<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C. 20549
                                  FORM 10-K/A
                                Amendment No. 1
(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, 1998
                                           -----------------------

                                      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 0-24095

                          CNL INCOME FUND XVIII, LTD.
            (Exact name of registrant as specified in its charter)

               Florida                                59-3295394
      (State or other jurisdiction of   (I.R.S. Employer Identification No.)
      incorporation or organization)

                             400 East South Street
                            Orlando, Florida  32801
         (Address of principal executive offices, including zip code)

      Registrant's telephone number, including area code: (407) 650-1000

          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 partner interest ($10 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 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 value for such Units. Each Unit was originally sold at $10 per Unit.

                     DOCUMENTS INCORPORATED BY REFERENCE:
                                     None
<PAGE>

       The Form 10-K of CNL Income Fund XVIII, Ltd. for the year ended December
31, 1998 is being amended to revise the disclosure under Item 1. Business, Item
2. Properties, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 8. Financial Statements and
Supplementary Data.


                                    PART I

Item 1. Business

       CNL Income Fund XVIII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on February 10, 1995. 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 September 20, 1996, the
Partnership offered for sale up to $35,000,000 of limited partnership interests
(the "Units") (3,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
August 11, 1995. The offering terminated on February 6, 1998, at which date the
maximum offering proceeds of $35,000,000 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, family-style and casual dining
restaurant chains (the "Restaurant Chains"). As of December 31, 1998, net
proceeds to the Partnership from its offering of Units, after deduction of
organizational and offering expenses, totalled $30,800,000. As of December 31,
1998, the Partnership had invested approximately $29,859,000 of the proceeds
described above to acquire 24 Properties (which included one Property owned by a
joint venture in which the Partnership is a co-venturer) and to pay acquisition
fees and certain acquisition expenses, leaving approximately $941,000 of
offering proceeds available for investment in an additional Property. In
February 1999, the Partnership invested in a joint venture arrangement,
Portsmouth Joint Venture, with an affiliate of the General Partners to hold and
purchase one Property and used the remaining amounts to establish a working
capital reserve for Partnership purposes. The Properties are generally leased on
a triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.

       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").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. At a special meeting of the partners that is expected to be held in
the fourth quarter of 1999, Limited Partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the Limited Partners at the special
meeting approve the Merger, APF will own the Properties and other assets of the
Partnership.

       In the event that the Limited Partners vote against the Merger, 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.

Description of Leases

       The leases of the Properties owned by the Partnership as of December 31,
1998, provide for initial terms ranging from 15 to 26 years (the average being
18 years) and expire between 2012 and 2023. All leases are generally on a
triple-net basis, with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.

                                       2
<PAGE>

The leases for the Properties that were operational as of December 31, 1998,
provide for minimum base annual rental payments (payable in equal monthly
installments) ranging from approximately $63,200 to $243,600. The majority of
the leases provide for percentage rent based on sales in excess of a specified
amount. In addition, the majority of the leases provide that, commencing in
specified lease years (generally the sixth lease year), the annual base rent
required under the terms of the lease will increase.

       Generally, the leases provide for two to five five-year renewal options
subject to the same terms and conditions as the initial lease. Certain lessees
also have been granted options to purchase the Properties after a specified
portion of the lease term has elapsed. The option purchase price is equal to the
Partnership's original cost of the Property (including acquisition costs), plus
a specified percentage or the Property's fair market value at the time the
purchase option is exercised, whichever is greater. Fair market value will be
determined through an appraisal by an independent appraisal firm.

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

       In October 1998, three Boston Market tenants, Boston Chicken, Inc.,
Finest Foodservice, L.L.C., and WMJ Texas, Inc., filed for bankruptcy and
rejected the lease relating to one of their three leases and ceased making
rental payments to the Partnership. The Partnership will not recognize any
rental and earned income from this Property until a new tenant for the Property
is located, or until the Property is sold and the proceeds from such a sale are
reinvested in an additional Property. As of March 11, 1999, the Partnership has
continued receiving rental payments relating to the two non-rejected leases.
While the tenants have not rejected or affirmed the remaining two leases, there
can be no assurance that some or all of the leases will not be rejected in the
future. The lost revenues resulting from the one lease that was rejected, as
described above, and the possible rejection of the remaining two leases could
have an adverse effect on the results of operations of the Partnership if the
Partnership is unable to re-lease these Properties in a timely manner. The
General Partners are currently seeking either new tenants or purchasers for the
rejected Property.

