<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-K

(Mark One)

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the fiscal year ended December 31, 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 Identification No.)
     incorporation or organization)

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

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

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

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

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

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

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

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

     Aggregate market value of the voting stock held by nonaffiliates of the
registrant:  The registrant registered an offering of 30,000,000 units of
limited partnership interest (the "Units") on Form S-11 under the Securities Act
of 1933, as amended.  Since no established market for such Units exists, there
is no market for such Units.  Each Unit was originally sold at $1 per Unit.

                     DOCUMENTS INCORPORATED BY REFERENCE:
                                     None
<PAGE>

                                     PART I


Item 1.  Business

     CNL Income Fund VII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 18, 1989.  The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners").  Beginning on January 30, 1990, the
Partnership offered for sale up to $30,000,000 of limited partnership interests
(the "Units") (30,000,000 Units each at $1 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended.  The
offering terminated on August 1, 1990, as of which date the maximum offering
proceeds of $30,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").

     The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains").  Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$26,550,000, and were used to acquire 42 Properties, including interests in nine
Properties owned by joint ventures in which the Partnership is a co-venturer,
and to establish a working capital reserve for Partnership purposes.  During
1994, the Partnership sold its Property in St. Paul, Minnesota and reinvested
the majority of the net sales proceeds in a Checkers Property in Winter Springs,
Florida, consisting of only land, and a Jack in the Box Property in Yuma,
Arizona, which is owned as tenants-in-common with an affiliate of the General
Partners.  The lessee of the Property consisting of only land owns the building
currently on the land.  During 1995, the Partnership sold its Properties in
Florence, South Carolina and Jacksonville, Florida and accepted promissory notes
in the principal sum of $1,160,000 and $240,000, respectively.  In addition, the
building located on the Partnership's Property in Daytona Beach, Florida was
demolished in accordance with a condemnation agreement during 1995.  During the
year ended December 31, 1996, the Partnership sold its Properties in Hartland,
Michigan and Colorado Springs, Colorado and reinvested the net sales received
from the sale of the Colorado Springs, Colorado Property in a Boston Market
Property in Marietta, Georgia.  During the year ended December 31, 1997, the
Partnership used the net sales proceeds from the sale of the Property in
Hartland, Michigan to invest in CNL Mansfield Joint Venture with an affiliate of
the General Partners in exchange for a 79 percent interest in the joint venture.
In addition, during 1997, the Partnership sold its Properties in Columbus,
Indiana and Dunnellon, Florida and sold the Property in Yuma, Arizona, which was
owned as tenants-in-common with an affiliate of the General Partners, and
reinvested the net sales proceeds in a Property in Smithfield, North Carolina
and a Property in Miami, Florida, each as tenants-in-common, with affiliates of
the General Partners.  During the year ended December 31, 1999, the Partnership
sold its Property in Maryville, Tennessee and used the net sales proceeds to
invest in a Property in Montgomery, Alabama as tenants-in-common, with
affiliates of the General Partners.  In addition, during 1999, the Partnership
received a prepaid principal payment from the borrower relating to one of the
promissory notes the Partnership had previously accepted.  The Partnership used
the proceeds to invest in Duluth Joint Venture with affiliates of the General
Partners to construct and hold one restaurant property.  In addition, during
1999, Halls Joint Venture, in which the Partnership owns a 51.1% interest, sold
its Property in Halls, Tennessee.  As a result of the above transactions, as of
December 31, 1999, the Partnership owned 40 Properties.  The 40 Properties
included interests in ten Properties owned by joint ventures in which the
Partnership is a co-venturer and three Properties owned with affiliates as
tenants-in-common.  The Properties are, in general, leased on a triple-net basis
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities.

     The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives.  In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations.  Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed.  The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.

                                       1
<PAGE>

     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 "Termination
of Merger"). APF is a real estate investment trust whose primary business is the
ownership of restaurant properties leased on a long-term, "triple-net" basis to
operators of national and regional restaurant chains. Under the Agreement and
Plan of Merger, APF was to issue shares of its common stock as consideration for
the Merger. On March 1, 2000, the General Partners and APF announced that they
had mutually agreed to terminate the Agreement and Plan of Merger. The agreement
to terminate the Agreement and Plan of Merger was based, in large part, on the
General Partners' concern that, in light of market conditions relating to
publicly traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners' ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable.

Leases

     Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases.  The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms ranging from five to 20 years (the average being 17 years), and expire
between 2003 and 2019.  Generally, the leases are on a triple-net basis, with
the lessee responsible for all repairs and maintenance, property taxes,
insurance and utilities.  The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $22,100 to $191,900.  The majority of the leases provide for
percentage rent, based on sales in excess of a specified amount.  In addition,
some of the leases provide that, commencing in specified lease years (generally
ranging from the sixth to the eleventh lease year), the annual base rent
required under the terms of the lease will increase.

     Generally, the leases of the Properties provide for two to four five-year
renewal options subject to the same terms and conditions as the initial lease.
Lessees of 30 of the Partnership's 40 Properties also have been granted options
to purchase Properties at the Property's then fair market value after a
specified portion of the lease term has elapsed.  Fair market value will be
determined through an appraisal by an independent appraisal firm.  Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.

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

     In November 1999, the Partnership invested in a Property in Montgomery,
Alabama as tenants-in-common with CNL Income Fund IX, Ltd., a Florida limited
partnership and affiliate of the General Partners. The lease terms for this
Property are substantially the same as the Partnership's other leases. In
December 1999, the Partnership entered into a joint venture arrangement, Duluth
Joint Venture, with affiliates of the General Partners, to construct and hold
one restaurant Property. The lease terms for this Property are substantially the
same as the Partnership's other leases.

Major Tenants

     During 1999, three lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation, Restaurant Management Services, Inc., and
Waving Leaves, Inc., each contributed more than ten percent of the Partnership's
total rental, earned, and mortgage interest income (including rental and earned
income from the Partnership's consolidated joint venture and the Partnership's
share of rental income from nine Properties owned by unconsolidated joint
ventures and three Properties owned with affiliates of the General Partners as
tenants-in-common).  As of December 31, 1999, Golden Corral Corporation was the
lessee under leases relating to five restaurants, Restaurant Management
Services, Inc. was the lessee under leases relating to seven restaurants and one
site currently consisting of land only, and Waving Leaves, Inc. was the lessee
under leases relating to four restaurants.  It is anticipated that, based on the
minimum rental payments required by the leases, these three lessees

                                       2
<PAGE>

each will continue to contribute more than ten percent of the Partnership's
total rental, earned, and mortgage interest income in 2000. In addition, three
Restaurant Chains, Golden Corral Family Steakhouse Restaurants ("Golden
Corral"), Hardee's, and Burger King, each accounted for more than ten percent of
the Partnership's total rental, earned, and mortgage interest income in 1999
(including rental and earned income from the Partnership's consolidated joint
venture and the Partnership's share of rental and earned income from nine
Properties owned by unconsolidated joint ventures and three Properties owned
with affiliates of the General Partners as tenants-in-common). In 2000, it is
anticipated that these three Restaurant Chains each will continue to account for
more than ten percent of the Partnership's total rental, earned, and mortgage
interest income to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner. As of December 31, 1999, Golden Corral
Corporation leased Properties with an aggregate carrying value in excess of 20
percent of the total assets of the Partnership.

Joint Venture and Tenancy in Common Arrangements

     The Partnership has entered into a joint venture arrangement, San Antonio
#849 Joint Venture, with an unaffiliated entity to purchase and hold one
Property. In addition, the Partnership has entered into five separate joint
venture arrangements: Halls Joint Venture with CNL Income Fund V, Ltd.; CNL
Restaurant Investments II with CNL Income Fund VIII, Ltd. and CNL Income Fund
IX, Ltd.; Des Moines Real Estate Joint Venture with CNL Income Fund XI, Ltd. and
CNL Income Fund XII, Ltd.; CNL Mansfield Joint Venture with CNL Income Fund
XVII, Ltd.; and Duluth Joint Venture with CNL Income Fund V, Ltd., CNL Income
Fund XIV, Ltd., and CNL Income Fund XV, Ltd. Each of the CNL Income Funds is an
affiliate of the General Partners and is a limited partnership organized
pursuant to the laws of the State of Florida. CNL Restaurants Investments II was
formed to purchase and hold six Properties and each of the other joint ventures
was formed to purchase and hold one Property. The joint venture arrangements
provide for the Partnership and its joint venture partners to share in all costs
and benefits associated with the joint venture in accordance with their
respective percentage interests in the joint venture. The Partnership has an 83
percent interest in San Antonio #849 Joint Venture, a 51.1% interest in Halls
Joint Venture, an 18 percent interest in CNL Restaurant Investments II, a 4.79%
interest in Des Moines Real Estate Joint Venture, a 79 percent interest in CNL
Mansfield Joint Venture, and an 11 percent interest in Duluth Joint Venture. The
Partnership and its joint venture partners are also jointly and severally liable
for all debts, obligations and other liabilities of the joint venture.

     San Antonio #849 Joint Venture, Halls Joint Venture, Des Moines Real Estate
Joint Venture, CNL Mansfield Joint Venture, and Duluth Joint Venture each have
an initial term of 20 years and, after the expiration of the initial term,
continue in existence from year to year unless terminated at the option of any
joint venturer or by an event of dissolution. Events of dissolution include the
bankruptcy, insolvency or termination of any joint venturer, sale of the
Property owned by the joint venture and mutual agreement of the Partnership and
each joint venture partner to dissolve the joint venture. CNL Restaurant
Investments II's joint venture agreement does not provide a fixed term, but
continues in existence until terminated by any of the joint venturers.

     The Partnership has management control of the San Antonio #849 Joint
Venture and shares management control equally with affiliates of the General
Partners for Halls Joint Venture, CNL Restaurant Investments II, Des Moines Real
Estate Joint Venture, CNL Mansfield Joint Venture, and Duluth Joint Venture.
The joint venture agreements restrict each venturer's ability to sell, transfer
or assign its joint venture interest without first offering it for sale to its
joint venture partner, either upon such terms and conditions as to which the
venturers may agree or, in the event the venturers cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture interest.

     Net cash flow from operations of San Antonio #849 Joint Venture, Halls
Joint Venture, CNL Restaurant Investments II, Des Moines Real Estate Joint
Venture, CNL Mansfield Joint Venture, and Duluth Joint Venture is distributed
83.3%, 51.1%, 18 percent, 4.79%, 79 percent, and 11 percent, respectively, to
the Partnership and the balance is distributed to each of the other joint
venture partners in accordance with their respective percentage interests in the
joint venture.  Any liquidation proceeds, after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, will be distributed
first to the joint venture partners with positive capital account balances in
proportion to such balances until such balances equal zero, and thereafter in
proportion to each joint venture partner's percentage interest in the joint
venture.

                                       3
<PAGE>

     In addition to the above joint venture agreements, in July 1994, the
Partnership entered into an agreement to hold a Jack in the Box Property as
tenants-in-common with CNL Income Fund VI, Ltd., an affiliate of the General
Partners.  The agreement provided for the Partnership and the affiliate to share
in the profits and losses of the Property in proportion to each co-tenant's
percentage interest.  The Partnership owned a 48.33% interest in this Property.
In October 1997, the Partnership and the affiliate, as tenants-in-common, sold
the Jack in the Box Property in Yuma, Arizona.  In December 1997, the
Partnership entered into an agreement to hold a Property in Miami, Florida, as
tenants-in-common with CNL Income Fund III, Ltd., CNL Income Fund X, Ltd. and
CNL Income Fund XIII, Ltd., affiliates of the General Partners, and in
conjunction therewith, reinvested its portion of the net sales proceeds received
from the sale of the Property in Yuma, Arizona, along with additional funds from
the sale of the Property in Columbus, Indiana.  The agreement provides for the
Partnership and the affiliate to share in the profits and losses of the Property
in proportion to each co-tenant's percentage interest.  The Partnership owns a
35.64% interest in the Property in Miami, Florida.

     In addition, in December 1997, the Partnership entered into an agreement to
hold a Golden Corral Property in Smithfield, North Carolina, as tenants-in-
common with CNL Income Fund II, Ltd., an affiliate of the General Partners.  The
agreement provides for the Partnership and the affiliate to share in the profits
and losses of the Property in proportion to each co-tenant's percentage
interest.  The Partnership owns a 53 percent interest in this Property.

     In November 1999, the Partnership entered into an agreement to hold a IHOP
property in Montgomery, Alabama, as tenants-in-common with CNL Income Fund IX,
Ltd., an affiliate of the General Partners.  The agreement provides for the
Partnership and the affiliate to share in the profits and losses of the Property
in proportion to each co-tenant's percentage interest.  The Partnership owns a
71 percent interest in this Property.

     Each of the affiliates is a limited partnership organized pursuant to the
laws of the State of Florida.  The tenancy in common agreement restricts each
co-tenant's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining co-tenant.

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

Certain Management Services

     CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership.  Under this agreement,
CNL Fund Advisors, Inc. is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices and providing
information to the Partnership about the status of the leases and the
Properties.  CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases.  For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee of one percent of the sum of gross rental
revenues from Properties wholly owned by the Partnership plus the Partnership's
allocable share of gross revenues of joint ventures in which the Partnership is
a co-venturer and the Property held as tenants-in-common with an affiliate, but
not in excess of competitive fees for comparable services.  Under the management
agreement, the management fee is subordinated to receipt by the Limited Partners
of an aggregate, ten percent, cumulative, noncompounded annual return on their
adjusted capital contributions (the "10% Preferred Return"), calculated in
accordance with the Partnership's limited partnership agreement (the
"Partnership Agreement").  In any year in which the Limited Partners have not
received the 10% Preferred Return, no property management fee will be paid.

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

                                       4
<PAGE>

Employees

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

Item 2.  Properties

     As of December 31, 1999, the Partnership owned 40 Properties.  Of the 40
Properties, 27 are owned by the Partnership in fee simple, ten are owned through
joint venture arrangements and three are owned through tenancy in common
arrangements.  See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements.  The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement.  Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs including acquisition fees and certain acquisition
expenses.

Description of Properties

     Land.  The Partnership's Property sites range from approximately 10,800 to
110,200 square feet depending upon building size and local demographic factors.
Sites purchased by the Partnership are in locations zoned for commercial use
which have been reviewed for traffic patterns and volume.

     The following table lists the Properties owned by the Partnership as of
December 31, 1999 by state.  More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation.

                State                                  Number of Properties
                -----                                  --------------------
                Alabama                                         1
                Arizona                                         1
                Colorado                                        1
                Florida                                        10
                Georgia                                         3
                Indiana                                         1
                Louisiana                                       1
                Michigan                                        2
                Minnesota                                       1
                North Carolina                                  1
                Ohio                                            7
                Tennessee                                       2
                Texas                                           8
                Washington                                      1
                                                             ------
                TOTAL PROPERTIES                               40
                                                             ======

     Buildings.  Generally, each of the Properties owned by the Partnership
includes a building that is one of a Restaurant Chain's approved designs.
However, the building located on the Checkers Property is owned by the tenant,
while the land parcel is owned by the Partnership.  In addition, the building
located on the Partnership's Property in Daytona Beach, Florida was demolished
in accordance with a condemnation agreement during 1995.  The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile.  The sizes of the buildings owned by the
Partnership range from approximately 700 to 10,600 square feet.  All buildings
on Properties are freestanding and surrounded by paved parking areas.  Buildings
are suitable for conversion to various uses, although modifications may be
required prior to use for other than restaurant operations.  As of December 31,
1999, the Partnership had no plans for renovation of the Properties.
Depreciation expense is

                                       5
<PAGE>

computed for buildings and improvements using the straight-line method using
depreciable lives of 40 years for federal income tax purposes. As of December
31, 1999, the aggregate cost of the Properties owned by the Partnership
(including its consolidated joint venture) and the unconsolidated joint ventures
(including the Properties owned through tenants-in-common arrangements), for
federal income tax purposes was $11,815,541 and $9,283,173, respectively.

