<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
                                     0-21558
                     --------------------------------------


                            CNL Income Fund XII, Ltd.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         Florida                                        59-3078856
----------------------------------------      ----------------------------------
(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



Part I                                                                    Page
                                                                          ----
   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                     9-17

   Item 3.    Quantitative and Qualitative Disclosures About
                  Market Risk                                             18

Part II

   Other Information                                                      19-21
<PAGE>

                            CNL INCOME FUND XII, LTD.
                         (A Florida Limited Partnership)
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                             September 30,            December 31,
                                                                                  1999                    1998
                                                                           -------------------     -------------------
                               ASSETS
                               ------
<S>                                                                        <C>                     <C>
   Land and buildings on operating leases, less
     accumulated depreciation of $2,035,987 and
     $1,795,099 in 1999 and 1998, respectively, and
     allowance for loss on building of $206,535 in
     1998                                                                        $ 20,034,780            $ 20,703,333
   Net investment in direct financing leases                                       12,329,657              12,471,978
   Investment in joint ventures                                                     2,703,009               2,522,004
   Mortgage note receivable                                                            53,317                      --
   Cash and cash equivalents                                                        2,629,366               2,362,980
   Receivables, less allowance for doubtful accounts
     of $205 and $214,633 in 1999 and 1998,
     respectively                                                                      13,622                  16,862
   Prepaid expenses                                                                    12,026                   7,038
   Lease costs, less accumulated amortization
     of $5,097 and $3,256 in 1999 and 1998,
     respectively                                                                      40,891                  26,297
   Accrued rental income, less allowance for doubtful
     accounts of $6,323 in 1999 and 1998                                            2,676,676               2,524,406
                                                                           -------------------     -------------------

                                                                                 $ 40,493,344            $ 40,634,898
                                                                           ===================     ===================
                  LIABILITIES AND PARTNERS' CAPITAL
                  ---------------------------------
   Accounts payable                                                                $  153,012              $   21,195
   Accrued construction costs payable                                                  30,000                      --
   Accrued and escrowed real estate taxes payable                                      29,025                  10,137
   Distributions payable                                                              956,252               1,091,252
   Due to related parties                                                              14,032                  24,025
   Rents paid in advance and deposits                                                  60,826                  97,448
                                                                           -------------------     -------------------
     Total liabilities                                                              1,243,147               1,244,057

   Commitments and Contingencies (Note 6)

   Partners' capital                                                               39,250,197              39,390,841
                                                                           -------------------     -------------------

                                                                                 $ 40,493,344             $40,634,898
                                                                           ===================     ===================
</TABLE>

            See accompanying notes to condensed financial statements.

                                       1
<PAGE>

                            CNL INCOME FUND XII, 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                   $ 611,730       $ 592,290      $ 1,846,362     $ 1,877,428
    Adjustments to accrued rental income                         --              --               --        (224,867)
    Earned income from direct financing leases              370,818         371,635        1,119,392       1,170,186
    Contingent rental income                                  1,712           6,038            6,394          19,755
    Interest and other income                                27,282           7,031           72,217          51,713
                                                        ------------    ------------     ------------    -------------
                                                          1,011,542         976,994        3,044,365       2,894,215
                                                        ------------    ------------     ------------    -------------
Expenses:
    General operating and administrative                     40,451          46,999          119,332         113,005
    Professional services                                     8,345           6,630           30,921          19,616
    Bad debt expense                                             --         104,323               --         188,990
    Management fees to related party                         10,568          10,320           32,023          31,871
    Real estate taxes                                           603          33,877            4,099          35,029
    State and other taxes                                        --              --           20,764          17,653
    Depreciation and amortization                            84,031          92,113          252,808         252,185
    Transaction costs                                        69,671              --          197,353              --
                                                        ------------    ------------     ------------    -------------
                                                            213,669         294,262          657,300         658,349
                                                        ------------    ------------     ------------    -------------

Income Before Equity in Earnings of Joint
    Ventures and Gain on Sale of Land and
    Building                                                797,873         682,732        2,387,065       2,235,866