       In addition, in February 1999, the Partnership entered into a joint
venture arrangement, Portsmouth Joint Venture, with an affiliate of the General
Partners, to purchase and hold one restaurant Property. The lease terms for this
Property are substantially the same as the Partnership's other leases as
described above, in the first three paragraphs of this section.

Major Tenants

       During 1998, two lessees of the Partnership, Golden Corral Corporation
and Foodmaker, Inc., each contributed more than ten percent of the Partnership's
total rental income. As of December 31, 1998, Golden Corral Corporation and
Foodmaker, Inc. were each the lessee under leases relating to four restaurants.
It is anticipated that based on the minimum rental payments required by the
leases, that each of these lessees will continue to contribute more than ten
percent of the Partnership's total rental income in 1999. In addition, three
Restaurant Chains, Boston Market, Golden Corral Family Steakhouse Restaurants
("Golden Corral"), and Jack in the Box, each accounted for more than ten percent
of the Partnership's total rental income for 1998. During 1998, three tenants of
Boston Market properties filed for bankruptcy, as described above. In 1999, it
is anticipated that Golden Corral and Jack in the Box each will contribute more
than ten percent of the Partnership's rental income to which the Partnership is
entitled under the terms of the leases. Any failure of such lessees or
Restaurant Chains could materially adversely affect the Partnership's income if
the Partnership is unable to re-lease the Properties in a timely manner, as
described above. No single tenant or group of affiliated tenants lease
Properties with an aggregate carrying value in excess of 20 percent of the total
assets of the Partnership.

Joint Venture Arrangements

       In August 1998, the Partnership entered into a joint venture arrangement,
Columbus Joint Venture, with CNL Income Fund XII, Ltd. and CNL Income Fund XVI,
Ltd., affiliates of the General Partners, to construct and hold one Property.
Each of the affiliates is a limited partnership organized pursuant to the laws
of the State of Florida. The joint venture arrangement provides for the
Partnership and its joint venture partners to share in all costs and benefits

                                       3
<PAGE>

associated in the joint venture in proportion to each partner's percentage
interest in the joint venture. The Partnership has a 39.93% interest in Columbus
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.

       The joint venture has an initial term of 20 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of any of the joint venturers 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 its joint venture partners
to dissolve the joint venture.

       The Partnership shares management control equally with affiliates of the
General Partners for the joint venture. The joint venture agreement restricts
each venturer's ability to sell, transfer or assign its joint venture interest
without first offering it for sale to its joint venture partners, 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 Columbus Joint Venture is distributed
39.93% to the Partnership and the balance is distributed to each of the joint
venture partners in accordance with its respective percentage interest 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.

       In addition, in February 1999, the Partnership entered into a joint
venture arrangement, Portsmouth Joint Venture, with CNL Income Fund XI, Ltd., an
affiliate of the General Partners, to purchase and hold one restaurant Property.
The joint venture agreement provides for the Partnership and its joint venture
partner to share in all costs and benefits associated with the joint venture in
proportion to each partner's percentage interest in the joint venture. The
Partnership owns 57.2% interest in the profits and losses of the joint venture.
The affiliate is a limited partnership organized pursuant to the laws of the
State of Florida.

       The use of joint venture 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
arrangements also provides the Partnership with increased diversification of its
portfolio among a greater number of properties.

Management Services

       CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to the 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, but not in excess of competitive fees for comparable services.

       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.

Employees

       The Partnership has no employees. The officers of CNL Realty Corporation
and the officers and employees 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 Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.

                                       4
<PAGE>

Item 2. Properties

       As of December 31, 1998, the Partnership owned 24 Properties. Of the 24
Properties, 23 are owned by the Partnership in fee simple and one is owned
through a joint venture arrangement. See Item 1. Business - Joint Venture
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. This schedule was filed with the Partnership's Form 10-K for the year
ended December 31, 1998.

Description of Properties

       Land. As of December 31, 1998, the Partnership's Property sites ranged
from approximately 24,400 to 120,400 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, 1998 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with the Partnership's Form 10-K for the year ended December
31, 1998.