     The following table lists the Properties owned by the Partnership as of
December 31, 1999 by Restaurant Chain.

          Restaurant Chain                        Number of Properties
          ----------------                        --------------------
          Boston Market                                     1
          Burger King                                       8
          Checkers                                          1
          Chevy's Fresh Mex                                 1
          Church's                                          2
          Golden Corral                                     5
          Hardee's                                          6
          IHOP                                              1
          Jack in the Box                                   3
          KFC                                               2
          Popeyes                                           5
          Rally's                                           1
          Roadhouse Grill                                   1
          Shoney's                                          2
          Taco Bell                                         1
                                                        ---------
          TOTAL PROPERTIES                                 40
                                                        =========

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

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

     Leases.  The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains.  The leases are generally on
a long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance.  Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain.  These capital expenditures are required to be
paid by the lessee during the term of the lease.  The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.

     At December 31, 1999, 1998, 1997, 1996, and 1995, all of the Properties
were occupied.  The following is a schedule of the average rent per Property for
each of the years ended December 31:

<TABLE>
<CAPTION>
                                   1999                1998                 1997                   1996                  1995
                             ---------------     ---------------     -----------------      -----------------     -----------------
<S>                          <C>                 <C>                 <C>                    <C>                   <C>
Rental Revenues (1)               $2,902,968          $2,879,831            $2,751,418             $2,850,721            $2,699,624
Properties                                40                  40                    40                     40                    41
Average Rent per
  Property                        $   72,574          $   71,996            $   68,785             $   71,268            $   65,844
</TABLE>

                                       6
<PAGE>

(1)  Rental income includes the Partnership's share of rental income from the
     Properties owned through joint venture arrangements and the Properties
     owned through tenancy in common arrangements.  Rental revenues have been
     adjusted, as applicable, for any amounts for which the Partnership has
     established an allowance for doubtful accounts.

     The following is a schedule of lease expirations for leases in place as of
December 31, 1999 for the next ten years and thereafter.


<TABLE>
<CAPTION>
                                                                                      Percentage of
              Expiration Year             Number             Annual Rental            Gross Annual
                                         of Leases              Revenues              Rental Income
          -----------------------    ---------------       ----------------     ----------------------
          <S>                        <C>                   <C>                  <C>
          2000                                    --             $       --                         --
          2001                                    --                     --                         --
          2002                                    --                     --                         --
          2003                                     1                 30,000                       1.14%
          2004                                     1                137,061                       5.21%
          2005                                     9                571,487                      21.74%
          2006                                     1                 62,086                       2.36%
          2007                                    --                     --                         --
          2008                                     1                 92,440                       3.52%
          2009                                     1                121,000                       4.60%
          Thereafter                              26              1,614,613                      61.43%
                                     ---------------       ----------------     ----------------------
          Total                                   40             $2,628,687                     100.00%
                                     ===============       ================     ======================
</TABLE>


     Leases with Major Tenants.  The terms of each of the leases with the
Partnership's major tenants as of December 31, 1999 (see Item 1.  Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.

     Golden Corral Corporation leases five Golden Corral restaurants.  The
initial term of each lease is 15 years (expiring between 2004 and 2012) and the
average minimum base annual rent is approximately $148,700 (ranging from
approximately $137,100 to $166,700).

     Restaurant Management Services, Inc. leases five Popeyes restaurants, one
Shoney's restaurant, one Church's Fried Chicken restaurant and one site
currently consisting of land only (formerly operated as a Church's Fried
Chicken).  The initial term of each lease is 19 to 20 years (expiring between
2009 and 2010) and the average minimum base annual rent is approximately $53,700
(ranging from approximately $22,100 to $121,000).

     Waving Leaves, Inc. leases four Hardee's restaurants.  The initial term of
each lease is 20 years (expiring in 2010) and the average minimum base annual
rent is approximately $81,000 (ranging from approximately $70,300 to $89,400).

Competition

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

                                       7
<PAGE>

Item 3. 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.  On
December 22, 1999, the General Partners and CNL Group, Inc. filed motions to
dismiss and motions to strike.  On December 28, 1999, APF and CNL Fund Advisors,
Inc. filed motions to dismiss.  On March 6, 2000, all of the defendants filed a
Joint Notice of Filing Form 8-K Reports and Suggestion of Mootness.


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

        Not applicable.


                                    PART II


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

(a)  As of March 15, 2000, there were 3,150 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 1999, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners had the right to prohibit transfers of Units. From
inception through December 31, 1999, the price paid for any Unit transferred
pursuant to the Plan was $.95 per Unit. The price paid for any Unit transferred
other than pursuant to the Plan was subject to negotiation by the purchaser and
the selling Limited Partner. The Partnership will not redeem or repurchase
Units.

                                       8
<PAGE>

     The following table reflects, for each calendar quarter, the high, low and
average sales prices for transfers of Units during 1999 and 1998 other than
pursuant to the Plan, net of commissions.

<TABLE>
<CAPTION>
                                                   1999 (1)                                             1998 (1)
                                 -----------------------------------------------     --------------------------------------------
                                      High            Low             Average             High            Low           Average
                                 ------------    ------------     --------------     ------------    ------------    ------------
     <S>                         <C>             <C>              <C>                <C>             <C>             <C>
     First Quarter                      $ .95            $.95               $.95             $.95            $.91            $.93
     Second Quarter                       .89             .87                .88              .95             .87             .91
     Third Quarter                        .91             .68                .79              .95             .90             .94
     Fourth Quarter                      1.57             .75                .96              .95             .78             .91
</TABLE>

(1)  A total of 273,773 and 194,088 Units were transferred other than pursuant
     to the Plan for the years ended December 31, 1999 and 1998, respectively.

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

     For each of the years ended December 31, 1999 and 1998, the Partnership
declared cash distributions of $2,700,000 to the Limited Partners.
Distributions of $675,000 were declared at the close of each of the
Partnership's calendar quarters during 1999 and 1998 to the Limited Partners.
No amounts distributed to partners for the years ended December 31, 1999 and
1998, are required to be or have been treated by the Partnership as a return of
capital for  purposes of calculating the Limited Partners' return on their
adjusted capital contributions.  No distributions have been made to the General
Partners to date.  These amounts include monthly distributions made in arrears
for the Limited Partners electing to receive distributions on this basis.

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

(b)  Not applicable.


Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
                                               1999           1998               1997              1996              1995
                                        -------------------------------   ----------------   ---------------   ---------------
<S>                                     <C>                 <C>           <C>                <C>               <C>
Year ended December 31:
  Revenues (1)                               $ 2,992,933    $ 2,948,217        $ 2,919,734       $ 2,882,709       $ 2,716,883
  Net income (2)                               2,545,690      2,466,018          2,606,008         2,326,863         1,982,148
  Cash distributions declared                  2,700,000      2,700,000          2,700,000         2,700,000         2,700,002
  Net income per Unit (2)                          0.084          0.081              0.086             0.077             0.065
  Cash distributions declared
     per Unit                                      0.090          0.090              0.090             0.090             0.090

At December 31:
  Total assets                               $25,146,133    $25,218,258        $25,479,762       $25,523,853       $25,915,616
  Partners' capital                           24,159,486     24,313,796         24,547,778        24,641,770        25,014,907
</TABLE>

(1)  Revenues include equity in earnings of unconsolidated joint ventures and
     minority interest in income of the consolidated joint venture.

(2)  Net income for the years ended December 31, 1999, 1998, 1997, 1996, and
     1995, includes $189,826, $1,025, $184,627, $195,675, and $1,421,
     respectively, from gains on dispositions of land and buildings.  Net income
     for the years ended December 31, 1997, 1996, and 1995, includes a loss on
     sale of land and building of $19,739, $235,465, and $6,556, respectively.
     In addition, net income for the year ended December 31, 1995, includes a
     loss on demolition of building of $ 174,466.

                                       9
<PAGE>

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

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

     The Partnership was organized on August 18, 1989, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains.
The leases are generally triple-net leases, with the lessees generally
responsible for all repairs and maintenance, property taxes, insurance and
utilities.  As of December 31, 1999, the Partnership owned 40 Properties, either
directly or indirectly through joint venture or tenancy in common arrangements.

Capital Resources

     The Partnership's primary source of capital for the years ended December
31, 1999, 1998, and 1997, was cash from operations (which includes cash received
from tenants, distributions from joint ventures and interest received, less cash
paid for expenses). Cash from operations was $2,679,493, $2,790,975, and
$2,840,459 for the years ended December 31, 1999, 1998, and 1997, respectively.
The decrease in cash from operations during 1999 and 1998, each as compared to
the previous year, was primarily a result of changes in the Partnership's
working capital.

     Other significant sources and uses of capital included the following during
the years ended December 31, 1999, 1998, and 1997.

     In March 1996, the Partnership entered into an agreement with the tenant of
the Property in Daytona Beach, Florida, for payment of certain rental payment
deferrals the Partnership had granted to the tenant through March 31, 1996.
Under the agreement, the Partnership agreed to abate approximately $13,200 of
the rental payment deferral amounts.  The tenant made payments of approximately
$5,700 in each of March 1997, June 1998, and June 1999 in accordance with the
terms of the agreement, and has agreed to pay the Partnership the remaining
balance due of approximately $16,600 in three remaining annual installments
through 2002.

     In October 1996, the Partnership sold its Property in Hartland, Michigan,
for $625,000 and received net sales proceeds of $617,035.  In February 1997, the
Partnership reinvested the net sales proceeds in CNL Mansfield Joint Venture.
The Partnership has a 79 percent interest in the profits and losses of CNL
Mansfield Joint Venture and the remaining interest in this joint venture is held
by an affiliate of the Partnership which has the same General Partners.

     In May 1997, the Partnership sold its Property in Columbus, Indiana, for
$240,000 and received net sales proceeds of $223,589, resulting in a loss of
$19,739 for financial reporting purposes.  In December 1997, the Partnership
reinvested the net sales proceeds, along with additional funds, in a Property in
Miami, Florida, as tenants-in-common with affiliates of the General Partner, in
exchange for a 35.64% interest in this Property.

     In October 1997, the Partnership sold its Property in Dunnellon, Florida,
for $800,000 and received net sales proceeds of $752,745, resulting in a gain of
$183,701 for financial reporting purposes.  This Property was originally
acquired by the Partnership in August 1990 and had a cost of approximately
$546,300, excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the Partnership sold the Property for approximately $211,500 in
excess of its original purchase price.  In December 1997, the Partnership
reinvested the net sales proceeds in a Property in Smithfield, North Carolina,
as tenants-in-common with an affiliate of the General Partner.

     In addition, in October 1997, the Partnership and an affiliate, as tenants-
in-common, sold the Property in Yuma, Arizona, in which the Partnership owned a
48.33% interest for a total sales price of $1,010,000 and received net sales
proceeds of $982,025, resulting in a gain, to the tenancy-in-common, of
approximately $128,400 for

                                       10
<PAGE>

financial reporting purposes. The Property was originally acquired in July 1994
and had a total cost of approximately $861,700, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Property was sold for
approximately $120,300 in excess of its original purchase price. In December
1997, the Partnership reinvested its portion of the net sales proceeds from the
sale of the Yuma, Arizona Property, along with funds from the sale of the wholly
owned Property in Columbus, Indiana, in a Property in Miami, Florida, as
tenants-in-common with affiliates of the General Partners. The Partnership
distributed 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, the Partnership sold its Property in Maryville, Tennessee, to
the tenant in accordance with the purchase option under the lease agreement 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.  In November 1999, the Partnership reinvested these net
sales proceeds in a Property in Montgomery, Alabama, as tenants-in-common with
an affiliate of the General Partners.  The sale of the Property in Maryville,
Tennessee and the reinvestment of the net sales proceeds in the Property in
Montgomery, Alabama qualified as a like-kind exchange transaction in accordance
with Section 1031 of the Internal Revenue Code.

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

     As of December 31, 1998, the Partnership had accepted two promissory notes
in connection with the sale of two of its Properties.  In July 1999, the
Partnership collected the outstanding principal balance of $235,564 relating to
the promissory note accepted in connection with the 1995 sale of the Property in
Jacksonville, Florida.  The note bore an interest rate of ten percent per annum
and was to be collected in 119 equal monthly installments of $2,106, with a
balloon payment of $218,252 to be due December 2005.  In December 1999, the
Partnership reinvested these amounts in Duluth Joint Venture with CNL Income
Fund V, Ltd., CNL Income Fund XIV, Ltd., and CNL Income Fund XV, Ltd., each
Florida limited partnerships and affiliates of the General Partners.  The joint
venture was formed to construct and hold one restaurant Property.  As of
December 31, 1999, the Partnership had contributed approximately $119,100 to
purchase land and pay for construction costs relating to the joint venture and
has agreed to contribute additional amounts in 2000 for additional construction
costs.  When funding is completed, the Partnership expects to have an
approximate11 percent interest in the profits and losses of this joint venture.
As of December 31, 1999, the Partnership had an 11 percent interest in the
profits and losses of this joint venture.

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

     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 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, invest in additional Properties, or make distributions to the
partners.  At December 31, 1999, the Partnership had $925,348 invested in such
short-term investments, as compared to $856,825 at December 31, 1998.  As of
December 31, 1999, the average interest rate earned on the rental income
deposited in demand deposit

                                       11
<PAGE>

accounts at commercial banks was approximately 2 percent annually. The funds
remaining at December 31, 1999, will be used for the payment of distributions
and other liabilities.

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.

     Due to low operating expenses and ongoing cash flow, the General Partners
believe that the Partnership has sufficient working capital reserves at this
time.  In addition, because all leases of the Partnership's Properties are on a
triple-net basis, it is not anticipated that a permanent reserve for maintenance
and repairs will be established at this time. To the extent, however, that the
Partnership has insufficient funds for such purposes, the General Partners will
contribute to the Partnership an aggregate amount of up to one percent of the
offering proceeds for maintenance and repairs.

     The 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 the operating expenses of the Partnership, to the extent that the
General Partners determine that such funds are available for distribution.
Based primarily on cash from operations, the Partnership declared distributions
to the Limited Partners of $2,700,000 for each of the years ended December 31,
1999, 1998, and 1997.  This represents distributions of $0.090 per Unit for each
of the years ended December 31, 1999, 1998, and 1997. No amounts distributed to
the Limited Partners for the years ended December 31, 1999, 1998, and 1997 are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the Limited Partners' return on their adjusted
capital contributions.  The Partnership intends to continue to make
distributions of cash available for distribution to the Limited Partners on a
quarterly basis.

