 30, 1999, the
Partnership had $1,130,778 invested in such short-term investments, as compared
to $856,825 at December 31, 1998. The increase in cash and cash equivalents at
September 30, 1999, was primarily attributable to the receipt of the outstanding
principal balance of the mortgage note receivable relating to the prior sale of
the Property in Jacksonville, Florida, as described above. The funds remaining
at September 30, 1999, after payment of distributions and other liabilities,
will be used to invest an additional Property and to meet the Partnership's
working capital and other needs.

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

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

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

     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 $2,025,000 for each of the nine months ended September 30, 1999 and
1998 ($675,000 for each of the quarters ended September 30, 1999 and 1998). This
represents distributions for each applicable nine months of $0.068 per unit
($0.023 per unit for each applicable quarter). No distributions were made to the
general partners for the quarters and nine months ended September 30, 1999 and
1998. No amounts distributed to the

                                       10
<PAGE>

limited partners for the nine months ended September 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 $902,400 at September 30, 1999, from $757,857 at December 31, 1998.
The increase in liabilities at September 30, 1999, was 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 nine months ended September 30, 1999, the Partnership received
notice from a tenant 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 November 5,
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 nine months ended September 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 $1,752,528 and $1,795,268
during the nine months ended September 30, 1999 and 1998, respectively, in
rental income from operating leases and earned income from direct financing
leases, $566,273 and $595,923 of which was earned during the quarters ended
September 30, 1999 and 1998, respectively. Rental and earned income decreased
approximately $27,000 and $35,100 during the quarter and nine months ended
September 30, 1999, respectively, as compared to the quarter and nine months
ended September 30, 1998, primarily as a result of the sale of the Property in
Maryville, Tennessee in June 1999, as described above in "Capital Resources."

     During the nine months ended September 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 nine months
ended September 30, 1999 and 1998, the Partnership earned $341,768 and $229,480,
respectively, $73,394 and $78,287 of which was earned during the quarters ended
September 30, 1999 and 1998, respectively. The increase in net income earned by
joint ventures was primarily 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

                                       11
<PAGE>

$122,000 of which was allocated to the Partnership, for financial reporting
purposes as a result of the sale of its Property, as described above in "Capital
Resources." Because the joint venture intends to reinvest the sales proceeds in
an additional Property, the Partnership does not anticipate that the sale of the
Property will have a material adverse effect on the results of operations of the
joint venture.

     Operating expenses, including depreciation expense, were $518,237 and
$352,286 for the nine months ended September 30, 1999 and 1998, respectively, of
which $166,954 and $117,124 were incurred during the quarters ended September
30, 1999 and 1998, respectively. The increase in operating expenses during the
quarter and nine months ended September 30, 1999, was primarily due to the fact
that during the quarter and nine months ended September 30, 1999, the
Partnership incurred $58,043 and $169,940, 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 $840 and $758
for the nine months ended September 30, 1999 and 1998, respectively, $287 and
$259 of which was recognized during the quarters ended September 30, 1999 and
1998, respectively. In addition, as a result of the sale of the Property in
Maryville, Tennessee in June 1999, as described above in "Capital Resources,"
the Partnership recognized a gain of $188,691 for financial reporting purposes
during the nine months ended September 30, 1999. No Properties were sold during
the quarter and nine months ended September 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"). 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 fair value of the Partnership's property portfolio and other
assets was $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 first quarter of 2000, 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

                                       12
<PAGE>

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. On September 23, 1999, the judge
assigned to the two lawsuits entered an order consolidating the two cases.
Pursuant to this order, the plaintiffs in these cases filed a consolidated and
amended complaint on November 8, 1999. The various defendants, including the
general partners, have 45 days to respond to that consolidated complaint. 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
------------------------------

Overview of Year 2000 Problem

     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 failure to accurately
recognize the year 2000 could result in a variety of problems from data
miscalculations to the failure of entire systems.

Information and Non-Information Technology Systems

     The Partnership does not have any information or non-information technology
systems. The general partners and their affiliates 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 general partners' affiliates 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 are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The affiliates
have no internally generated programmed software coding to correct, because
substantially all of the software utilized by the affiliates is purchased or
licensed from external providers. The maintenance of non-information technology
systems at the Partnership's restaurant properties is the responsibility of the
tenants of such properties in accordance with the terms of the Partnership's
leases.