<TABLE>
<CAPTION>
             State                                     Number of Properties
             -----                                     --------------------
             <S>                                       <C>
             Arizona                                            1
             California                                         2
             Florida                                            2
             Georgia                                            1
             Illinois                                           1
             Kentucky                                           1
             Maryland                                           1
             Minnesota                                          1
             North Carolina                                     3
             Nevada                                             1
             New York                                           1
             Ohio                                               2
             Tennessee                                          1
             Texas                                              6
                                                           ----------
             TOTAL PROPERTIES:                                 24
                                                           ==========
</TABLE>

       Buildings. The Properties owned by the Partnership as of December 31,
1998, currently include a building that is one of a Restaurant Chain's approved
designs. The buildings generally are rectangular and constructed from various
combinations of stucco, steel, wood, brick and tile. Building sizes range from
approximately 2,200 to 9,700 square feet. All buildings on Properties acquired
by the Partnership 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, 1998, the Partnership had no plans for renovation of the
Properties. Depreciation expense is computed for buildings and improvements
using the straight line method using a depreciable life of 40 years for federal
income tax purposes. As of December 31, 1998, the aggregate cost of the
Properties owned by the Partnership and joint ventures for federal income tax
purposes was $27,560,145 and $874,700, respectively.

                                       5
<PAGE>

       The following table lists the Properties owned by the Partnership as of
December 31, 1998 by Restaurant Chain.

<TABLE>
<CAPTION>
             Restaurant Chain                          Number of Properties
             ----------------                          --------------------
             <S>                                       <C>
             Arby's                                             2
             Bennigan's                                         1
             Black-eyed Pea                                     1
             Boston Market                                      4
             Burger King                                        1
             Chevy's Fresh Mex                                  1
             Golden Corral                                      5
             Ground Round                                       1
             IHOP                                               2
             Jack in the Box                                    4
             On the Border                                      1
             Wendy's                                            1
                                                           ----------
             TOTAL PROPERTIES:                                 24
                                                           ==========
</TABLE>

       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, family-style and casual dining 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, 1998, 96% of the Properties were occupied. At December
31, 1997 and 1996 all of the Properties were occupied. The following is a
schedule of the average annual rent for each of the years ended December 31:

<TABLE>
<CAPTION>
                                                                            February 10, 1995
                                                                           (date of inception)
                                  For the Year Ended December 31:                through
                                1998          1997          1996 (2)        December 31, 1995
                            ------------  -------------  -------------   ----------------------
  <S>                       <C>           <C>            <C>             <C>
  Rental Revenues (1)        $2,953,285     $1,290,621       $ 1,374          $       --
  Properties                         24             22             2                  --
  Average Rent per Unit      $  123,054     $   58,665       $   687          $       --
</TABLE>

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

(2)    Operations did not commence until October 12, 1996, the date following
       the date on which the Partnership received the minimum offering proceeds
       of $1,500,000, and such proceeds were released from escrow. The

                                       6
<PAGE>

       Partnership acquired two Properties in December 1998, of which only one
       was operational as of December 31, 1998.

       The following is a schedule of lease expirations for leases in place as
of December 31, 1998 for each of the ten years beginning with 1999 and
thereafter.

<TABLE>
<CAPTION>
                                                                              Percentage of
                                      Number           Annual Rental          Gross Annual
             Expiration Year        of Leases             Revenues            Rental Income
            -----------------     --------------     ------------------     ------------------
            <S>                   <C>                <C>                    <C>
              1999                        --                      --                     --
              2000                        --                      --                     --
              2001                        --                      --                     --
              2002                        --                      --                     --
              2003                        --                      --                     --
              2004                        --                      --                     --
              2005                        --                      --                     --
              2006                        --                      --                     --
              2007                        --                      --                     --
              2008                        --                      --                     --
              Thereafter                  23               2,937,747                 100.00%
                                      ----------         -------------         --------------
              Totals (1)                  23               2,937,747                 100.00%
                                      ==========         =============         ==============
</TABLE>

(1)    Excludes one Property which was vacant at December 31, 1998.

       Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants, as of December 31, 1998 (See Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Description of Leases.