     During 1999, 1998, and 1997, affiliates of the General Partners incurred on
behalf of the Partnership $143,688, $86,851, and $74,968, respectively, for
certain operating expenses.  As of December 31, 1999 and 1998, the Partnership
owed $59,131 and $17,911, respectively, to affiliates for such amounts and
accounting and administrative services.  As of March 15, 2000, the Partnership
had reimbursed the affiliates all such amounts.  In addition, as of December 31,
1998, the Partnership owed $7,200 in real estate disposition fees to an
affiliate as a result of its services in connection with the 1995 sale of the
Property in Jacksonville, Florida.  Because the General Partners initially
considered not reinvesting the sales proceeds in an additional Property, the
Partnership accrued $7,200 of a real estate disposition fee and therefore
included these amounts in the determination of the gain on sale for financial
reporting purposes during 1995.  However, during the year ended December 31,
1999, the Partnership reinvested the net sales proceeds in an additional
Property.  Accordingly, the Partnership reversed this subordinated real estate
disposition fee during the year ended December 31, 1999.  Total liabilities,
including distributions payable, of the Partnership increased to $782,001 at
December 31, 1999, from $732,746 at December 31, 1998 primarily as a result of
the Partnership accruing transaction costs relating to the proposed Merger with
APF, as described in "Termination of Merger."  The increase was partially offset
by a decrease in rents paid in advance at December 31, 1999.  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.

                                       12
<PAGE>

Results of Operations

     During 1997, the Partnership and its consolidated joint venture, San
Antonio #849 Joint Venture, owned and leased 31 wholly owned Properties
(including two Properties which were sold during 1997).  During 1998 and 1999,
the Partnership and its consolidated joint venture, owned and leased 29 wholly
owned Properties (including one Property which was sold in June 1999).  In
addition, during 1997, the Partnership and its consolidated joint venture was a
co-venturer in four separate unconsolidated joint ventures which owned and
leased nine Properties, and owned and leased three Properties with affiliates as
tenants-in-common (including one Property in Yuma, Arizona which was sold in
October 1997).  During 1998, the Partnership and its consolidated joint venture,
was a co-venturer in four separate unconsolidated joint ventures which owned and
leased nine Properties, and owned and leased two Properties with affiliates as
tenants-in-common.  During 1999, the Partnership and its consolidated joint
venture, was a co-venturer in five, separate unconsolidated joint ventures which
owned and leased ten Properties (including one Property in Halls, Tennessee
which was sold in June 1999), and owned and leased three Properties with
affiliates as tenants-in-common.  As of December 31, 1999, the Partnership and
its consolidated joint venture, owned (either directly, as tenants-in-common
with an affiliate or through joint venture arrangements) 40 Properties which are
generally subject to long-term, triple-net leases.  The leases of the Properties
provide for minimum base annual rental amounts (payable in monthly installments)
ranging from approximately $22,100 to $191,900.  Substantially all of the leases
provide for percentage rent based on sales in excess of a specified amount.  In
addition, some of the leases provide that, commencing in the specified lease
years (generally ranging from the sixth to the eleventh lease year), the annual
base rent required under the terms of the lease will increase.  For further
description of the Partnership's leases and Properties, see Item 1.  Business -
Leases and Item 2.  Properties, respectively.

     During the years ended December 31, 1999, 1998, and 1997, the Partnership
and its consolidated joint venture, earned $2,318,042, $2,390,557, and
$2,436,222, respectively, in rental income from operating leases and earned
income from direct financing leases.  The decrease in rental and earned income
during 1999, as compared to 1998, was primarily a result of the sale of the
Property in Maryville, Tennessee, in June 1999, as described above in "Capital
Resources."  The decrease in rental and earned income during 1998 as compared to
1997, was attributable to a decrease in rental and earned income as a result of
the sales of the Properties in Colorado Springs, Colorado; Hartland, Michigan;
Columbus, Ohio and Dunnellon, Florida, in July 1996, October 1996, May 1997, and
October 1997, respectively.  Rental and earned income are expected to remain at
reduced amounts in future years as a result of reinvesting the proceeds from the
sales of the Properties in Hartland, Michigan; Columbus, Ohio and Dunnellon,
Florida in joint ventures and in Properties owned with affiliates, as tenants-
in-common, as described below. However, as a result of reinvesting in joint
ventures and in Properties owned with affiliates, as tenants-in-common, net
income earned by unconsolidated joint ventures increased in 1998 and 1999, as
described below.

     For the years ended December 31, 1999, 1998 and 1997, the Partnership also
earned $76,601, $93,906, and $51,345, respectively, in contingent rental income.
Contingent rental income was higher during 1998 than that earned during 1999,
primarily due to the fact that during 1999, the Partnership adjusted estimated
contingent rental amounts accrued at December 31, 1998, to actual amounts due in
1999.  The increase in contingent rental income during 1998, as compared to
1997, was primarily a result of increased gross sales of certain restaurant
Properties requiring the payment of contingent rental income.

     During the years ended December 31, 1999, 1998, and 1997, the Partnership
earned $186,933, $171,263, and $183,579, respectively, in interest and other
income.  The increase in interest and other income during 1999, as compared to
1998, was primarily due to an increase in interest income earned on net sales
proceeds relating to the sale of the Property in Maryville, Tennessee, pending
the reinvestment of the net sales proceeds in an additional Property.  In
November 1999, these net sales proceeds were invested in an IHOP Property in
Montgomery, Alabama, as described above in "Capital Resources".

     For the years ended December 31, 1999, 1998, and 1997, the Partnership also
earned $429,997, $311,081, and $267,251, respectively, attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a co-
venturer and Properties owned indirectly with affiliates as tenants-in-common.
The increase in net income earned by unconsolidated joint ventures during 1999,
as compared to 1998, was partially due to the fact that in June 1999, Halls
Joint Venture, in which the Partnership owns a 51.1% interest, recognized a gain
of

                                       13
<PAGE>

approximately $239,300, approximately $122,000 of which was allocated to the
Partnership for financial reporting purposes as a result of the sale of its
Property.  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.  The increase in net income earned by joint ventures during the
year ended 1998, as compared to 1997, was partially due to the fact that in
February 1997, the Partnership reinvested the net sales proceeds it received
from the sale, in October 1996, of the Property in Hartland, Michigan, in CNL
Mansfield Joint Venture, with an affiliate of the Partnership which has the same
General Partners.  In addition, the increase in net income earned by joint
ventures during the year ended 1998, was partially due to the Partnership
investing in a Property in Smithfield, North Carolina, in December 1997, with
affiliates of the General Partners as tenants-in-common, as described above in
"Capital Resources."  In addition, the increase in net income earned by joint
ventures during 1998 was partially offset by the fact that in October 1997, the
Partnership and an affiliate, as tenants-in-common, sold the Property in Yuma,
Arizona, in which the Partnership owned a 48.33% interest.  The tenancy-in-
common recognized a gain of approximately $128,400 for financial reporting
purposes, as described above in "Capital Resources."

     During the year ended December 31, 1999, three lessees of the Partnership
and its consolidated joint venture, Golden Corral Corporation, Restaurant
Management of S.C., Inc., and Waving Leaves, Inc., each contributed more than
ten percent of the Partnership's total rental, earned and mortgage interest
income (including rental and earned income from the Partnership's consolidated
joint venture and the Partnership's share of rental and earned income from nine
Properties owned by unconsolidated joint ventures and three Properties owned
with affiliates of the General Partners as tenants-in-common).  As of December
31, 1999, Golden Corral Corporation was the lessee under leases relating to five
restaurants, Restaurant Management of S.C., Inc. was the lessee under leases
relating to seven restaurants and one site currently consisting of land only,
and Waving Leaves, Inc. was the lessee under leases relating to four
restaurants.  It is anticipated that, based on the minimum rental payments
required by the leases, these three lessees each will continue to contribute
more than ten percent of the Partnership's total rental, earned and mortgage
interest income during 2000.  In addition, during the year ended December 31,
1999, three Restaurant Chains, Golden Corral, Hardee's, and Burger King, each
accounted for more than ten percent of the Partnership's total rental, earned
and mortgage interest income (including rental and earned income from the
Partnership's consolidated joint venture and the Partnership's share of rental
and earned income from nine Properties owned by unconsolidated joint ventures
and three Properties owned with affiliates of the General Partners as tenants-
in-common).  In 2000, it is anticipated that these three Restaurant Chains each
will continue to account for more than ten percent of the Partnership's total
rental, earned and mortgage interest income to which the Partnership is entitled
under the terms of the leases.  Any failure of these lessees or Restaurant
Chains could materially affect the Partnership's income if the Partnership is
not able to re-lease the Properties in a timely manner.

     Operating expenses, including depreciation and amortization expense, were
$637,069, $483,224, and $478,614 for the years ended December 31, 1999, 1998,
and 1997, respectively.  The increase in operating expenses during 1999 and
1998, each as compared to the previous year, was partially due to the fact that
the Partnership incurred $160,426 and $18,781, during 1999 and 1998,
respectively, in transaction costs relating to the General Partners retaining
financial and legal advisors to assist them in evaluating and negotiating the
proposed Merger with APF, as described in "Termination of Merger".  In addition,
the increase in operating expenses during 1999, as compared to 1998, was
partially due to the Partnership incurring additional state taxes due to changes
in tax laws of a state in which the Partnership conducts business.  The increase
in operating expenses during 1998, as compared to 1997, was partially offset by
a decrease in general operating and administrative expenses.

     In connection with the sale of its Property in Florence, South Carolina,
during 1995, the Partnership recognized a gain for financial reporting purposes
of $1,135, $1,025, and $926, for the years ended December 31, 1999, 1998, and
1997, respectively.  In accordance with Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate," the Partnership
recorded the sale using the installment sales method.  As such, the gain on sale
was deferred and is being recognized as income proportionately as payments under
the mortgage note are collected.  Therefore, the balance of the deferred gain of
$124,143 at December 31, 1999 is being recognized as income in future periods as
payments are collected.  For federal income tax purposes, a gain of
approximately $97,300 from the sale of this Property was also deferred during
1995 and is being recognized as payments under the mortgage note are collected.

                                       14
<PAGE>

     As a result of the sale of the Property in Columbus, Indiana, during 1997,
as described above in "Capital Resources," the Partnership recognized a loss of
$19,739 for financial reporting purposes for the year ended December 31, 1997.
In addition, as a result of the sale of the Property in Dunnellon, Florida, as
described above in "Capital Resources" the Partnership recognized a gain for
financial reporting purposes of $183,701 for the year ended December 31, 1997.

     The Partnership's leases as of December 31, 1999, are generally triple-net
leases and contain provisions that the General Partners believe mitigate the
adverse effect of inflation.  Such provisions include clauses requiring the
payment of  percentage rent based on certain restaurant sales above a specified
level and/or automatic increases in base rent at specified times during the term
of the lease. Inflation has had a minimal effect on income from operations.
Management expects that increases in restaurant sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Partnership's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the restaurants and on potential capital appreciation of
the Properties.

Termination of 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. Under the Agreement and Plan of Merger, APF was to issue
shares of its common stock as consideration for the Merger. On March 1, 2000,
the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.

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.

Status

     The Partnership generally does not directly own information technology
systems.  The General Partners and their affiliates generally provide all
services requiring the use of information and some non-information technology
systems.  In early 1998, affiliates of the General Partners formed a year 2000
committee ("the Y2K Team") that assessed the readiness of any systems that are
date sensitive and completed upgrades for the hardware equipment and software
that was not year 2000 compliant, as necessary.  The cost for these upgrades and
other remedial measures is the responsibility of the General Partners and their
affiliates.  The General Partners and their affiliates do not expect that the
Partnership will incur any costs in connection with the year 2000 remedial
measures.  In addition, the Y2K Team requested and received certifications of
compliance from other companies with which the General Partners, their
affiliates, and the Partnership have material third party relationships.

     In assessing the risks presented by the year 2000 problem, the Y2K Team
identified potential worst case scenarios involving the future of the
information and non-information technology systems used by the Partnership's
transfer agent, financial institutions and tenants.  As of January 14, 2000, the
General Partners and their affiliates have tested the information and non-
information technology systems used by the Partnership and have not experienced
material disruption or other significant problems.  In addition, as of the same
date, the General Partners are not aware of any material year 2000 problems
relating to information and non-information technology systems of third parties
with

                                       15
<PAGE>

which the Partnership maintains material relationships, including those of the
Partnership's transfer agent, financial institutions and tenants. In addition,
in the Partnership's interactions with its transfer agent, financial
institutions and tenants, the systems of these third parties have functioned
normally. Until the Partnership's first distribution in 2000 and the delivery of
the information by the transfer agent to stockholders in early 2000, the General
Partners will continue to monitor the year 2000 compliance of the transfer
agent. In addition, the General Partners will continue to monitor the systems
used by the Partnership and to maintain contact with third parties with which
the Partnership has material relationships with respect to year 2000 compliance
and any year 2000 issues that may arise at a later date. The General Partners
will develop contingency plans relating to ongoing year 2000 issues at the time
that such issues are identified and such plans are deemed necessary.

     Based on the information provided to the Y2K Team, the upgrades and
remedial measures by the General Partners and their affiliates, and the normal
functioning to date of information and non-information technology systems used
by the Partnership and those third parties, the General Partners do not foresee
significant risks associated with its year 2000 compliance at this time. In
addition, the General Partners and their affiliates do not expect to incur any
additional costs in connection with the year 2000 remedial efforts. However,
there can be no assurance that the General Partners and their affiliates or any
third parties will not have ongoing year 2000 issues that may have adverse
effects on the Partnership.

Interest Rate Risk

     The Partnership has provided fixed rate mortgage notes to borrowers.  The
General Partners believe that the estimated fair value of the mortgage notes at
December 31, 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:

<TABLE>
<CAPTION>
                                Mortgage Notes
                                 Fixed Rates
                              ----------------
               <S>            <C>
               2000           $      1,112,144
               2001                         --
               2002                         --
               2003                         --
               2004                         --
               Thereafter                   --
                              ----------------
                              $      1,112,144
                              ================
</TABLE>


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The information is described above in Item 7.  Management's Discussion and
Analysis of Financial Condition and Results of Operations - Interest Rate Risk.

Item 8.  Financial Statements and Supplementary Data

                                       16
<PAGE>

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

                                    CONTENTS
                                    --------





<TABLE>
<CAPTION>
                                                         Page
                                                         ----
<S>                                                      <C>
Report of Independent Certified Public Accountants        18
Financial Statements:
     Balance Sheets                                       19
     Statements of Income                                 20
     Statements of Partners' Capital                      21
     Statements of Cash Flows                             22
     Notes to Financial Statements                        24
</TABLE>

                                       17
<PAGE>

               Report of Independent Certified Public Accountants
               --------------------------------------------------



To the Partners
CNL Income Fund VII, Ltd.

In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund VII, Ltd. (a Florida limited partnership) at December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedules listed in the index appearing
under item 14(a)(2) present fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial statement
statements. These financial statements and financial statements schedules are
the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.



/s/ PricewaterhouseCoopers LLP

Orlando, Florida
February 4, 2000, except for Note 11 for which the date is March 1, 2000.