The Y2K Team

     In early 1998, the general partners and their 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 their affiliates,
including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management.

                                       13
<PAGE>

Assessing Year 2000 Readiness

     The Y2K Team's initial step in assessing year 2000 readiness consisted of
identifying any systems that are date-sensitive and, accordingly, could have
potential year 2000 problems. The Y2K Team has conducted inspections, interviews
and tests to identify which of the systems used by the Partnership could have a
potential year 2000 problem.

     The information system of the general partners' affiliates is comprised of
hardware and software applications from mainstream suppliers. Accordingly, the
Y2K Team has contacted and is evaluating documentation from the respective
vendors and manufacturers to verify the year 2000 compliance of their products.
The Y2K Team has also requested and is evaluating documentation from the
non-information technology systems providers of the affiliates.

     In addition, the Y2K Team has requested and is evaluating documentation
from other companies with which the Partnership has material third party
relationships. Such third parties, in addition to the providers of information
and non-information technology systems, consist of the Partnership's transfer
agent and financial institutions. The Partnership depends on its transfer agent
to maintain and track investor information and its financial institutions for
availability of cash.

     As of September 30, 1999, the Y2K Team had received responses from
approximately 62 percent of the third parties. All of the responses were in
writing. Of the third parties responding, all indicated that they are currently
year 2000 compliant or will be year 2000 compliant prior to the year 2000.
Although the Y2K Team continues 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 third parties
have adequately considered the impact of the year 2000.

     In addition, the Y2K Team has requested documentation from the
Partnership's tenants. As of September 30, 1999, the Y2K Team had received
responses from approximately 71 percent of the tenants. All of the responses
were in writing. Of the tenant's responding, all indicated that they are
currently year 2000 compliant or will be year 2000 compliant prior to the year
2000. The general partners cannot be assured that the tenants have adequately
considered the impact of the year 2000. The Partnership has also instituted a
policy of requiring any new tenants to indicate that their systems are year 2000
compliant or are expected to be year 2000 compliant prior to the year 2000.

Achieving Year 2000 Compliance

     The Y2K Team has identified and completed upgrades for its hardware
equipment that was not year 2000 compliant. In addition, the Y2K Team has
identified and completed upgrades of the software applications that were not
year 2000 compliant, although the general partners cannot be assured that the
upgrade solutions provided by the vendors have addressed all possible year 2000
issues.

                                       14
<PAGE>

     The cost for these upgrades and other remedial measures is the
responsibility of the general partners and their affiliates. The general
partners do not expect that the Partnership will incur any costs in connection
with year 2000 remedial measures.

Assessing the Risks to the Partnership of Non-Compliance and Developing
Contingency Plans

Risk of Failure of Information and Non-Information Technology Systems Used by
the Partnership

     The general partners believe that the reasonably likely worst case scenario
with regard to the information and non-information technology systems used by
the Partnership is the failure of one or more of these systems as a result of
year 2000 problems. Because the Partnership's major source of income is rental
payments under long-term triple-net leases, any failure of information or
non-information technology systems used by the Partnership is not expected to
have a material impact on the results of operations of the Partnership. Even if
such systems failed, the payment of rent under the Partnership's leases would
not be affected. In addition, the Y2K Team is expected to correct any Y2K
problems within the control of the general partners and their affiliates before
the year 2000.

     The Y2K Team has determined that a contingency plan to address this risk is
not necessary at this time. However, if the Y2K Team identifies additional risks
associated with the year 2000 compliance of the information or non-information
technology systems used by the Partnership, the Y2K Team will develop a
contingency plan if deemed necessary at that time.

Risk of Inability of Transfer Agent to Accurately Maintain Partnership Records

     The general partners believe that the reasonably likely worst case scenario
with regard to the Partnership's transfer agent is that the transfer agent will
fail to achieve year 2000 compliance of its systems and will not be able to
accurately maintain the records of the Partnership. This could result in the
inability of the Partnership to accurately identify its limited partners for
purposes of distributions, delivery of disclosure materials and transfer of
units. The Y2K Team has received certification from the Partnership's transfer
agent of its year 2000 compliance. Despite the positive response from the
transfer agent, the general partners cannot be assured that the transfer agent
has addressed all possible year 2000 issues.