       Golden Corral Corporation leases four Golden Corral restaurants. The
initial term of each lease is 15 years (expiring in 2012 to 2013) and the
average minimum base annual rent is approximately $164,400 (ranging from
approximately $156,700 to $178,200).

       Foodmaker, Inc. leases four Jack in the Box restaurants. The initial term
of each lease is 18 years (expiring in 2015) and the average minimum base annual
rent is approximately $112,100 (ranging from approximately $77,900 to $132,200).

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.

                                    PART II

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

       The Partnership was organized on February 10, 1995, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurants were
to be constructed, which are leased primarily to operators of selected national
and regional fast-food, family-style and casual dining 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, 1998, the Partnership owned 24 Properties, either directly or
through a joint venture arrangement.

                                       7
<PAGE>

Capital Resources

       On September 20, 1996, the Partnership commenced an offering to the
public of up to 3,500,000 Units of limited partnership interest pursuant to a
registration statement on Form S-11 under the Securities Act of 1933, as
amended, effective August 11, 1995. The Partnership's offering of Units
terminated on February 6, 1998, at which time the maximum proceeds of
$35,000,000 (3,500,000 Units) had been received from investors. The Partnership,
therefore, will derive no additional capital resources from the offering.

       As of December 31, 1998, net proceeds to the Partnership from its
offering of Units, after deduction of organizational and offering expenses,
totalled $30,800,000. During 1996, the Partnership invested or committed for
investment approximately $2,960,800 of such proceeds to acquire two Properties
and to pay acquisition fees and certain acquisition expenses. During 1997, the
Partnership completed construction of the Property under construction in 1996
and acquired 20 additional Properties (one of which was under construction as of
December 31, 1997). During 1998, the Partnership completed construction of the
Property under construction as of December 31, 1997, acquired one additional
Property and entered into one joint venture arrangement, Columbus Joint Venture.
As a result of the above transactions, as of December 31, 1998, the Partnership
had invested approximately $29,859,000 of the net proceeds in 24 Properties,
including one Property owned by a joint venture in which the Partnership is a
co-venturer, and to pay acquisition fees and miscellaneous acquisition expenses,
leaving approximately $941,000 of net offering proceeds available for investment
in Properties. As of December 31, 1998, the Partnership had paid $1,575,000 in
acquisition fees to an affiliate of the General Partners.

       In February 1999, the Partnership invested in a joint venture
arrangement, Portsmouth Joint Venture, with an affiliate of the General
Partners, to purchase and hold one restaurant property and used the remaining
amounts to establish a working capital reserve for Partnership purposes.

       Currently, the Partnership's primary source of capital is cash from
operations (which includes cash received from tenants, interest received and
distributions from joint venture, less cash paid for expenses). Cash from
operations was $2,831,738, $1,361,756, and $27,146 for the years ended December
31, 1998, 1997, and 1996, respectively. The increase in cash from operations for
the year ended December 31, 1998 and 1997, each as compared to the previous
year, is primarily a result of changes in income and expenses as described in
"Results of Operations" below and changes in the Partnership's working capital.

       None of the Properties owned or to be acquired by the Partnership, or the
joint venture in which the Partnership owns an interest, is or may be
encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners or under arrangements that
would make the Limited Partners liable to creditors of the Partnership. The
General Partners further have represented that they will use their reasonable
efforts to structure any borrowing so that it will not constitute "acquisition
indebtedness" for federal income tax purposes and also will limit the
Partnership's outstanding indebtedness to three percent of the aggregate
adjusted tax basis of its Properties. Affiliates of the General Partners from
time to time incur certain expenses on behalf of the Partnership for which the
Partnership reimburses the affiliates without interest.

       Until Properties are acquired by the Partnership, all Partnership
proceeds are held in short-term, highly liquid investments such as demand
deposit accounts at commercial banks, CDs and money market accounts with less
than a 30-day maturity date, which the General Partners believe to have
appropriate safety of principal. This investment strategy provides high
liquidity in order to facilitate the Partnership's use of these funds to acquire
Properties at such time as Properties suitable for acquisition are located. At
December 31, 1998, the Partnership had $1,839,613 invested in such short-term
investments, as compared to $4,143,327 at December 31, 1997. The decrease in the
amount invested in short-term investments is primarily a result of the payment
during 1998, of costs relating to the Property that was under construction at
December 31, 1997, the acquisition of additional Property during 1998 and the
acquisition of an interest in a joint venture arrangement during 1998. As of
December 31, 1998, the average interest rate earned on the rental income
deposited in demand deposit accounts at commercial banks was approximately five
percent annually. The funds remaining at December 31, 1998 will be used to
purchase an additional Property, to pay acquisition costs, to pay distributions
and other liabilities and to meet the Partnership's working capital and other
needs.