                                       18
<PAGE>

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

                                 BALANCE SHEETS
                                 --------------

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

Land and buildings on operating leases, less
  accumulated depreciation                                      $13,984,334           $15,078,507
Net investment indirect financing leases                          3,273,155             3,365,392
Investment in joint ventures                                      4,605,906             3,327,934
Mortgage notes receivable, less deferred gain                       994,408             1,241,056
Cash and cash equivalents                                           925,348               856,825
Receivables, less allowance for doubtful accounts of
  $16,679 and $28,853, respectively                                  72,644                78,478
Prepaid expenses                                                     14,220                 4,116
Accrued rental income, less allowance for doubtful
 accounts of $9,845 in 1999 and 1998                              1,215,696             1,205,528
Other assets                                                         60,422                60,422
                                                           ----------------     -----------------

                                                                $25,146,133           $25,218,258
                                                           ================     =================

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

Accounts payable                                                $    96,894           $     2,885
Escrowed real estate taxes payable                                       --                 5,834
Distributions payable                                               675,000               675,000
Due to related parties                                               59,131                25,111
Rents paid in advance and deposits                                   10,107                49,027
                                                           ----------------     -----------------
     Total liabilities                                              841,132               757,857

Minority interest                                                   145,515               146,605

Partners' capital                                                24,159,486            24,313,796
                                                           ----------------     -----------------

                                                                $25,146,133           $25,218,258
                                                           ================     =================
</TABLE>

                See accompanying notes to financial statements.

                                       19



<PAGE>

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

                              STATEMENTS OF INCOME
                              --------------------


<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                          1999                         1998                         1997
                                                ------------------------      ------------------------      ---------------------
<S>                                            <C>                           <C>                           <C>
Revenues:
  Rental income from operating leases                       $ 1,914,671                   $ 1,976,709                 $ 1,960,724
  Earned income from direct financing leases                    403,371                       413,848                     475,498
  Contingent rental income                                       76,601                        93,906                      51,345
  Interest and other income                                     186,933                       171,263                     183,579
                                               ------------------------      ------------------------           -----------------
                                                              2,581,576                     2,655,726                   2,671,146
                                               ------------------------      ------------------------           -----------------
Expenses:
  General operating and administrative                          139,519                       133,915                     143,173
  Professional services                                          28,903                        23,443                      23,546
  Real estate taxes                                                  --                            --                       2,979
  State and other taxes                                          14,422                         2,729                       4,560
  Depreciation                                                  293,799                       304,356                     304,356
  Transaction costs                                             160,426                        18,781                          --
                                               ------------------------      ------------------------           -----------------
                                                                637,069                       483,224                     478,614
                                               ------------------------      ------------------------           -----------------

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                          1,944,507                     2,172,502                   2,192,532

Minority Interest in Income of Consolidated
  Joint Venture                                                 (18,640)                      (18,590)                    (18,663)

Equity in Earnings of Unconsolidated Joint
  Ventures                                                      429,997                       311,081                     267,251

Gain on Sale of Land and Buildings                              189,826                         1,025                     164,888
                                               ------------------------      ------------------------            ----------------

Net Income                                                  $ 2,545,690                   $ 2,466,018                 $ 2,606,008
                                               ========================      ========================            ================

Allocation of Net Income
  General partners                                          $    25,187                   $    24,659                 $    24,300
  Limited partners                                            2,520,503                     2,441,359                   2,581,708
                                               ------------------------      ------------------------            ----------------

                                                            $ 2,545,690                   $ 2,466,018                 $ 2,606,008
                                               ========================      ========================            ================

Net Income Per Limited Partner Unit                         $     0.084                   $     0.081                 $     0.086
                                               ========================      ========================            ================

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

                See accompanying notes to financial statements.


                                       20
<PAGE>

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

                        STATEMENTS OF PARTNERS' CAPITAL
                        -------------------------------

                   Years Ended December 31, 1999, 1998, 1997


<TABLE>
<CAPTION>
                                      General Partners                             Limited Partners
                                --------------------------   ---------------------------------------------------------
                                               Accumulated                                 Accumulated  Syndication
                                Contributions    Earnings    Contributions  Distributions   Earnings       Costs          Total
                                -------------  -----------   -------------  -------------  ------------ -------------  ----------
<S>                             <C>            <C>           <C>            <C>            <C>          <C>            <C>
Balance, December 31, 1996      $      1,000   $   155,785   $  30,000,000  $ (17,477,623) $ 15,402,608 $  (3,440,000) $ 24,641,770

 Distributions to limited
   partners ($0.090 per
   limited partner unit)                  --            --              --     (2,700,000)          --            --    (2,7000,000)
 Net income                               --        24,300              --            --      2,581,708           --      2,606,008
                                -------------  -----------   -------------  -------------  ------------ -------------  ------------
Balance, December 31, 1997             1,000       180,085      30,000,000    (20,177,623)   17,984,316    (3,440,000)   24,547,778

 Distributions to limited
   partners ($0.090 per
   limited partner unit)                 --            --               --     (2,700,000)            -           --    (2,7000,000)
 Net income                              --         24,659              --            --      2,441,359           --      2,466,018
                                -------------  -----------   -------------  -------------  ------------ -------------  ------------
Balance, December 31, 1998             1,000       204,744      30,000,000    (22,877,623)   20,425,675    (3,440,000)   24,313,796

Distributions to limited
   partners ($0.090 per
   limited partner unit)                  --           --              --      (2,700,000)          --            --    (2,7000,000)
 Net income                               --        25,187             --            --       2,520,503           --      2,545,690
                                -------------  -----------   -------------  -------------  ------------ -------------  ------------
Balance, December 31, 1999      $      1,000   $   229,931   $  30,000,000  $ (25,577,623) $ 22,946,178 $  (3,440,000) $ 24,159,486
                                =============  ===========   =============  =============  ============ =============  ============
</TABLE>

                See accompanying notes to financial statements.

                                       21
<PAGE>

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

                            STATEMENTS OF CASH FLOWS
                            ------------------------


<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                             1999                    1998                    1997
                                                       ---------------         -----------------      ----------------
<S>                                                    <C>                    <C>                     <C>
Increase (Decrease) in Cash and Cash Equivalents:

     Cash Flows from Operating Activities:
         Cash received from tenants                        $ 2,369,760               $ 2,435,937           $ 2,500,189
         Distributions from unconsolidated joint
              ventures                                         348,952                   376,557               300,696
         Cash paid for expenses                               (217,856)                 (187,925)             (140,819)
         Interest received                                     178,637                   166,406               180,393
                                                       ---------------         -----------------      ----------------
           Net cash provided by operating activities         2,679,493                 2,790,975             2,840,459
                                                       ---------------         -----------------      ----------------
     Cash Flows from Investing Activities:

         Proceeds from sale of land and buildings            1,059,954                        --               976,334
         Investment in joint ventures                       (1,196,927)                       --            (1,650,905)
         Collections on mortgage notes receivable              245,733                    10,811                 9,766
         Other                                                      --                    13,221                    --
                                                       ---------------         -----------------      ----------------
            Net cash provided by (used in) investing
               activities                                      108,760                    24,032              (664,805)
                                                       ---------------         -----------------      ----------------
     Cash Flows from Financing Activities:
         Distributions to limited partners                  (2,700,000)               (2,700,000)           (2,700,000)
         Distributions to holders of minority interest         (19,730)                  (19,499)              (19,766)
                                                       ---------------         -----------------      ----------------
            Net cash used in financing activities           (2,719,730)               (2,719,499)           (2,719,766)
                                                       ---------------         -----------------      ----------------

Net Increase (Decrease) in Cash and Cash Equivalents            68,523                    95,508              (544,112)
Cash and Cash Equivalents at Beginning of  Year                856,825                   761,317             1,305,429
                                                       ----------------        -----------------      ----------------
Cash and Cash Equivalents at End of Year                   $   925,348                 $ 856,825           $   761,317
                                                       ================        =================      ================
</TABLE>

                See accompanying notes to financial statements.

                                       22
<PAGE>

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

                      STATEMENTS OF CASH FLOWS - CONTINUED
                      ------------------------------------

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                               1999                    1998                    1997
                                                         ----------------       -----------------       ----------------
<S>                                                      <C>                    <C>                     <C>
Reconciliation of Net Income to Net Cash Provided
  by Operating Activities:

    Net Income                                              $2,545,690             $2,466,018                 $2,606,008
                                                         -------------          -------------           ----------------
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation                                            293,799                304,356                    304,356
       Minority interest in income of consolidated
         joint venture                                          18,640                 18,590                     18,663
       Gain on sale of land and buildings                     (189,826)                (1,025)                  (164,888)
       Equity in earnings of unconsolidated joint
         ventures, net of distributions                        (81,045)                65,476                     33,445
       Decrease (increase) in receivables                        5,834                (27,330)                    17,173
       Increase in interest receivable                           2,050                     --                         --
       Decrease (increase) in prepaid expenses                 (10,104)                   639                       (101)
       Decrease in net investment in direct financing
         leases                                                 92,237                 81,760                     76,941
       Increase in accrued rental income                       (81,057)               (90,896)                  (102,142)
       Increase (decrease) in accounts payable
        and accrued expenses                                    88,175                 (5,197)                     3,222

       Increase (decrease) in due to related parties            34,020                 (9,772)                    25,816
       Increase (decrease) in rents paid in
         advance and deposits                                  (38,920)               (11,644)                    21,966
                                                         -------------          -------------           ----------------
           Total adjustments                                   133,803                324,957                    234,451
                                                          ------------           ------------            ---------------
Net Cash Provided by Operating Activities                   $2,679,493             $2,790,975                 $2,840,459
                                                         -------------          -------------           ----------------
Supplemental Schedule of Non-Cash Financing Activities:

       Distributions declared and unpaid at December 31     $  675,000             $  675,000                 $  675,000
                                                         =============          =============          =================
</TABLE>

                See accompanying notes to financial statements.

                                       23
<PAGE>

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

                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------

                 Years Ended December 31, 1999, 1998, and 1997


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

     Organization and Nature of Business - CNL Income Fund VII, Ltd. (the
     -----------------------------------
     "Partnership") is a Florida limited partnership that was organized for the
     purpose of acquiring both newly constructed and existing restaurant
     properties, as well as properties upon which restaurants were to be
     constructed, which are leased primarily to operators of national and
     regional fast-food and family-style restaurant chains.

     The general partners of the Partnership are CNL Realty Corporation (the
     "Corporate General Partner"), James M. Seneff, Jr. and Robert A. Bourne.
     Mr. Seneff and Mr. Bourne are also 50 percent shareholders of the Corporate
     General Partner. The general partners have responsibility for managing the
     day-to-day operations of the Partnership.

     Real Estate and Lease Accounting - The Partnership records the acquisition
     --------------------------------
     of land and buildings at cost, including acquisition and closing costs.
     Land and buildings are leased to unrelated third parties generally on a
     triple-net basis, whereby the tenant is generally responsible for all
     operating expenses relating to the property, including property taxes,
     insurance, maintenance and repairs. The leases are accounted for using
     either the direct financing or the operating methods. Such methods are
     described below:

          Direct financing method - The leases accounted for using the direct
          financing method are recorded at their net investment (which at the
          inception of the lease generally represents the cost of the asset)
          (Note 4). Unearned income is deferred and amortized to income over the
          lease terms so as to produce a constant periodic rate of return on the
          Partnership's net investment in the leases.

          Operating method - Land and building leases accounted for using the
          operating method are recorded at cost, revenue is recognized as
          rentals are earned and depreciation is charged to operations as
          incurred. Buildings are depreciated on the straight-line method over
          their estimated useful lives of 30 years. When scheduled rentals vary
          during the lease term, income is recognized on a straight-line basis
          so as to produce a constant periodic rent over the lease term
          commencing on the date the property is placed in service.

                                       24
<PAGE>

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

                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------

                 Years Ended December 31, 1999, 1998, and 1997


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

          Accrued rental income represents the aggregate amount of income
          recognized on a straight-line basis in excess of scheduled rental
          payments to date. Whenever a tenant defaults under the terms of its
          lease, or events or changes in circumstance indicate that the tenant
          will not lease the property through the end of the lease term, the
          Partnership either reserves or reverses the cumulative accrued rental
          income balance.

     When the properties are sold, the related cost and accumulated depreciation
     for operating leases and the net investment for direct financing leases,
     plus any accrued rental income, are removed from the accounts and gains or
     losses from sales are reflected in income. The general partners of the
     Partnership review properties for impairment whenever events or changes in
     circumstances indicate that the carrying amount of the assets may not be
     recoverable through operations. The general partners determine whether an
     impairment in value has occurred by comparing the estimated future
     undiscounted cash flows, including the residual value of the property, with
     the carrying cost of the individual property. If an impairment is
     indicated, the assets are adjusted to their fair value. Although the
     general partners have made their best estimate of these factors based on
     current conditions, it is reasonably possible that changes could occur in
     the near term which could adversely affect the general partners' estimate
     of net cash flows expected to be generated from its properties and the need
     for asset impairment write-downs.

     When the collection of amounts recorded as rental or other income is
     considered to be doubtful, an adjustment is made to increase the allowance
     for doubtful accounts, which is netted against receivables, and to decrease
     rental or other income or increase bad debt expense for the current period,
     although the Partnership continues to pursue collection of such amounts. If
     amounts are subsequently determined to be uncollectible, the corresponding
     receivable and allowance for doubtful accounts are decreased accordingly.

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

                                       25
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


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

     The Partnership's investments in Halls Joint Venture, CNL Restaurant
     Investments II, Des Moines Real Estate Joint Venture, CNL Mansfield Joint
     Venture, and Duluth Joint Venture, and a property in Smithfield, North
     Carolina, a property in Miami, Florida, and a property in Montgomery,
     Alabama, for which each of the three properties is held as tenants-in-
     common with affiliates of the general partners, are accounted for using the
     equity method since the Partnership shares control with affiliates which
     have the same general partners.

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

     Cash accounts maintained on behalf of the Partnership in demand deposits at
     commercial banks and money market funds may exceed federally insured
     levels; however, the Partnership has not experienced any losses in such
     accounts. The Partnership limits investment of temporary cash investments
     to financial institutions with high credit standing; therefore, the
     Partnership believes it is not exposed to any significant credit risk on
     cash and cash equivalents.

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

     Additionally, for tax purposes, syndication costs are included in
     Partnership equity and in the basis of each partner's investment. For
     financial reporting purposes syndication costs are netted against partners'
     capital and represent a reduction of Partnership equity and a reduction in
     the basis of each partner's investment.

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

                                       26
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


2.   Leases:
     ------

     The Partnership leases its land or land and buildings primarily to
     operators of national and regional fast-food and family-style restaurants.
     The leases are accounted for under the provisions of Statement of Financial
     Accounting Standards No. 13, "Accounting for Leases." The leases generally
     are classified as operating leases; however, some leases have been
     classified as direct financing leases. For the leases classified as direct
     financing leases, the building portions of the property leases are
     accounted for as direct financing leases while the land portions of the
     majority of these leases are operating leases. Substantially all leases are
     for 15 to 20 years and provide for minimum and contingent rentals. In
     addition, the tenant generally pays all property taxes and assessments,
     fully maintains the interior and exterior of the building and carries
     insurance coverage for public liability, property damage, fire and extended
     coverage. The lease options generally allow tenants to renew the leases for
     two to four successive five-year periods subject to the same terms and
     conditions as the initial lease. Most leases also allow the tenant to
     purchase the property at fair market value after a specified portion of the
     lease has elapsed.