Equity in Earnings of Joint Ventures                         76,127          63,712          266,333          85,604

Gain on Sale of Land and Building                                --              --           74,714              --
                                                        ------------    ------------     ------------    -------------

Net Income                                                $ 874,000       $ 746,444      $ 2,728,112      $ 2,321,470
                                                        ============    ============     ============    =============

Allocation of Net Income:
    General partners                                      $   8,739       $   7,465      $    26,634      $    23,215
    Limited partners                                        865,261         738,979        2,701,478        2,298,255
                                                        ------------    ------------     ------------     ------------
                                                          $ 874,000       $ 746,444      $ 2,728,112      $ 2,321,470
                                                        ============    ============     ============     ============

Net Income Per Limited Partner Unit                       $    0.19       $    0.16      $      0.60      $      0.51
                                                        ============    ============     ============     ============

Weighted Average Number of Limited Partner
    Units Outstanding                                     4,500,000       4,500,000        4,500,000        4,500,000
                                                        ============    ============     ============     ============
</TABLE>

            See accompanying notes to condensed financial statements.

                                       2
<PAGE>

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


                                             Nine Months Ended     Year Ended
                                               September 30,      December 31,
                                                   1999               1998
                                            ------------------  ---------------

General partners:
    Beginning balance                            $     223,305    $     192,411
    Net income                                          26,634           30,894
                                            ------------------  ---------------
                                                       249,939          223,305
                                            ------------------  ---------------

Limited partners:
    Beginning balance                               39,167,536       40,224,901
    Net income                                       2,701,478        2,902,643
    Distributions ($0.64 and $0.88 per
       limited partner unit, respectively)          (2,868,756)      (3,960,008)
                                            ------------------  ---------------
                                                    39,000,258       39,167,536
                                            ------------------  ---------------

Total partners' capital                        $    39,250,197   $   39,390,841
                                            ==================  ===============




            See accompanying notes to condensed financial statements.

                                       3
<PAGE>

                            CNL INCOME FUND XII, 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                               $   2,952,968        $  3,066,225
                                                                          ----------------     ---------------
    Cash Flows from Investing Activities:
       Proceeds from sale of land and building                                    467,300                  --
       Investment in joint venture                                               (135,825)           (115,256)
       Collections on mortgage note receivable                                      2,134                  --
       Payment of lease costs                                                     (16,435)             (3,500)
                                                                          ----------------     ---------------
              Net cash provided by (used in) investing
                  activities                                                      317,174            (118,756)
                                                                          ----------------     ---------------
    Cash Flows from Financing Activities:
       Distributions to limited partners                                       (3,003,756)         (2,868,756)
                                                                          ----------------     ---------------
              Net cash used in financing activities                            (3,003,756)         (2,868,756)
                                                                          ----------------     ---------------

Net Increase in Cash and Cash Equivalents                                         266,386              78,713

Cash and Cash Equivalents at Beginning of Period                                2,362,980           1,706,415
                                                                          ----------------     ---------------

Cash and Cash Equivalents at End of Period                                  $   2,629,366        $  1,785,128
                                                                          ================     ===============
Supplemental Schedule of Non-Cash Investing and
    Financing Activities:

       Mortgage note accepted in exchange for sale of
        land and building                                                   $      55,000        $         --
                                                                          ================     ===============
       Construction costs incurred and unpaid at end
        of period                                                           $      30,000        $         --
                                                                          ================     ===============
       Distributions declared and unpaid at end of
        period                                                              $     956,252        $    956,252
                                                                          ================     ===============
</TABLE>

            See accompanying notes to condensed financial statements.

                                       4
<PAGE>

                            CNL INCOME FUND XII, 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 XII, Ltd. (the "Partnership") for the year ended December 31, 1998.