                                       8
<PAGE>

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 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 of the leases for the Partnership's Properties
are generally on a triple-net basis, it is not anticipated that a permanent
reserve for maintenance and repairs is necessary 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 to cause the Partnership to maintain reserves if, in
their discretion, they determine such reserves are required to meet the
Partnership's working capital needs.

       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 on cash from operations, the Partnership declared
distributions to the Limited Partners of $2,657,764, $1,310,885, and $57,846,
for the years ended December 31, 1998, 1997, and 1996, respectively. This
represents distributions of $0.76, $0.57, and $0.11 per Unit, for the years
ended December 31, 1998, 1997, and 1996, respectively, based on the weighted
average number of Units outstanding during the period the Partnership was
operational. No amounts distributed or to be distributed to the Limited Partners
for the years ended December 31, 1998, 1997, and 1996, 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,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.

       During the years ended December 31, 1997 and 1996, affiliates of the
General Partners incurred on behalf of the Partnership $211,216 and $285,858,
respectively, for certain organizational and offering expenses. In addition,
during 1998, 1997, and 1996, affiliates incurred $35,842, $134,138, and $18,036,
respectively, for certain acquisition expenses and $89,969, $44,166, and $893,
respectively, for certain operating expenses. As of December 31, 1998 and 1997,
the Partnership owed $32,775 and $118,231, respectively, to related parties for
such amounts, fees and other reimbursements. As of March 11, 1999, the
Partnership had reimbursed the affiliates all such amounts. Other liabilities,
including distributions payable, decreased to $811,345 at December 31, 1998, as
compared to $1,842,444 at December 31, 1997, primarily as a result of the
payment during the year ended December 31, 1998, of construction costs accrued
for certain Properties at December 31, 1997. The decrease is partially offset by
an increase in distributions payable to the Limited Partners. The General
Partners believe that the Partnership has sufficient cash on hand to meet its
current working capital needs.

Long-Term Liquidity

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

Results of Operations

       No significant operations commenced until the Partnership received and
released from escrow the minimum offering proceeds of $1,500,000 on October 11,
1996.

       The Partnership owned and leased two wholly owned Properties in 1996 and
22 wholly owned Properties in 1997. During 1998, the Partnership acquired one
additional wholly owned Property and entered into a joint venture arrangement to
construct and hold one restaurant Property. As of December 31, 1998, the
Partnership owned, either

                                       9
<PAGE>

directly or through a joint venture arrangement, 24 Properties, which are
generally subject to long-term triple-net leases. The leases of the Properties
provide for minimum base annual rental payments (payable in monthly
installments) ranging from approximately $63,200 to $243,600. The majority of
the leases provide for percentage rent based on sales in excess of a specified
amount. In addition, the majority of the leases provide that, commencing in
specified lease years (generally the sixth lease year), the annual base rent
required under the terms of the lease will increase. For a further description
of the Partnership's leases and Properties, see Item 1. Business - Leases and
Item 2. Properties.

       During the years ended December 31, 1998, 1997, and 1996, the Partnership
earned $2,953,285, $1,290,621, and $1,373, respectively, in rental income from
operating leases and earned income from direct financing leases. The increase in
rental and earned income during 1998 and 1997, each as compared to the previous
year, is primarily attributable to the acquisition of additional Properties
subsequent to December 31, 1997 and 1996, respectively, and the fact that
Properties acquired during the years ended December 31, 1997 and 1996 were
operational for the full year in 1997, respectively.