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

     Land and buildings on operating leases consisted of the following at
     December 31:

<TABLE>
<CAPTION>
                                                          1999                 1998
                                                   ---------------      ---------------
          <S>                                        <C>                  <C>
          Land                                         $ 8,010,699          $ 8,430,465
          Buildings                                      8,576,088            9,121,968
                                                   ---------------      ---------------
                                                        16,586,787           17,552,433

          Less accumulated depreciation                 (2,602,453)          (2,473,926)
                                                   ---------------      ---------------
                                                       $13,984,334          $15,078,507
                                                   ===============      ===============
</TABLE>

                                       27
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


3.   Land and Buildings on Operating Leases - Continued:
     ---------------------------------------------------

     In June 1999, the Partnership sold its property in Maryville, Tennessee to
     the tenant in accordance with the purchase option under the lease agreement
     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. The
     Partnership reinvested the net sales proceeds in an additional property as
     tenants-in-common with CNL Income Fund IX, Ltd., a Florida limited
     partnership and affiliate of the general partners (see Note 5).

     Some leases provide for escalating guaranteed minimum rents throughout the
     lease terms. Income from these scheduled rent increases is recognized on a
     straight-line basis over the terms of the leases. For the years ended
     December 31, 1999, 1998, and 1997, the Partnership recognized $81,057,
     $90,896, and $102,142 (net of $11,159 in reserves), respectively, of such
     rental income.

     The following is a schedule of the future minimum lease payments to be
     received on noncancellable operating leases at December 31, 1999:


<TABLE>
               <S>                <C>
               2000               $ 1,797,707
               2001                 1,894,674
               2002                 1,906,677
               2003                 1,887,272
               2004                 1,886,255
               Thereafter           8,719,250
                                  -----------
                                  $18,091,835
                                  ===========
</TABLE>


     Since lease renewal periods are exercisable at the option of the tenant,
     the above table only presents future minimum lease payments due during the
     initial lease terms. In addition, this table does not include any amounts
     for future contingent rentals which may be received on the leases based on
     a percentage of the tenant's gross sales.

                                       28
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                   Years Ended December 31, 1999, 1998, 1997


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

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

<TABLE>
<CAPTION>
                                                                      1999                 1998
                                                               ----------------     ----------------
     <S>                                                         <C>                  <C>
     Minimum lease payments receivable                              $ 5,419,945          $ 5,915,553
     Estimated residual values                                        1,008,935            1,008,935
     Less unearned income                                            (3,155,725)          (3,559,096)
                                                               ----------------     ----------------
     Net investment in direct financing leases                      $ 3,273,155          $ 3,365,392
                                                               ================     ================
</TABLE>

     The following is a schedule of future minimum lease payments to be received
     on direct financing leases at December 31, 1999:

<TABLE>
                    <S>                             <C>
                    2000                            $    495,609
                    2001                                 496,766
                    2002                                 496,766
                    2003                                 496,766
                    2004                                 496,766
                    Thereafter                         2,937,272
                                                    ------------
                                                    $  5,419,945
                                                    ============
</TABLE>

     The above table does not include future minimum lease payments for renewal
     periods or for contingent rental payments that may become due in future
     periods (see Note 3).

5.   Investment in Joint Ventures:
     ----------------------------

     The Partnership has a 51.1% interest, an 18 percent interest, a 4.79%
     interest , and a 79 percent interest in the profits and losses of Halls
     Joint Venture, CNL Restaurant Investments II, Des Moines Real Estate Joint
     Venture, and CNL Mansfield Joint Venture, respectively. The remaining
     interests in these joint ventures are held by affiliates of the Partnership
     which have the same general partners. The Partnership also has a 53 percent
     interest in a property in Smithfield, North Carolina, with an affiliate of
     the general partners, as tenants-in-common. Amounts relating to its
     investment are included in investment in joint ventures.

                                       29
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


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

     In December 1999, the Partnership entered into a joint venture arrangement,
     Duluth Joint Venture, with CNL Income Fund V, Ltd., CNL Income Fund XIV,
     Ltd., and CNL Income Fund XV, Ltd., each a Florida limited partnership and
     affiliate of the general partners, to construct one restaurant property in
     Duluth, Georgia. As of December 31, 1999, the Partnership contributed
     approximately $119,100 to purchase land and pay for construction costs
     relating to the joint venture and has agreed to contribute additional
     amounts in 2000 for additional construction costs. As of December 31, 1999,
     the Partnership owned an 11 percent interest in the profits and losses of
     the joint venture. When funding is complete, the Partnership expects to
     have an approximate 11 percent interest in the profits and losses of the
     joint venture.

     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 it original purchase
     price.

     In November 1999, the Partnership used a portion of the net sales proceeds
     from the sale of the Property in Maryville, Tennessee to acquire a property
     in Montgomery, Alabama as tenants-in-common with CNL Income Fund IX, ltd. a
     Florida limited partnership and affiliate of the general partners. Amounts
     relating to its investment are included in investment in joint ventures. As
     of December 31, 1999, the Partnership owned a 71 percent interest in this
     property.

     CNL Restaurant Investments II owns and leases six properties to an operator
     of national fast-food or family-style restaurants, and Des Moines Real
     Estate joint Venture, CNL Mansfield Joint Venture, Duluth Joint Venture,
     and the Partnership and affiliates as tenants-in-common in three separate
     tenancy in common arrangements, each own and lease one property to an
     operator of national fast-food or family-style restaurants. The following
     presents property to an operator of national fast-food or family-style
     restaurants.

                                       30
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


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

     The following presents the combined, condensed financial information for
     the joint ventures and the three properties held as tenants-in-common with
     affiliates at December 31:

<TABLE>
<CAPTION>
                                                                              1999                 1998
                                                                       ----------------     ----------------
          <S>                                                            <C>                  <C>
          Land and buildings on operating leases,
           less accumulated depreciation                                    $11,427,388          $10,612,379
          Net investment in direct financing lease                              932,696                   --
          Cash                                                                  962,409                3,763
          Receivables                                                            39,213               21,249
          Accrued rental income                                                 148,868              178,775
          Other assets                                                            1,917                1,116
          Liabilities                                                            68,783                8,916
          Partners' capital                                                  13,443,708           10,808,366
          Revenues                                                            1,297,799            1,324,602
          Gain on sale of land and building                                     239,336                   --
          Net income                                                          1,246,689            1,028,391
</TABLE>

     The Partnership recognized income totaling $429,997, $311,081, and $267,251
     for the years ended December 31, 1999, 1998, and 1997, respectively, from
     these joint ventures and the three properties held as tenants-in-common
     with affiliates.

6.   Mortgage Notes Receivable:
     -------------------------

     In connection with the sale of its property in Florence, South Carolina
     during 1995, the Partnership accepted a promissory note in the principal
     sum of $1,160,000, 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 59 equal monthly installments of $10,395, with a balloon
     payment of $1,105,715 due in July 2000.

     In addition, the Partnership accepted a promissory note in the principal
     sum of $240,000 in connection with the sale of its property in
     Jacksonville, Florida in December 1995. The note was collateralized by a
     mortgage on the property. The promissory note bore interest at a rate of
     ten percent per annum and was to be collected in 119 equal monthly
     installments of $2,106, with a balloon payment of $218,252 due in December
     2005. During the year ended December 31, 1999, the Partnership collected
     the outstanding principal balance of $235,564 (plus accrued interest)
     relating to the promissory note.

                                       31
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


6.   Mortgage Notes Receivable - Continued:
     -------------------------------------

     The mortgage notes receivable consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                 1999                  1998
                                                           -----------------     ----------------
          <S>                                              <C>                   <C>
          Principal balance                                $       1,112,144     $      1,357,877
          Accrued interest receivable                                  6,407                8,457
          Less deferred gain on sale of land and
           building                                                 (124,143)            (125,278)
                                                           -----------------     ----------------
                                                           $         994,408     $      1,241,056
                                                           =================     ================
</TABLE>

     The general partners believe that the estimated fair values of mortgage
     notes receivable at December 31, 1999 and 1998, approximate the outstanding
     principal amount based on estimated current rates at which similar loans
     would be made to borrowers with similar credit and for similar maturities.

7.   Allocations and Distributions:
     -----------------------------

     Generally, all net income and net losses of the Partnership, excluding
     gains and losses from the sale of properties, are allocated 99 percent to
     the limited partners and one percent to the general partners. Distributions
     of net cash flow are made 99 percent to the limited partners and one
     percent to the general partners; provided, however, that the one percent of
     net cash flow to be distributed to the general partners is subordinated to
     receipt by the limited partners of an aggregate, ten percent, cumulative,
     noncompounded annual return on their adjusted capital contributions (the
     "10% Preferred Return").

     Generally, net sales proceeds from the sale of properties not in
     liquidation of the Partnership, to the extent distributed, will be
     distributed first to the limited partners in an amount sufficient to
     provide them with their 10% Preferred Return, plus the return of their
     adjusted capital contributions. The general partners will then receive, to
     the extent previously subordinated and unpaid, a one percent interest in
     all prior distributions of net cash flow and a return of their capital
     contributions. Any remaining sales proceeds will be distributed 95 percent
     to the limited partners and five percent to the general partners. Any gain
     from the sale of a property not in liquidation of the Partnership is, in
     general, allocated in the same manner as net sales proceeds are
     distributable. Any loss from the sale of a property not in liquidation of
     the Partnership is, in general, allocated first, on a

                                       32
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


7.   Allocations and Distributions - Continued:
     -----------------------------------------

     pro rata basis, to partners with positive balances in their capital
     accounts; and thereafter, 95 percent to the limited partners and five
     percent to the general partners.

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

     During each of the years ended December 31, 1999, 1998, and 1997, the
     Partnership declared distributions to the limited partners of $2,700,000.
     No distributions have been made to the general partners to date.

                                       33
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


8.   Income Taxes:
     ------------

     The following is a reconciliation of net income for financial reporting
     purposes to net income for federal income tax purposes for the years ended
     December 31:

<TABLE>
<CAPTION>
                                                                      1999                    1998                   1997
                                                                ---------------          --------------         --------------
     <S>                                                         <C>                      <C>                    <C>
     Net income for financial reporting purposes                     $2,545,690              $2,466,018             $2,606,008

     Depreciation for tax reporting purposes in excess
      of depreciation for financial reporting
      purposes                                                          (19,957)                (16,795)               (25,552)

     Gain on sale of land and buildings for financial
      reporting purposes in excess of gain for tax
      reporting purposes                                               (188,377)                   (246)              (178,348)

     Direct financing leases recorded as operating
      leases for tax reporting purposes                                  92,237                  81,760                 76,941

     Equity in earnings of unconsolidated joint
      ventures for tax reporting purposes in excess
      of (less than) equity in earnings of
      unconsolidated joint ventures for financial
       reporting purposes                                                54,093                  11,026                (55,911)

     Accrued rental income                                              (81,057)                (90,896)              (102,142)

     Rents paid in advance                                              (48,027)                (12,644)                21,966

     Minority interest in timing differences of
      unconsolidated joint venture                                          981                     982                    981

     Allowance for uncollectible accounts                               (12,174)                 (4,106)                    --

     Capitalization of transaction costs for tax
      reporting purposes                                                160,425                  18,781                     --

     Other                                                                   --                      --                (10,275)
                                                                ---------------          --------------         --------------

     Net income for federal income tax purposes                      $2,503,834              $2,453,880             $2,333,668
                                                                ===============          ==============         ==============
</TABLE>

                                       34
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


9.   Related Party Transactions:
     --------------------------

     One of the individual general partners, James M. Seneff, Jr., is one of the
     principal shareholders of CNL Holdings, Inc. The other individual general
     partner, Robert A. Bourne, serves as President and Treasurer of CNL
     Financial Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc., CNL
     Fund Advisors, Inc. (the "Advisor") was a majority owned subsidiary of CNL
     Financial Group, Inc. until it merged with CNL American Properties Fund,
     Inc. ("APF"), effective September 1, 1999. The individual general partners
     are stockholders and directors of APF.

     In connection therewith, the Partnership has agreed to pay the Advisor an
     annual, noncumulative, subordinated management fee of one percent of the
     sum of gross revenues from properties wholly owned by the Partnership and
     the Partnership's allocable share of gross revenues from joint ventures and
     the properties held as tenants-in-common with affiliates, but not in excess
     of competitive fees for comparable services.  These fees will be incurred
     and will be payable only after the limited partners receive their 10%
     Preferred Return.  Due to the fact that these fees are noncumulative, if
     the limited partners have not received their 10% Preferred Return in any
     particular year, no management fee will be due or payable for such year.
     As a result of such threshold, no management fees were incurred during the
     years ended December 31, 1999, 1998, and 1997.

     The Advisor is also entitled to receive a deferred, subordinated real
     estate disposition fee, payable upon the sale of one or more properties
     based on the lesser of one-half of a competitive real estate commission or
     three percent of the sales price if the Advisor provides a substantial
     amount of services in connection with the sale.  However, if the net sales
     proceeds are reinvested in a replacement property, no such real estate
     disposition fees will be incurred until such replacement property is sold
     and the net sales proceeds are distributed.  The payment of the real estate
     disposition fee is subordinated to the receipt by the limited partners of
     their aggregate 10% Preferred Return, plus their adjusted capital
     contributions.  No deferred, subordinated real estate disposition fees were
     incurred for the years ended December 31, 1999, 1998, and 1997.

                                       35
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


9.   Related Party Transactions - Continued:
     --------------------------------------

     During the years ended December 31, 1999, 1998, and 1997, the Advisor and
     its affiliate provided accounting and administrative  services to the
     Partnership on a day-to-day basis including services relating to the
     proposed and terminated merger as described in Note 11.  The Partnership
     incurred $102,417, $87,256, and $77,078 for the years ended December 31,
     1999, 1998, and 1997, respectively, for such services.

     The due to related parties consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                         1999            1998
                                                                    ------------    ------------
               <S>                                                  <C>             <C>
               Due to the Advisor and its affiliates:
                Expenditures incurred on behalf
                  of the Partnership                                $     10,859    $     10,111
                Accounting and administrative
                  services                                                48,272           7,800
                Deferred, subordinated real estate
                  disposition fee                                             --           7,200
                                                                    ------------    ------------
                                                                    $     59,131    $     25,111
                                                                    ============    ============
</TABLE>

10.  Concentration of Credit Risk:
     ----------------------------

     The following schedule presents total rental, earned, and mortgage interest
     income from individual lessees, each representing more than ten percent of
     the Partnership's total rental, earned and mortgage interest income
     (including the Partnership's share of total rental and earned income from
     the unconsolidated joint ventures and the three properties held as tenants-
     in-common with affiliates of the general partners) for each of the years
     ended December 31:

<TABLE>
<CAPTION>
                                                      1999              1998              1997
                                                 -------------     -------------     -------------
               <S>                               <C>               <C>               <C>
               Golden Corral Corporation            $712,877          $732,650          $625,724
               Restaurant Management
                Services, Inc.                       456,440           448,691           444,069
               Waving Leaves, Inc.                   295,176           300,546               N/A
               Flagstar Enterprises, Inc.                N/A               N/A           307,738
</TABLE>

                                       36
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


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

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

<TABLE>
<CAPTION>
                                                 1999              1998              1997
                                            -------------     -------------     -------------
          <S>                               <C>               <C>               <C>
          Golden Corral Family
            Steakhouse Restaurant              $712,877          $732,650          $625,724
          Burger King                           380,586           469,984           466,626
          Hardees                               443,819           451,348           447,074
</TABLE>

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

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

11.  Termination of 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").  Under the Agreement and Plan of Merger, APF was to issue shares
     of its common stock as consideration for the Merger.  On March 1, 2000, the
     General Partners and APF announced that they had mutually agreed to
     terminate the Agreement and Plan of Merger.  The agreement to terminate the
     Agreement and Plan of Merger was based, in large part, on the General
     Partners' concern that, in light of market conditions relating to publicly
     traded real estate investment trusts, the value of the transaction had
     diminished.  As a result of such diminishment, the General Partners'
     ability to unequivocally recommend voting for the transaction, in the
     exercise of their fiduciary duties, had become questionable.