2.   Land and Buildings on Operating Leases:
     --------------------------------------

     At December 31, 1998, the Partnership had recorded an allowance for loss on
     building of $206,535 relating to the property in Morganton, North Carolina,
     due to the tenant filing for bankruptcy. The allowance represented the
     difference between the carrying value of the property at December 31, 1998
     and the estimated net realizable value for this property. In May 1999, the
     Partnership sold this property to an unrelated third party for $550,000,
     received $467,300 in cash and accepted the remaining net sales proceeds in
     the form of a promissory note (See Note 3), resulting in a gain of $74,714
     for financial reporting purposes. This gain, when netted against the
     allowance recorded at December 31, 1998, resulted in a total net loss of
     approximately $131,800.

3.   Mortgage Note Receivable:
     ------------------------

     In connection with the sale of the property in Morganton, North Carolina,
     in May 1999, the Partnership accepted a promissory note in the principal
     sum of $55,000 collateralized by a mortgage on the property. The promissory
     note bears interest at a rate of 10.25% per annum and is being collected in
     60 monthly installments of principal and interest. The mortgage note
     receivable consisted of outstanding principal of $52,866 and accrued
     interest receivable of $451 as of September 30, 1999.

                                       5
<PAGE>

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


3.   Mortgage Note Receivable - Continued:
     ------------------------------------

     The general partners believe that the estimated fair value of the mortgage
     note receivable at September 30, 1999 approximates the outstanding
     principal amounts based on estimated current rates at which similar loans
     would be made to borrowers with similar credit and for similar maturities.

4.   Concentration of Credit Risk:
     ----------------------------

     The following schedule presents total rental and earned income (including
     mortgage interest income) from individual restaurant chains, each
     representing more than ten percent of the Partnership's total rental and
     earned income (including the Partnership's share of rental and earned
     income from joint ventures) for each of the nine months ended September 30:

                                         1999                     1998
                                   -----------------        -----------------

               Jack in the Box            $ 768,500                $ 767,463
               Denny's                      603,516                  565,923
               Hardee's                     582,053                  587,444
               Golden Corral                346,818                      N/A
               Long John Silver's           361,873                  457,523

     The information denoted by N/A indicates that for the applicable period
     presented, the chain did not represent more than ten percent of the
     Partnership's total rental and earned income.

     In June 1998, Long John Silver's, Inc. filed for bankruptcy and rejected
     the leases relating to three of its eight Properties and ceased making
     rental payments to the Partnership on the three rejected leases. In
     December 1998 and May 1999, the Partnership sold two of the vacant
     properties. In July 1999, the Partnership entered into a new lease with a
     new tenant for the remaining vacant property for which rental payments
     commenced in August of 1999. In August 1999, Long John Silver's, Inc.
     assumed and affirmed its five remaining leases.

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

                                       6
<PAGE>

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


5.   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.

6.   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
     2,384,248 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 $46,951,127 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.

                                       7
<PAGE>

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


6.   Commitments and Contingencies - Continued:
     -----------------------------------------

     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. 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.

7.   Subsequent Event:
     ----------------

     In November 1999, the Partnership used the proceeds from the sales of the
     properties in Monroe and Morganton, North Carolina, to enter into a joint
     venture arrangement, Bossier City Joint Venture, with CNL Income Fund VIII,
     Ltd. and CNL Income Fund XIV, Ltd., both Florida limited partnerships and
     affiliates of the general partners, to hold one restaurant property. The
     Partnership contributed approximately $730,000 to acquire the restaurant
     property. The Partnership owns an approximate 55 percent interest in the
     profits and losses of the joint venture. The Partnership will account for
     its investment in this joint venture under the equity method since the
     Partnership will share control with affiliates.

                                       8
<PAGE>

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

     CNL Income Fund XII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 20, 1991, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as properties upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are generally 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 47 Properties, which included interests in five
Properties owned by joint ventures in which the Partnership is a co-venturer.

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
$2,952,968 and $3,066,225 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 the Partnership's working capital.