     The Y2K Team has developed a contingency plan pursuant to which the general
partners and their affiliates would maintain the records of the Partnership
manually, 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 results of operations of the Partnership.

                                       15
<PAGE>

Risk of Loss of Short-Term Liquidity from Failure of Financial Institutions to
Achieve Year 2000 Compliance

     The general partners believe that the reasonably likely worst case scenario
with regard to the Partnership's financial institutions is that some or all of
its funds on deposit with such financial institutions may be temporarily
unavailable. The Y2K Team has received responses from 93% of the Partnership's
financial institutions indicating that their systems are currently year 2000
compliant or are expected to be year 2000 compliant prior to the year 2000.
Despite the positive responses from the financial institutions, the general
partners cannot be assured that the financial institutions have addressed all
possible year 2000 issues. The loss of short-term liquidity could affect the
Partnership's ability to pay its expenses on a current basis. The general
partners do not anticipate that a loss of short-term liquidity would have a
material impact on the results of operations of the Partnership.

     Based upon the responses received from the Partnership's financial
institutions and the inability of the Y2K Team to identify a suitable
alternative for the deposit of funds that is not subject to potential year 2000
problems, the Y2K Team has determined not to develop a contingency plan to
address this risk.

Risks of Late Payment or Non-Payment of Rent by Tenants

     The general partners believe that the reasonably likely worst case scenario
with regard to the Partnership's tenants is that some of the tenants may make
rental payments late as the result of the failure of the tenants to achieve year
2000 compliance of their systems used in the payment of rent, the failure of the
tenant's financial institutions to achieve year 2000 compliance, or the
temporary disruption of the tenants' businesses. The Y2K Team is in the process
of requesting responses from the Partnership's tenants indicating the extent to
which their systems are currently year 2000 compliant or are expected to be year
2000 compliant prior to the year 2000. The general partners cannot be assured
that the tenants have addressed all possible year 2000 issues. The late payment
of rent by one or more tenants would affect the results of operations of the
Partnership in the short-term.

     The general partners are also aware of predictions that the year 2000
problem, if uncorrected, may result in a global economic crisis. The general
partners are not able to determine if such predictions are true. A widespread
disruption of the economy could affect the ability of the Partnership's tenants
to pay rent and, accordingly, could have a material impact on the results of
operations of the Partnership.

     Because payment of rent is under the control of the Partnership's tenants,
the Y2K Team is not able to develop a contingency plan to address these risks.
In the event of late payment or non-payment of rent, the general partners will
assess the remedies available to the Partnership under its lease agreements.

                                       16
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Partnership has provided a fixed rate mortgage note to a borrower. The
general partners believe that the estimated fair value of the mortgage note at
September 30, 1999 approximated the outstanding principal amounts. The
Partnership is exposed to equity loss in the event of changes in interest rates.
The following table presents the expected cash flows of principal that are
sensitive to these changes.

                                            Mortgage note
                                              Fixed Rate
                                      ---------------------------

              1999                          $       2,640
              2000                              1,112,144
              2001                                     --
              2002                                     --
              2003                                     --
              Thereafter                               --
                                      ---------------------------

                                               $1,114,784
                                      ===========================

                                       17
<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.

            On September 23, 1999, Judge Lawrence Kirkwood entered an
            order consolidating the two cases under the caption In re: CNL
                                                                ----------
            Income Funds Litigation, Case No. 99-3561. Pursuant to this
            ------------------------------------------
            order, the plaintiffs in these cases filed a consolidated and
            amended complaint on November 8, 1999, and the various defendants,
            including the general partners, have 45 days to respond to that
            consolidated complaint.

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.

                                       18
<PAGE>

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, as amended June 4,
                              1999, and as amended October 27, 1999 (Filed as
                              Appendix B to the Prospectus Supplement for the
                              Registrant, constituting a part of Amendment No. 3
                              to the Registration Statement of APF on Form S-4,
                              File No. 333-74329.)

                     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.)

                                       19
<PAGE>

            (b)      Reports on Form 8-K

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

                                       20
<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 10th day of November, 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)

                                       21