                                       37
<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

     None


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

     The General Partners of the Registrant are James M. Seneff, Jr., Robert A.
Bourne and CNL Realty Corporation, a Florida corporation. The General Partners
manage and control the Partnership's affairs and have general responsibility and
the ultimate authority in all matters affecting the Partnership's business. The
Partnership has available to it the services, personnel and experience of CNL
Fund Advisors, Inc., CNL Financial Group, Inc. and their affiliates, all of
which are affiliates of the General Partners.

     James M. Seneff, Jr., age 53, Since 1971, Mr. Seneff has been active in the
acquisition, development, and management of real estate projects and, directly
or through an affiliated entity, has served as a general partner or co-venturer
in over 100 real estate ventures. These ventures have involved the financing,
acquisition, construction, and leasing of restaurants, office buildings,
apartment complexes, hotels, and other real estate. Mr. Seneff is a principal
stockholder of CNL Holdings, Inc., the parent company of CNL Financial Group,
Inc. (formerly CNL Group, Inc.), a diversified real estate company, and has
served as a director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since its formation in 1980. Mr. Seneff has served as a
director and Chairman of the Board since inception in 1994, and served as Chief
Executive Officer from 1994 through August 1999, of CNL American Properties
Fund, Inc., a public, unlisted real estate investment trust. He also served as a
director, Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. until it
merged with the company in September 1999. In addition, he serves as a director,
Chairman of the Board and Chief Executive Officer of CNL Health Care Properties,
Inc., as well as CNL Health Care Corp., the advisor to the company. He also
serves as director, Chairman of the Board and Chief Executive Officer of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust,
as well as CNL Hospitality Corp., its advisor. Since 1992, Mr. Seneff has served
as Chairman of the Board and Chief Executive Officer of Commercial Net Lease
Realty, Inc., a public real estate investment trust that is listed on the New
York Stock Exchange. Mr. Seneff has also served as a director, Chairman of the
Board and Chief Executive Officer of the following affiliated companies since
formation: CNL Securities Corp., since 1979; CNL Investment Company, since 1990;
and CNL Institutional Advisors, a registered investment advisor for pension
plans, since 1990. Mr. Seneff formerly served as a director of First Union
National Bank of Florida, N.A., and currently serves as the Chairman of the
Board of CNLBank. Mr. Seneff served on the Florida State Commission on Ethics
and is a former member and past Chairman of the State of Florida Investment
Advisory Council, which recommends to the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration is Florida's principal investment advisory and money management
agency and oversees the investment of more than $60 billion of retirement funds.
Mr. Seneff received his degree in Business Administration from Florida State
University in 1968.

     Robert A. Bourne, age 52,  Since joining CNL Securities Corp. in 1979, Mr.
Bourne has participated as a general partner or co-venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and
leasing of restaurants, office buildings, apartment complexes, hotels, and other
real estate.  Mr. Bourne is the President and Treasurer of CNL Financial Group,
Inc. (formerly CNL Group, Inc.).  Mr. Bourne has served as a director since
inception in 1994, President from 1994 through February 1999, Treasurer from
February 1999 through August 1999, and Vice Chairman of the Board since February
1999 of CNL American Properties Fund, Inc., a public, unlisted real estate
investment trust.  He also served in the following positions for CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. prior to its
merger with CNL American Properties Fund, Inc.: director from 1994 through
August 1999, Treasurer from July 1998 through August 1999, President from 1994
through September 1997, and Vice Chairman of the Board from September 1997
through August 1999.  Mr. Bourne is a director and President of CNL Health Care
Properties, Inc., as well as a director and President of CNL Health Care Corp.,
the advisor to the company.  He is also a director, Vice Chairman of the Board
and President of CNL Hospitality Properties, Inc., a public, unlisted real
estate investment trust, as well as CNL Hospitality Corp., its advisor.  Mr.
Bourne also serves as a director of CNLBank.  He has served as a director since
1992, Vice Chairman

                                       38
<PAGE>

of the Board since February 1996, Secretary and Treasurer from February 1996
through 1997, and President from July 1992 through February 1996, of Commercial
Net Lease Realty Inc., a public real estate investment trust listed on the New
York Stock Exchange. Mr. Bourne holds the following positions for these
affiliates of CNL Financial Group, Inc.: director, President and Treasurer of
CNL Investment Company; director, President, Treasurer, and Registered Principal
of CNL Securities Corp., a subsidiary of CNL Investment Company and director,
President, Treasurer, and Chief Investment Officer of CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of tax manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.

     CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida.  Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners.  CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners.  CNL Realty Corporation currently
serves as the corporate general partner of the CNL Income Fund Partnerships.

     CNL Fund Advisors, Inc. provides certain management services in connection
with the Partnership and its Properties.  CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 450 South Orange Avenue, Orlando, Florida 32801.
CNL Fund Advisors, Inc. was a majority owned subsidiary of CNL Financial Group,
Inc., until its merger effective September 1, 1999.  On September 1, 1999, CNL
American Properties Fund, Inc. acquired CNL Fund Advisors, Inc. and was
organized to perform property acquisition, property management and other
services.

     CNL Financial Group, Inc., which was the parent company of CNL Fund
Advisors, Inc. through August 1999, was organized in 1980 under the laws of the
State of Florida.  CNL Financial Group, Inc. is a diversified real estate
company which provides a wide range of real estate, development and financial
services to companies in the United States through the activities of its
subsidiaries.  These activities are primarily focused on the franchised
restaurant and hospitality industries.  James M. Seneff, Jr., an individual
General Partner of the Partnership, is the Chairman of the Board, Chief
Executive Officer, and a director of CNL Financial Group, Inc.  Mr. Seneff and
his wife own all of the outstanding shares of CNL Holdings, Inc., the Parent
company of CNL Financial Group, Inc.

     The following persons serve as operating officers of CNL Financial Group,
Inc. or its affiliates or subsidiaries in the discretion of the Boards of
Directors of those companies, but, except as specifically indicated, do not
serve as members of the Boards of Directors of those entities.  The Boards of
Directors have the responsibility for creating and implementing the policies of
CNL Financial Group, Inc. and its affiliated companies.

     Curtis B. McWilliams, age 44, joined CNL Financial Group, Inc. in April
1997 and served as an Executive Vice President through August 1999.  He serves
as Chief Executive Officer of CNL American Properties Fund, Inc. and CNL Fund
Advisors, Inc.  In addition, Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and as President of the Restaurant and Financial Services Groups
within CNL Financial Group, Inc. through August 1999.  Mr. McWilliams served as
President of CNL American Properties Fund, Inc. from February 1999 through
August 1999 and previously served as Executive Vice President from February 1998
through February 1999.  From September 1983 through March 1997, Mr. McWilliams
was employed by Merrill Lynch & Co., most recently as Chairman of Merrill
Lynch's Private Advisory Services until March 1997.  Mr. McWilliams received a
B.S.E. in Chemical Engineering from Princeton University in 1977 and a Masters
of Business Administration with a concentration in finance from the University
of Chicago in 1983.

     John T. Walker, age 41, serves as President and Chief Operating Officer of
CNL American Properties Fund, Inc. and CNL Fund Advisors, Inc.  He served as
Executive Vice President of CNL American Properties Fund, Inc. from January 1996
through August 1999, as Chief Operating Officer since March 1995 through August
1999, and previously served as Senior Vice President from December 1994 through
August 1999.  In addition, Mr. Walker has served as Executive Vice President of
CNL Fund Advisors, Inc. since January 1996 through August 1999, Chief Operating
Officer from April 1995 through August 1999, and previously served as Senior
Vice President from November 1994 through January 1996.  In addition, Mr. Walker
previously served as Executive Vice President of CNL Hospitality Properties,
Inc. and CNL Hospitality Advisors, Inc.  As of September 1, 1999, Mr. Walker
serves as President for CNL American Properties Fund, Inc.  From May 1992 to May
1994, Mr. Walker, a certified public accountant, was Executive Vice President
for Finance and Administration and Chief Financial Officer of Z Music, Inc., a
cable television network (subsequently acquired by Gaylord Entertainment), where
he was responsible for overall financial and administrative management and
planning.  From January 1990 through April 1992, Mr. Walker

                                       39
<PAGE>

was Chief Financial Officer of the First Baptist Church in Orlando, Florida.
From April 1984 through December 1989, he was a partner in the accounting firm
of Chastang, Ferrell & Walker, P.A., where he was the partner in charge of audit
and consulting services, and from 1981 to 1984, Mr. Walker was a Senior
Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude graduate
of Wake Forest University with a B.S. in Accountancy and is a certified public
accountant.

     Lynn E. Rose, age 51, Ms. Rose served as Secretary of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust, from
1994 through August 1999, and served as Treasurer from 1994 through February
1999. She also served as Treasurer of CNL Fund Advisors, Inc., from 1994 through
July 1998, and served as Secretary and a director from 1994 through August 1999,
at which point it merged with CNL American Properties Fund, Inc. In addition,
she is Secretary and Treasurer of CNL Health Care Properties, Inc., and serves
as Secretary of its subsidiaries. In addition, she serves as Secretary,
Treasurer and a director of CNL Health Care Corp., the advisor. to the company.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc., a public, unlisted real estate investment trust, as Secretary, Treasurer
and a director of CNL Hospitality Corp., its Advisor, and as Secretary of the
subsidiaries of the company. Ms. Rose served as Secretary and Treasurer of
Commercial Net Lease Realty, Inc., a public real estate investment trust listed
on the New York Stock Exchange, from 1992 to February 1996, and as Secretary and
a director of CNL Realty Advisors, Inc., its advisor, from its inception in 1991
through 1997. She also served as Treasurer of CNL Realty Advisors, Inc. from
1991 through February 1996. Ms. Rose, a certified public accountant, has served
as Secretary of CNL Financial Group, Inc. (formerly CNL Group, Inc.) since 1987,
served as Controller from 1987 to 1993 and has served as Chief Financial Officer
since 1993. She also serves as Secretary of the subsidiaries of CNL Financial
Group, Inc. and holds various other offices in the subsidiaries. In addition,
she serves as Secretary for approximately 50 additional corporations affiliated
with CNL Financial Group, Inc. and its subsidiaries. Ms. Rose oversees the tax
and legal compliance for over 375 corporations, partnerships and joint ventures,
and the accounting and financial reporting for over 200 entities. Prior to
joining CNL, Ms. Rose was a partner with Robert A. Bourne in the accounting firm
of Bourne & Rose, P.A., Certified Public Accountants. Ms. Rose holds a B.A. in
Sociology from the University of Central Florida. She was licensed as a
certified public accountant in 1979.

     Jeanne A. Wall, age 41, Ms. Wall served as Executive Vice President of CNL
American Properties Fund, Inc., a public, unlisted real estate investment trust,
from 1994 through August 1999, and as Executive Vice President of CNL Fund
Advisors, Inc., its advisor, from 1994 through August 1999, at which point it
merged with CNL American Properties Fund, Inc. Ms. Wall also serves as Executive
Vice President of CNL Health Care Properties, Inc. and CNL Health Care Corp.,
the Advisor to the Company. Ms. Wall also serves as Executive Vice President of
CNL Hospitality Properties, Inc., a public, unlisted real estate investment
trust, and serves as Executive Vice President and a director of CNL Hospitality
Corp., its advisor. She also serves as a director for CNLBank. Ms. Wall serves
as Executive Vice President of CNL Financial Group, Inc. (formerly CNL Group,
Inc.). Ms. Wall has served as Chief Operating Officer of CNL Investment Company
and of CNL Securities Corp. since 1994 and has served as Executive Vice
President of CNL Investment Company since January 1991. In 1984, Ms. Wall joined
CNL Securities Corp. and in 1985, became Vice President. In 1987, she became a
Senior Vice President and in July 1997, became Executive Vice President of CNL
Securities Corp. In this capacity, Ms. Wall serves as national marketing and
sales director and oversees the national marketing plan for the CNL investment
programs. In addition, Ms. Wall oversees product development, communications and
investor services for programs offered through participating brokers. Ms. Wall
also served as Senior Vice President of CNL Institutional Advisors Inc., a
registered investment advisor, from 1990 to 1993. Ms. Wall served as Vice
President of Commercial Net Lease Realty, Inc., a public real estate investment
trust listed on the New York Stock Exchange, from 1992 through 1997, and served
as Vice President of CNL Realty Advisors, Inc. from its inception in 1991
through 1997. Ms. Wall currently serves as a trustee on the Board of the
Investment Program Association, is a member of the Corporate Advisory Council
for the International Association for Financial Planning and is a member of IWF,
International Women's Forum. In addition, she previously served on the Direct
Participation Program committee for the National Association of Securities
Dealers, Inc. Ms. Wall holds a B.A. in Business Administration from Linfield
College and is a registered principal of CNL Securities Corp.

     Steven D. Shackelford, age 36, a certified public accountant, serves as
Senior Vice President, Chief Financial Officer, and Secretary of CNL American
Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as Chief Financial
Officer of CNL American Properties Fund, Inc. from January 1997 and as Chief
Financial Officer of CNL Fund Advisors, Inc. since September 1996 through August
1999. From March 1995 to July 1996, Mr. Shackelford was a senior manager in the
national office of Price Waterhouse where he was responsible for advising
foreign clients seeking to raise capital and a public listing in the United
States. From August 1992 to March 1995, he served as a manager in the Price
Waterhouse, Paris, France office serving several multinational clients. Mr.

                                       40
<PAGE>

Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.


Item 11.  Executive Compensation

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


Item 12.  Security Ownership of Certain Beneficial Owners and Management

     As of March 15, 2000, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.

     The following table sets forth, as of March 15, 2000, the beneficial
ownership interests of the General Partners in the Registrant.

<TABLE>
<CAPTION>
            Title of Class                    Name of Partner              Percent of Class
            --------------                    ---------------              ----------------
     <S>                                   <C>                            <C>
     General Partnership Interests         James M. Seneff, Jr.                     45%
                                           Robert A. Bourne                         45%
                                           CNL Realty Corporation                   10%
                                                                             ---------
                                                                                   100%
                                                                             =========
</TABLE>

     Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.

                                       41
<PAGE>

Item 13.  Certain Relationships and Related Transactions

     The table below summarizes the types, recipients, methods of computation
and amounts of compensation, fees and distributions paid or payable by the
Partnership to the General Partners and their affiliates for the year ended
December 31, 1999, exclusive of any distributions to which the General Partners
or their affiliates may be entitled by reason of their purchase and ownership of
Units.

<TABLE>
<CAPTION>
                                                                                        Amount Incurred
     Type of Compensation                                                                 For the Year
        and Recipient                       Method of Computation                   Ended December 31, 1999
------------------------------       ------------------------------------      ---------------------------------
<S>                                  <C>                                       <C>
Reimbursement to affiliates for      Operating expenses are reimbursed at      Operating expenses incurred on behalf
operating expenses                   the lower of cost or 90 percent of the    of the Partnership:
                                     prevailing rate at which comparable       $143,688
                                     services could have been obtained in
                                     the same geographic area.  Affiliates     Accounting and administrative services:
                                     of the General Partners from time to      $102,417
                                     time incur certain operating expenses
                                     on behalf of the Partnership for which
                                     the Partnership reimburses the
                                     affiliates without interest.