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

     In August 1998, the Partnership entered into a joint venture arrangement,
Columbus Joint Venture, with affiliates of the general partners, to construct,
own and lease one restaurant Property. As of September 30, 1999, the Partnership
had contributed approximately $251,100, of which $135,825 was contributed during
the nine months ended September 30, 1999, to the joint venture to purchase land
and pay for construction costs relating to the joint venture. As of September
30, 1999, the Partnership owned an approximate 28 percent interest in the
profits and losses of the joint venture.

     In May 1999, the Partnership sold its Property in Morganton, North
Carolina, to an unrelated third party for $550,000, received $467,300 in cash
and accepted the remaining sales proceeds in the form of a promissory note in
the principal sum of $55,000. The Partnership had recorded an allowance for loss
on building relating to this Property of $206,535 at December 31, 1998 due to
the tenant filing for bankruptcy. The allowance represented the difference
between the carrying value of the Property at December 31, 1998 and the
estimated net realizable value for this Property. During the nine months ended
September 30, 1999, the Partnership recorded a gain relating to the sale of this
Property of $74,714 for financial reporting purposes, resulting in an overall
net loss relating to the sale of this Property of approximately $131,800. The
promissory note is collateralized by a mortgage on the Property, bears interest
at a rate of 10.25% per annum and is being collected in 60 monthly installments
of principal and interest. The net sales proceeds of $467,300 received in cash
and proceeds received from the collection of this promissory note will be used
to reinvest in an additional Property.

                                       9
<PAGE>

     In November 1999, the Partnership reinvested the proceeds from the above
sale plus the sales proceeds from the 1998 sale of the Property in Monroe, North
Carolina in a joint venture, Bossier City Joint Venture, with CNL Income Fund
VIII, Ltd. and CNL Income Fund XIV, Ltd., both Florida limited partnerships and
affiliates of the general partners, to hold one restaurant property. The
Partnership owns an approximate 55 percent interest in the profits and losses of
the joint venture. The Partnership will distribute amounts sufficient to enable
the Limited Partners to pay federal and state income taxes, if any (at a level
reasonably assumed by the general partners), resulting from the sale.

     Currently, rental income from the Partnership's Properties and net sales
proceeds from the sale of Properties pending reinvestment in additional
Properties are invested in money market accounts or other short-term, highly
liquid investments such as demand deposits 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, invest
in an additional Property, or to make distributions to the partners. At
September 30, 1999, the Partnership had $2,629,366 invested in such short-term
investments, as compared to $2,362,980 at December 31, 1998. The funds remaining
at September 30, 1999, after payment of distributions and other liabilities,
will be used to acquire additional Properties, to pay for renovations, as
described below, 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 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 current cash from operations, and for the nine months ended September 30,
1999, anticipated future cash from operations, the Partnership declared
distributions to the limited partners of $2,868,756 for each of the nine months
ended September 30, 1999 and 1998 ($956,252 for each of the quarters ended
September 30, 1999 and 1998). This represents distributions for each of the nine
months ended September 30, 1999 and 1998 of $0.64 per unit ($0.21 per unit for
each of the quarters ended September 30, 1999 and 1998). 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 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.

                                       10
<PAGE>

     Total liabilities of the Partnership decreased to $1,243,147 at September
30, 1999, from $1,244,057 at December 31, 1998. The general partners believe
that the Partnership has sufficient cash on hand to meet its current working
capital needs.

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, 1998, the Partnership owned and
leased 44 wholly owned Properties (which included one Property sold in December
1998), and during the nine months ended September 30, 1999, the Partnership
owned and leased 43 wholly owned Properties (which included one Property sold in
May 1999) to operators of fast-food and family-style restaurant chains. During
the nine months ended September 30, 1999 and 1998, the Partnership earned
$2,965,754 and $2,822,747, respectively, in rental income from operating leases
(net of adjustments to accrued rental income) and earned income from direct
financing leases from these Properties, $982,548 and $963,925 of which was
earned during the quarters ended September 30, 1999 and 1998, respectively.
Rental and earned income was lower during the nine months ended September 30,
1998, as compared to the nine months ended September 30, 1999, due to the fact
that in June 1998, Long John Silver's, Inc. filed for bankruptcy and rejected
the leases relating to three of the eight Properties that it leased. As a
result, the tenant ceased making rental payments on the three rejected leases,
and in addition, during the nine months ended September 30, 1998, the
Partnership wrote off $224,867 in accrued rental income (non-cash accounting
adjustments relating to the straight-lining of future scheduled rent increases
over the lease term in accordance with generally accepted accounting principles)
relating to these Properties. No amounts were written-off during the nine months
ended September 30, 1999. The effect from the write-off of accrued rental income
was partially offset by the fact that the Partnership recorded rental and earned
income during the quarter and nine months ended September 30, 1998, prior to the
tenant vacating the Properties in June 1998. In December 1998 and May 1999, the
Partnership sold two of the vacant Properties and intends to reinvest the net
sales proceeds from the sales of these Properties in additional Properties, as
discussed in "Capital Resources". In July 1999, the Partnership entered into a
lease with a new tenant for the remaining vacant Property. In connection with
the lease, the Partnership agreed to pay up to $30,000 of the construction costs
necessary to convert this Property into a new concept. Conversion of this
Property was completed in August 1999, at which time rental payments commenced
causing a slight increase in rental and earned income during the quarter and
nine months ended September 30, 1999. In August 1999, Long John Silver's, Inc.
assumed and affirmed its five remaining leases, and the Partnership has
continued receiving rental payments relating to these five leases.

     In addition, during the nine months ended September 30, 1999 and 1998, the
Partnership earned $6,394 and $19,755, respectively, in contingent rental
income, $1,712 and $6,038 of which was earned during the quarters ended
September 30, 1999 and 1998, respectively. The decrease in contingent rental
income during the quarter and nine months ended September 30, 1999, as compared
to the quarter and nine months ended September 30, 1998, was primarily due to
decreased gross sales of certain restaurant Properties requiring the payment of
contingent rental income.

                                       11
<PAGE>

     In addition, during the nine months ended September 30, 1999 and 1998, the
Partnership owned and leased five Properties indirectly through joint venture
arrangements. In connection with the joint venture arrangements, during the nine
months ended September 30, 1999 and 1998, the Partnership earned $266,333 and
$85,604, respectively, of which $76,127 and $63,712 were earned during the
quarters ended September 30, 1999 and 1998, respectively. Net income earned by
joint ventures was lower during the nine months ended September 30, 1998, as
compared to the nine months ended September 30, 1999, primarily due to the fact
that Kingsville Real Estate Joint Venture (in which the Partnership owns a
31.13% interest in the profits and losses of the joint venture) established an
allowance for doubtful accounts of approximately $87,800 during the nine months
ended September 30, 1998, in accordance with its collection policy. No such
allowance was established during the nine months ended September 30, 1999. In
addition, during the nine months ended September 30, 1998, Kingsville Real
Estate Joint Venture established a provision for loss on land and net investment
in direct financing lease for its Property in Kingsville, Texas for
approximately $316,000. The allowance represented the difference between the
Property's carrying value at September 30, 1998 and the estimated net realizable
value of the Property. In January 1999, Kingsville Real Estate Joint Venture
entered into a new lease for this Property with a new tenant and the general
partners ceased collection efforts on the past due rental amounts.

     During the nine months ended September 30, 1999, five restaurant chains,
Long John Silver's, Hardee's, Jack in the Box, Golden Corral, and Denny's, each
accounted for more than ten percent of the Partnership's total rental, earned
and interest income (including the Partnership's share of rental income from
Properties owned by joint ventures). During 1998, Long John Silver's Inc. filed
for bankruptcy, as described above. It is anticipated that during the remainder
of 1999, each of these five chains will continue to account for more than ten
percent of the Partnership's total rental, earned and interest income to which
the Partnership is entitled under the terms of the leases. Any failure of these
restaurant chains could materially affect the Partnership's income if the
Partnership is not able to re-lease the Properties in a timely manner.