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

                                       42
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Amount Incurred
     Type of Compensation                                                                For the Year
       and Recipient                         Method of Computation                 Ended December 31, 1999
------------------------------       ---------------------------------         ---------------------------------
<S>                                  <C>                                       <C>
Deferred, subordinated real estate   A deferred, subordinated real estate                    $-0-
disposition fee payable to           disposition fee, payable upon sale of
affiliates                           one or more Properties, in an amount
                                     equal to the lesser of (i) one-half of
                                     a competitive real estate commission,
                                     or (ii) three percent of the sales
                                     price of such Property or Properties.
                                     Payment of such fee shall be made only
                                     if affiliates of the General Partners
                                     provide a substantial amount of
                                     services in connection with the sale of
                                     a Property or Properties and shall be
                                     subordinated to certain minimum returns
                                     to the Limited Partners.  However, if
                                     the net sales proceeds are reinvested
                                     in a replacement Property, no such real
                                     estate disposition fee will be incurred
                                     until such replacement Property is sold
                                     and the net sales proceeds are
                                     distributed.

General Partners' deferred,          A deferred, subordinated share equal to                 $-0-
sub-ordinated share of               one percent of Partnership
Partnership net cash flow            distributions of net cash flow,
                                     subordinated to certain minimum returns
                                     to the Limited Partners.


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

                                       43
<PAGE>

<TABLE>
<CAPTION>
                                                                                        Amount Incurred
Type of Compensation                                                                     For the Year
and Recipient                                Method of Computation                  Ended December 31, 1999
------------------------------       --------------------------------------    ---------------------------------
<S>                                  <C>                                       <C>
General Partners' share of           Distributions of net sales proceeds                     $-0-
Partnership net sales proceeds       from a sale or sales of substantially
from a sale or sales in              all of the Partnership's assets will be
liquidation of the Partnership       distributed in the following order or
                                     priority: (i) first, to pay all debts
                                     and liabilities of the Partnership and
                                     to establish reserves; (ii) second, to
                                     Partners with positive capital account
                                     balances, determined after the
                                     allocation of net income, net loss,
                                     gain and loss, in proportion to such
                                     balances, up to amounts sufficient to
                                     reduce such balances to zero; and (iii)
                                     thereafter, 95% to the Limited Partners
                                     and 5% to the General Partners.
</TABLE>

                                       44
<PAGE>

                                    PART IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

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

          1. Financial Statements

               Report of Independent Certified Public Accountants

               Balance Sheets at December 31, 1999 and 1998

               Statements of Income for the years ended December 31, 1999, 1998,
               and 1997

               Statements of Partners' Capital for the years ended December 31,
               1999, 1998, and 1997

               Statements of Cash Flows for the years ended December 31, 1999,
               1998, and 1997

               Notes to Financial Statements

          2. Financial Statement Schedules

               Schedule II - Valuation and Qualifying Accounts for the years
               ended December 31, 1999, 1998, and 1997

               Schedule III - Real Estate and Accumulated Depreciation at
               December 31, 1999

               Notes to Schedule III - Real Estate and Accumulated Depreciation
               at December 31, 1999

               Schedule IV - Mortgage Loans on Real Estate at December 31, 1999

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

          3. Exhibits

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

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

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

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

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

                                       45
<PAGE>

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

          27   Financial Data Schedule (Filed herewith.)

     (b)  The Registrant filed no reports on Form 8-K during the period from
          October 1, 1999 through December 31, 1999.

     (c)  Not applicable.

     (d)  Other Financial Information

          The Partnership is required to file audited financial information of
          its tenant, Golden Corral Corporation, as a result of this tenant
          leasing more than 20 percent of the Partnership's total assets for the
          year ended December 31, 1999.  Corral Corporation is a privately-held
          company and its financial information is not available at this time to
          the Partnership to include in this filing.  The Partnership will
          provide this information in a 10-K/A at such time as it become
          available to the Partnership.

                                       46
<PAGE>

                                 SIGNATURES


  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 23rd day of March,
2000.

                                              CNL INCOME FUND VII, LTD.

                                              By:  CNL REALTY CORPORATION
                                                   General Partner

                                                   /s/ Robert A. Bourne
                                                   --------------------
                                                   ROBERT A. BOURNE, President


                                              By:  ROBERT A. BOURNE
                                                   General Partner

                                                   /s/ Robert A. Bourne
                                                   --------------------
                                                   ROBERT A. BOURNE

                                              By:  JAMES M. SENEFF, JR.
                                                   General Partner

                                                   /s/ James M. Seneff, Jr.
                                                   ------------------------
                                                   JAMES M. SENEFF, JR.

<PAGE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
      Signature                                             Title                                    Date
      ---------                                             -----                                    ----
<S>                                            <C>                                              <C>
/s/ Robert A. Bourne                           President, Treasurer and  Director                March 23, 2000
--------------------                           (Principal    Financial    and  Accounting
Robert A. Bourne                               Officer)

/s/ James M. Seneff, Jr.                       Chief Executive Officer and Director              March  23, 2000
------------------------                       (Principal Executive  Officer)
James M. Seneff, Jr.
</TABLE>

<PAGE>

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

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                -----------------------------------------------

                 Years Ended December 31, 1999, 1998, and 1997


<TABLE>
<CAPTION>
                                                            Additions                                    Deductions
                                           -------------------------------------------     --------------------------------
                                                                                             Collected
                                                                                             or Deter-
                             Balance at     Charged to    Charged to        Deemed            mined to           Balance
                             Beginning       Costs and      Other          Uncollec-           be Col-           at End
  Year     Description        of Year        Expenses     Accounts           tible            lectible          of Year
------   ---------------     -----------   ------------   ----------       ----------      -------------     -------------
<S>     <C>                  <C>           <C>            <C>              <C>             <C>                <C>
1997      Allowance for
             doubtful
             accounts (a)    $   54,020   $         --   $     5,000  (b) $    10,497  (c)  $      5,719     $      42,804
                             ==========   ============   ===========      ===========       ============     =============

1998      Allowance for
             doubtful
             accounts (a)    $   42,804   $      1,454   $       159  (b) $        --  (c)  $      5,719     $      38,698
                             ==========   ============   ===========      ===========       ============     =============

1999      Allowance for
             doubtful
             accounts (a)    $   38,698   $         --   $        --  (b) $     6,455  (c)  $      5,719     $      26,524
                             ==========   ============   ===========      ===========       ============     =============
</TABLE>

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

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

     (c)  Amounts written off as uncollectible.
<PAGE>

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

            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
            -------------------------------------------------------

                               December 31, 1999

<TABLE>
<CAPTION>
                                                                         Costs Capitalized
                                                                           Subsequent To            Gross Amount at Which
                                                  Initial Cost             Acquisition           Carried at Close of Period (c)
                                          --------------------------  --------------------- ------------------------------------
                                   Encum-              Buildings and  Improve-   Carrying            Buildings and
                                  brances   Land        Improvements   ments     Costs       Land    Improvements      Total
                                  ------- ----------  --------------  -------   ----------- -------- ------------  -------------
<S>                               <C>     <C>          <C>            <C>       <C>         <C>      <C>           <C>
Properties the Partnership
  has Invested in Under
  Operating Leases:

     Boston Market Restaurant:
       Marietta, Georgia             -      $534,421   $507,133            -        -       $534,421   $507,133    $1,041,554

     Burger King Restaurants:
       Jefferson City, Tennessee     -       216,633    546,967            -        -        216,633    546,967       763,600
       Sierra Vista, Arizona         -       421,170          -            -        -        421,170         (f)      421,170

     Checkers Drive-In Restaurant:
       Winter Springs, Florida       -       397,536          -            -        -        397,536          -       397,536

     Church's Fried Chicken
       Restaurants:
           Gainesville, Florida (h)  -        79,395    124,653            -        -         79,395    124,653       204,048
           Daytona Beach, Florida    -       149,701          -            -        -        149,701          -       149,701

     Golden Corral Family
       Steakhouse Restaurants:
           Odessa, Texas             -       502,364    815,831            -        -        502,364    815,831     1,318,195
           Midland, Texas            -       481,748    857,185            -        -        481,748    857,185     1,338,933
           El Paso, Texas            -       745,506          -      802,132        -        745,506    802,132     1,547,638
           Harlingen, Texas          -       503,799          -      890,878        -        503,799    890,878     1,394,677

     Hardee's Restaurants:
       Akron, Ohio                   -       198,086          -            -        -        198,086         (f)      198,086
       Dalton, Ohio                  -       180,556          -            -        -        180,556         (f)      180,556
       Minerva, Ohio                 -       143,775          -            -        -        143,775         (f)      143,775
       Orrville, Ohio                -       176,169          -            -        -        176,169         (f)      176,169
       Seville, Ohio                 -       245,648          -            -        -        245,648         (f)      245,648
       Clinton, Tennessee            -       295,861          -            -        -        295,861         (f)      295,861

     Jack in the Box Restaurant:
       San Antonio, Texas            -       525,720          -      381,591        -        525,720    381,591       907,311

<CAPTION>
                                                                                 Life on Which
                                                                                Depreciation in
                                                            Date                 Latest Income
                                           Accumulated    of Con-     Date       Statement is
                                           Depreciation  struction  Acquired       Computed
                                           ------------  --------   --------    ---------------
<S>                                        <C>           <C>        <C>         <C>
Properties the Partnership
  has Invested in Under
  Operating Leases:

     Boston Market Restaurant:
       Marietta, Georgia                        $53,577     1994     10/96            (b)

     Burger King Restaurants:
       Jefferson City, Tennessee                174,829     1988     01/90            (b)
       Sierra Vista, Arizona                          -     1990     06/90            (d)

     Checkers Drive-In Restaurant:
       Winter Springs, Florida                      (g)      -       07/94            (g)

     Church's Fried Chicken
       Restaurants:
           Gainesville, Florida (h)              37,225     1983     01/91            (b)
           Daytona Beach, Florida                     -     1985     01/91            (i)

     Golden Corral Family
       Steakhouse Restaurants:
           Odessa, Texas                        265,387     1990     03/90            (b)
           Midland, Texas                       278,291     1990     04/90            (b)
           El Paso, Texas                       248,258     1990     05/90            (b)
           Harlingen, Texas                     278,166     1990     06/90            (b)

     Hardee's Restaurants:
       Akron, Ohio                                    -     1990     11/90            (d)
       Dalton, Ohio                                   -     1990     11/90            (d)
       Minerva, Ohio                                  -     1990     11/90            (d)
       Orrville, Ohio                                 -     1990     11/90            (d)
       Seville, Ohio                                  -     1990     11/90            (d)
       Clinton, Tennessee                             -     1992     09/92            (d)

     Jack in the Box Restaurant:
       San Antonio, Texas                       119,949     1990     05/90            (b)
</TABLE>

                                      F-1
<PAGE>

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

            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
            -------------------------------------------------------

                               December 31, 1999

<TABLE>
<CAPTION>
                                                                      Costs Capitalized
                                                                        Subsequent To              Gross Amount at Which
                                                Initial Cost             Acquisition          Carried at Close of Period (c)
                                         -------------------------  --------------------  --------------------------------------
                                Encum-               Buildings and   Improve-   Carrying              Buildings and
                                brances     Land     Improvements     ments       Costs       Land     Improvements    Total
                               --------  ----------  -------------  ----------  --------  ---------- -------------- ------------
<S>                            <C>       <C>         <C>            <C>         <C>       <C>        <C>            <C>
  KFC Restaurants:
    Friendswood, Texas             -        161,906            -             -       -       161,906           (f)      161,906
    Arcadia, Florida               -        175,020      333,759             -       -       175,020      333,759       508,779

  Popeyes Famous Fried
    Chicken Restaurants:
      Jacksonville, Florida        -        128,398      139,768       136,262       -       128,398      276,030       404,428
      Lake City, Florida           -        130,300      254,747       139,099       -       130,300      393,846       524,146
      Jacksonville, Florida        -        142,490      137,396       134,259       -       142,490      271,655       414,145
      Brunswick, Georgia           -        104,720      251,955       150,888       -       104,720      402,843       507,563

  Rally's Restaurant:
    Toledo, Ohio                   -        281,880      196,608        47,002       -       281,880      243,610       525,490

  Shoney's Restaurants:
    Pueblo, Colorado               -        492,230      559,769             -       -       492,230      559,769     1,051,999
    Saddlebrook, Florida           -        427,238            -       765,532       -       427,238      765,532     1,192,770

  Taco Bell Restaurant:
    Detroit, Michigan              -        168,429            -       402,674       -       168,429      402,674       571,103
                                         ----------  -----------    ----------  ------    ---------- ------------   -----------

                                         $8,010,699   $4,725,771    $3,850,317       -    $8,010,699   $8,576,088   $16,586,787
                                         ==========  ===========    ==========  ======    ========== ============   ===========


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

  Burger King Restaurants:
    Columbus, Ohio                 -       $345,696     $651,985             -       -      $345,696     $651,985      $997,681
    San Antonio, Texas             -        350,479      623,615             -       -       350,479      623,615       974,094
    Pontiac, Michigan              -        277,192      982,200             -       -       277,192      982,200     1,259,392
    Raceland, Louisiana            -        174,019      986,879             -       -       174,019      986,879     1,160,898
    New Castle, Indiana            -        264,239      662,265             -       -       264,239      662,265       926,504
    Hastings, Minnesota            -        155,553      657,159             -       -       155,553      657,159       812,712
                                         ----------  -----------    ----------  ------   ----------- ------------   -----------

                                         $1,567,178   $4,564,103             -       -    $1,567,178   $4,564,103    $6,131,281
                                         ==========  ===========    ==========  ======   =========== ============   ===========

<CAPTION>
                                                                            Life on Which
                                                                           Depreciation in
                                                    Date                    Latest Income
                               Accumulated        of Con-       Date         Statement is
                               Depreciation      struction    Acquired         Computed
                               ------------     ----------    --------     ---------------
<S>                            <C>              <C>           <C>          <C>
  KFC Restaurants:
    Friendswood, Texas                    -        1990        06/90             (d)
    Arcadia, Florida                104,639        1985        08/90             (b)

  Popeyes Famous Fried
    Chicken Restaurants:
      Jacksonville, Florida          87,450        1985        04/90             (b)
      Lake City, Florida            125,153        1985        04/90             (b)
      Jacksonville, Florida          86,237        1985        04/90             (b)
      Brunswick, Georgia            125,517        1974        04/90             (b)

  Rally's Restaurant:
    Toledo, Ohio                     73,016        1990        01/91             (b)

  Shoney's Restaurants:
    Pueblo, Colorado                174,934        1989        08/90             (b)
    Saddlebrook, Florida            244,132        1990        04/90             (b)

  Taco Bell Restaurant:
    Detroit, Michigan               125,693        1990        06/90             (b)
                                -----------

                                 $2,602,453
                                ===========


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

  Burger King Restaurants:
    Columbus, Ohio                $ 179,579        1986        09/91             (b)
    San Antonio, Texas              171,765        1986        09/91             (b)
    Pontiac, Michigan               270,531        1987        09/91             (b)
    Raceland, Louisiana             271,820        1988        09/91             (b)
    New Castle, Indiana             182,410        1988        09/91             (b)
    Hastings, Minnesota             181,004        1990        09/91             (b)
                                -----------

                                $ 1,257,109
                                ===========
</TABLE>

                                      F-2
<PAGE>

                           CNL INCOME FUND VII, LTD.