     Operating expenses, including depreciation and amortization expense, were
$657,300 and $658,349 for the nine months ended September 30, 1999 and 1998,
respectively, of which $213,669 and $294,262 were incurred during the quarters
ended September 30, 1999 and 1998, respectively. Operating expenses were higher
during the quarter and nine months ended September 30, 1998, as compared to the
quarter and nine months ended September 30, 1999, due to the fact that during
the quarter and nine months ended September 30, 1998, the Partnership recorded
bad debt expense of $104,323 and $188,990, respectively, for past due principal
and interest amounts relating to a loan with the tenant of the Property in
Kingsville Real Estate Joint Venture due to financial difficulties the tenant
experienced. In January 1999, Kingsville Real Estate Joint Venture entered into
a new lease, with a new tenant, and the general partners ceased collection
efforts on the past due rental amounts.

     The decrease in operating expenses during the quarter and nine months ended
September 30, 1999, was partially offset by the fact that the Partnership
incurred $69,671 and $197,353 in transaction costs during the quarter and nine
months ended September 30, 1999, respectively, relating to the general partners
retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed merger with CNL American Properties Fund, Inc. ("APF"),
as

                                       12
<PAGE>

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.

     In addition, the decrease in operating expenses during the quarter and nine
months ended September 30, 1999, was partially attributable to the fact that
during the quarter and nine months ended September 30, 1998, the Partnership
incurred legal, insurance and real estate tax expenses on the three Properties
for which the leases were rejected and which were vacant during the quarter and
nine months ended September 30, 1998, as a result of Long John Silver's, Inc.
filing for bankruptcy, as described above. The Partnership sold two of the
vacant Properties in December 1998 and May 1999, and the Partnership entered
into a long-term triple net lease with a new tenant for the remaining vacant
Property in July 1999. The new tenant is responsible for real estate taxes,
insurance and maintenance; therefore, the general partners do not anticipate
that the Partnership will continue to incur these expenses. Due to the fact that
Long John Silver's, Inc. assumed and affirmed its remaining leases, as described
above, Long John Silver's, Inc. will be responsible for such expenses relating
to these Properties; therefore, the general partners do not anticipate that the
Partnership will incur these expenses for these Properties in the future.

     As a result of the sale of the Property in Morganton, North Carolina, as
described above in "Capital Resources," the Partnership recorded a gain of
$74,714 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 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 2,384,248 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 $46,951,127 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.

                                       13
<PAGE>

     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. 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
------------------------------

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.

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

                                       14
<PAGE>

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 77 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.

     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.

                                       15
<PAGE>

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.

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

                                       16
<PAGE>

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.

                                       17
<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 amount. 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                            $ 2,934
                   2000                              9,421
                   2001                             10,433
                   2002                             11,554
                   2003                             12,796
                   Thereafter                        5,728
                                              -------------

                                                   $52,866
                                              =============

                                       18
<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.
        ----------------------------------------------------

Item 5. Other Information. Inapplicable.
        ------------------

                                       19
<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, 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 XII, Ltd. (Included as Exhibit 3.2 to Registration
                  Statement No. 33-43278-01 on Form S-11 and incorporated herein
                  by reference.)

             4.1  Affidavit and Certificate of Limited Partnership of CNL Income
                  Fund XII, Ltd. (Included as Exhibit 3.2 to Registration
                  Statement No. 33-43278-01 on Form S-1 and incorporated herein
                  by reference.)

             4.2  Amended and Restated Agreement of Limited Partnership of CNL
                  Income Fund XII, Ltd. (Included as Exhibit 4.2 to Form 10-K
                  filed with the Securities and Exchange Commission on April 15,
                  1993, and incorporated herein by reference.)

             10.1 Management Agreement between CNL Income Fund XII, Ltd. and CNL
                  Investment Company (Included as Exhibit 10.1 to Form 10-K
                  filed with the Securities and Exchange Commission on April 15,
                  1993, 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 31, 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.)

                                       20
<PAGE>

     (b)  Reports on Form 8-K

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

                                       21
<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.


            By:       CNL INCOME FUND XII, LTD.
                      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)

                                       22