                        (A Florida Limited Partnership)

            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
            -------------------------------------------------------

                               December 31, 1999

<TABLE>
<CAPTION>
                                                                       Costs Capitalized
                                                                         Subsequent to                 Gross Amount at Which
                                               Initial Cost               Acquisition             Carried at Close of Period (c)
                                         --------------------------   -------------------    ---------------------------------------
                               Encum-                 Buildings and   Improve-   Carrying                 Buildings and
                               brances      Land      Improvements     ments       Costs        Land      Improvements      Total
                               -------   ----------   -------------   --------   --------    ----------   -------------   ----------
<S>                            <C>       <C>          <C>             <C>        <C>         <C>          <C>             <C>
Property of Joint Venture in
   Which the Partnership has
   a 4.79% Interest and has
   Invested in Under an
   Operating Lease:

     Jack in the Box
      Restaurant:
       Des Moines, Washington     -      $  322,726      $  791,658          -          -    $  322,726      $  791,658   $1,114,384
                                         ==========      ==========   ========   ========    ==========      ==========   ==========

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

     Jack in the Box
      Restaurant:
       Mansfield, Texas           -      $  297,295      $  482,914          -          -    $  297,295      $  482,914   $  780,209
                                         ==========      ==========   ========   ========    ==========      ==========   ==========

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

     Golden Corral Restaurant:
      Smithfield, North
       Carolina                   -      $  264,272      $1,155,018          -          -    $  264,272      $1,155,018   $1,419,290
                                         ==========      ==========   ========   ========    ==========      ==========   ==========

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

     Chevy's Fresh Mex
      Restaurant:
       Miami, Florida             -      $  976,357      $  974,016          -          -    $  976,357      $  974,016   $1,950,373
                                         ==========      ==========   ========   ========    ==========      ==========   ==========

Property of Joint Venture
   in Which the Partnership
   has an 11% Interest
   and had Invested in Under
   an Operating Lease

     Roadhouse Grill
      Restaurant:
       Duluth, Georgia            -      $1,083,153               -          -          -    $1,083,153              (j)  $1,083,153
                                         ==========      ==========   ========   ========    ==========                   ==========

<CAPTION>
                                                                                  Life on Which
                                                                                 Depreciation in
                                                            Date                  Latest Income

                                         Accumulated       of Con-      Date       Statement is
                                         Depreciation     struction   Acquired       Computed
                                         ------------     ---------   --------   ---------------
<S>                                      <C>              <C>         <C>        <C>
Property of Joint Venture in
   Which the Partnership has
   a 4.79% Interest and has
   Invested in Under an
   Operating Lease:

     Jack in the Box
      Restaurant:
       Des Moines, Washington                $190,284        1992      10/92           (b)
                                             ========

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

     Jack in the Box
      Restaurant:
       Mansfield, Texas                      $ 45,061        1997      02/97           (b)
                                             ========

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

     Golden Corral
      Restaurant:
       Smithfield, North
       Carolina                              $ 77,951        1996      12/97           (b)
                                             ========

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

     Chevy's Fresh Mex
      Restaurant:
       Miami, Florida                        $ 65,023        1995      12/97           (b)
                                             ========

Property of Joint Venture
  in Which the Partnership
   has an 11% 11% Interest
   and had Invested in Under
   an Operating Lease

     Roadhouse Grill
      Restaurant:
       Duluth, Georgia                             (k)       (j)       12/99           (k)
</TABLE>

                                      F-3
<PAGE>

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

            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
            -------------------------------------------------------

                               December 31, 1999

<TABLE>
<CAPTION>
                                                                        Costs Capitalized
                                                                          Subsequent To               Gross Amount at Which
                                                 Initial Cost              Acquisition           Carried at Close of Period (c)
                                         --------------------------  ------------------------  -----------------------------------
                               Encum-                Buildings and     Improve-    Carrying               Buildings and
                              brances       Land      Improvements     ments         Costs        Land      Improvements    Total
                              -------    ----------  -------------   ------------  --------    ---------- -------------- ---------

Properties the Partnership
  has Invested in Under
  Direct Financing Leases:

     Burger King Restaurant:
       Sierra Vista, Arizona     -                -              -       $333,212         -        -             (f)            (f)

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

     KFC Restaurants:
       Friendswood, Texas        -                -              -        359,055         -        -             (f)            (f)

     Popeyes Famous Fried
       Chicken Restaurant:
       Jacksonville, Florida     -           78,842        146,035        142,348         -       (f)            (f)            (f)
                                         ----------    -----------   ------------  --------

                                         $   78,842     $2,885,752       $834,615         -
                                         ==========    ===========   ============  ========

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

     IHOP Restaurant:
       Montgomery, Alabama       -                -     $  933,873              -         -       (f)            (f)            (f)
                                         ==========     ==========    ===========  ========

Property in Which the
   Partnership  has a 71%
   Interest and has
   Invested in Under an
   Operating Lease

     IHOP Restaurant:
       Montgomery, Alabama       -       $  584,126              -              -           $584,126             (f)     $ 584,126
                                         ==========     ==========    ===========  ======== ========                     =========

<CAPTION>
                                                                                      Life on Which
                                                                                     Depreciation in
                                                            Date                      Latest Income
                                           Accumulated    of Con-          Date        Statement is
                                          Depreciation   struction       Acquired        Computed
                                          ------------  ----------      ---------   --------------
<S>                                       <C>           <C>             <C>         <C>
Properties the Partnership has
  Invested in Under Direct
  Financing Leases:

     Burger King Restaurant:
       Sierra Vista, Arizona                   (d)        1990            06/90          (d)

     Hardee's Restaurants:
       Akron, Ohio                             (d)        1990            11/90          (d)
       Dalton, Ohio                            (d)        1990            11/90          (d)
       Minerva, Ohio                           (d)        1990            11/90          (d)
       Orrville, Ohio                          (d)        1990            11/90          (d)
       Seville, Ohio                           (d)        1990            11/90          (d)
       Clinton Tennessee                       (d)        1992            09/92          (d)

     KFC Restaurants:
       Friendswood, Texas                      (d)        1990            06/90          (d)

     Popeyes Famous Fried
       Chicken Restaurant:
       Jacksonville, Florida                   (e)        1985            04/90          (e)

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

     IHOP Restaurant:
       Montgomery, Alabama                     (d)        1998            11/99          (d)

Property in Which the
   Partnership  has a 71%
   Interest and has
   Invested in Under an
   Operating Lease

     IHOP Restaurant:
       Montgomery, Alabama                      -         1998            11/99          (d)
</TABLE>

                                      F-4
<PAGE>

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

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

                               December 31, 1999

(a)  Transactions in real estate and accumulated depreciation during 1999, 1998
     and 1997, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                                               Cost                       Depreciation
                                                                           ------------------           ------------------
             <S>                                                           <C>                          <C>
             Properties the Partnership has Invested
               in Under Operating Leases:

                 Balance, December 31, 1996                                $       17,795,761           $        1,865,214
                 Dispositions                                                        (243,328)                          --
                 Depreciation expense                                                      --                      304,356
                                                                           ------------------           ------------------

                 Balance, December 31, 1997                                        17,552,433                    2,169,570
                 Depreciation expense                                                      --                      304,356
                                                                           ------------------           ------------------

                 Balance, December 31, 1998                                        17,552,433                    2,473,926
                 Dispositions                                                        (965,646)                    (165,272)
                 Depreciation expense                                                      --                      293,799
                                                                           ------------------           ------------------

                 Balance, December 31, 1999                                $       16,586,787           $        2,602,453
                                                                           ==================           ==================

             Property of Joint Venture in Which the
               Partnership has  a 51.10% Interest and
               has Invested in Under an Operating
               Lease:

                 Balance, December 31, 1996                                $          714,367           $           98,994
                 Depreciation expense                                                      --                       14,347
                                                                           ------------------           ------------------

                 Balance, December 31, 1997                                           714,367                      113,341
                 Depreciation expense                                                      --                       14,347
                                                                           ------------------           ------------------

                 Balance, December 31, 1998                                           714,367                      127,688
                 Disposition                                                         (714,367)                    (133,744)
                 Depreciation expense                                                      --                        6,056
                                                                           ------------------           ------------------

                 Balance, December 31, 1999                                $               --           $               --
                                                                           ==================           ==================
</TABLE>


                                      F-5

<PAGE>

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

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

                               December 31, 1999

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                                 Cost                 Depreciation
                                                                         -------------------      --------------------
<S>                                                                      <C>                      <C>
Properties of Joint Venture in Which the
  Partnership has an 18% Interest and has
  Invested in Under Operating Leases:

     Balance, December 31, 1996                                          $         6,131,281       $           800,698
     Depreciation expense                                                                 --                   152,137
                                                                         -------------------       -------------------
      Balance, December 31, 1997                                                   6,131,281                   952,835
     Depreciation expense                                                                 --                   152,137
                                                                         -------------------       -------------------
      Balance, December 31, 1998                                                   6,131,281                 1,104,972
     Depreciation expense                                                                 --                   152,137
                                                                          ------------------       -------------------
      Balance, December 31, 1999                                          $        6,131,281       $         1,257,109
                                                                          ==================       ===================

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

     Balance, December 31, 1996                                           $        1,114,384       $           111,118
     Depreciation expense                                                                 --                    26,389
                                                                          ------------------       -------------------
     Balance, December 31, 1997                                                    1,114,384                   137,507
     Depreciation expense                                                                 --                    26,388
                                                                          ------------------       -------------------
     Balance, December 31, 1998                                                    1,114,384                   163,895
     Depreciation expense                                                                 --                    26,389
                                                                          ------------------       -------------------
     Balance, December 31, 1999                                           $        1,114,384       $           190,284
                                                                          ==================       ===================
</TABLE>

                                      F-6

<PAGE>

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

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

                               December 31, 1999

<TABLE>
<CAPTION>

                                                                                                              Accumulated
                                                                              Cost                            Depreciation
                                                                      ----------------------              --------------------
<S>                                                                   <C>                                 <C>
Property in Which the Partnership has
  a 48.33%  Interest as Tenants-
  in-Common and has Invested in
  Under an Operating Lease:

     Balance, December 31, 1996                                       $              881,033              $              51,440
     Depreciation expense                                                                 --                             17,383
     Dispositions                                                                   (881,033)                           (68,823)
                                                                      ----------------------              ---------------------
     Balance, December 31, 1997                                                           --                                 --
     Depreciation expense                                                                 --                                 --
                                                                      ----------------------              ---------------------

     Balance, December 31, 1998                                                           --                                 --
     Depreciation expense                                                                 --                                 --
                                                                      ----------------------              ---------------------

     Balance, December 31, 1999                                       $                   --              $                  --
                                                                      ======================              =====================

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

     Balance, December 31, 1996                                       $                   --              $                  --
     Acquisitions                                                                    780,209                                 --
     Depreciation expense                                                                 --                             12,778
                                                                      ----------------------              ---------------------

     Balance, December 31, 1997                                                      780,209                             12,778
     Depreciation expense                                                                 --                             16,186
                                                                      ----------------------              ---------------------

     Balance, December 31, 1998                                                      780,209                             28,964
     Depreciation expense                                                                 --                             16,097
                                                                      ----------------------              ---------------------

     Balance, December 31, 1999                                       $              780,209              $              45,061
                                                                      ======================              =====================
</TABLE>

                                      F-7

<PAGE>

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

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

                               December 31, 1999

<TABLE>
<CAPTION>

                                                                                                              Accumulated
                                                                                    Cost                      Depreciation
                                                                         ------------------------      ------------------------
<S>                                                                      <C>                           <C>
Property of Joint Venture in Which the
  Partnership has a 53% Interest as
  Tenants-in-Common and has Invested
  in Under an Operating Lease:

     Balance, December 31, 1996                                          $                     --      $                     --
     Acquisitions                                                                       1,419,290                            --
     Depreciation expense                                                                      --                           949
                                                                         ------------------------      ------------------------

     Balance, December 31, 1997                                                         1,419,290                           949
     Depreciation expense                                                                      --                        38,501
                                                                         ------------------------      ------------------------

     Balance, December 31, 1998                                                         1,419,290                        39,450
     Depreciation expense                                                                      --                        38,501
                                                                         ------------------------      ------------------------

      Balance, December 31, 1999                                         $              1,419,290      $                 77,951
                                                                         ========================      ========================

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

     Balance, December 31, 1996                                          $                     --      $                     --
     Acquisitions                                                                       1,950,373                            --
     Depreciation expense                                                                      --                            89
                                                                         ------------------------      ------------------------

     Balance December 31, 1997                                                          1,950,373                            89
     Depreciation                                                                              --                        32,467
                                                                         ------------------------      ------------------------

     Balance December 31, 1998                                                          1,950,373                        32,556
     Depreciation                                                                              --                        32,467
                                                                         ------------------------      ------------------------

     Balance December 31, 1999                                           $              1,950,373      $                 65,023
                                                                         ========================      ========================
</TABLE>

                                      F-8

<PAGE>

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

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

                               December 31, 1999

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                                           Cost                   Depreciation
                                                     -------------------      -------------------
<S>                                                  <C>                      <C>
Property of Joint Venture in Which the
  Partnership has a 11% Interest and has
  Invested in Under an Operating Lease:

     Balance, December 31, 1998                        $              --        $              --
     Acquisitions                                              1,083,153                       --
     Depreciation expense (j)                                         --                       --
                                                     -------------------      -------------------

     Balance December 31, 1999                         $       1,083,153        $              --
                                                     ===================      ===================
Property in Which the Partnership has a
  71% Interest and has Invested in
  Under an Operating Lease:

     Balance, December 31, 1998                        $              --        $              --
     Acquisitions                                                584,126                       --
     Depreciation expense (d)                                         --                       --
                                                     -------------------      -------------------

     Balance December 31, 1999                         $         584,126        $              --
                                                     ===================      ===================
</TABLE>

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

(c)    As of December 31, 1999, the aggregate cost of the Properties owned by
       the Partnership and its consolidated joint venture, and the
       unconsolidated joint ventures (including the Properties held as tenants-
       in-common) for federal income tax purposes was $19,430,732 and
       $14,903,001, respectively.  All of the leases are treated as operating
       leases for federal income tax purposes.

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

 (e)   For financial reporting purposes, the lease for the land and building has
       been recorded as a direct financing lease.  The cost of the land and
       building has been included in net investment in direct financing leases;
       therefore, depreciation is not applicable.

(f)    For financial reporting purposes, certain components of the lease
       relating to land and building have been recorded as a direct financing
       lease.  Accordingly, costs relating to these components of this lease are
       not shown.

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

                                      F-9

<PAGE>

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

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

                               December 31, 1999


(h)    The tenant of this Property, Restaurant Management Services, Inc., has
       subleased this Property to a local, independent restaurant.  Restaurant
       Management Services, Inc. continues to be responsible for complying with
       all the terms of the lease agreement and is continuing to pay rent on
       this Property, subject to certain rent concessions, to the Partnership.

(i)    The building located on this Property was demolished in 1995; therefore,
       depreciation is not applicable.

(j)    Scheduled for completion in 2000.

(k)    Property was not placed in service as of December 31, 1999; therefore no
       depreciation was taken.

                                     F-10

<PAGE>

                                 EXHIBIT INDEX

Exhibit Number
--------------

   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 4.1 to Registration Statement No. 33-
          31482 on Form S-11 and incorporated herein by reference.)

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

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

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

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

   27     Financial Data Schedule (Filed herewith.)