       During the year ended December 31, 1998, two lessees of the Partnership,
Golden Corral Corporation and Foodmaker, Inc., each contributed more than ten
percent of the Partnership's total rental income. As of December 31, 1998,
Golden Corral Corporation and Foodmaker, Inc. were each the lessee under leases
relating to four restaurants. It is anticipated that, based on the minimum
rental payments required by the leases, these lessees each will continue to
contribute more than ten percent of the Partnership's total rental income in
1999. In addition, during the year ended December 31, 1998, three Restaurant
Chains, Golden Corral, Jack in the Box, and Boston Market, each accounted for
more than ten percent of the Partnership's total rental income. During 1998,
three tenants of Boston Market Properties filed for bankruptcy, as described
below. In 1999, it is anticipated that these three Restaurant Chains each will
continue to account for more than ten percent of the total rental income to
which the Partnership is entitled under the terms of the leases. Any failure of
such lessees or Restaurant Chains could materially adversely affect the
Partnership's income if the Properties are not re-leased in a timely manner.

       In 1998, the tenants of three Boston Market Properties, Boston Chicken,
Inc., Finest Foodservice, L.L.C., and WMJ Texas, Inc., filed for bankruptcy and
rejected the lease relating to one of their three Properties. The Partnership
will not recognize any rental and earned income from this Property until a new
tenant for the Property is located, or until the Property is sold and the
proceeds from such a sale are reinvested in an additional Property. As of March
11, 1999, the Partnership has continued receiving rental payments relating to
the two non-rejected leases. While the tenants have not rejected or affirmed the
remaining two leases, there can be no assurance that some or all of the leases
will not be rejected in the future. The lost revenues resulting from the one
lease that was rejected, as described above, and the possible rejection of the
remaining two leases could have an adverse effect on the results of operations
of the Partnership if the Partnership is unable to re-lease these Properties in
a timely manner. The General Partners are currently seeking either a new tenant
or purchaser for the rejected Property.

       During the years ended December 31, 1998, 1997, and 1996, the Partnership
earned $144,472, $162,621, and $30,241 in interest and other income. The
decrease in interest and other income during 1998, as compared to 1997, is
primarily attributable to the decrease in the amount of funds invested in short-
term liquid investments due to the payment during 1998, of construction costs
relating to the Property that was under construction at December 31, 1997, the
acquisition of an additional property in 1998 and investing in a joint venture
arrangement during 1998. The increase in interest and other income during 1997,
as compared to 1996, is primarily attributable to the increase in the amount of
funds invested in short-term liquid investments as a result of additional
Limited Partner capital contributions during 1997.

       Operating expenses, including depreciation and amortization expense, were
$597,969, $298,482, and $4,704 for the years ended December 31, 1998, 1997, and
1996. The increase in operating expenses during 1998 and 1997, each as compared
to the previous year, is primarily attributable to an increase in depreciation
expense as the result of the acquisition of additional Properties during 1998
and 1997, and the fact that Properties acquired during the years ended December
31, 1997 and 1996 were operational for the full year in 1998 and 1997,
respectively. Operating expenses also increased during 1998 and 1997, each as
compared to the previous year, as a result of an increase in (i) administrative
expenses for services related to accounting; financial, tax and regulatory
compliance and reporting; lease and loan compliance; limited partner
distributions and reporting; and investor relations (ii) management fees as a
result of the increase in rental revenues and (iii) state taxes as a result of
the Partnership incurring additional taxes relating to the filing of various
state tax returns during 1997 and 1998.

                                       10
<PAGE>

       The increase in operating expenses for 1998, as compared to 1997, is also
partially due to the fact that the Partnership incurred $15,522 in transaction
costs related to the General Partners retaining financial and legal advisors to
assist them in evaluating and negotiating the proposed Merger with APF, as
described below. If the Limited Partners reject the Merger, the Partnership will
bear the portion of the transaction costs based upon the percentage of "For"
votes and the General Partners will bear the portion of such transaction costs
based upon the percentage of "Against" votes and abstentions.

       During the year ended December 31, 1998, the Partnership established an
allowance for loss on land of $197,466 for financial reporting purposes relating
to the Property in Minnetonka, Minnesota. The tenant of this Boston Market
Property declared bankruptcy and rejected the lease relating to this Property.
The loss represents the difference between the Property's carrying value at
December 31, 1998 and the current estimate of net realizable value. No such
allowance was established during the years ended December 31, 1997 and 1996.

       In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities." The Statement, which is effective for fiscal years beginning after
December 15, 1998, requires that an entity expense the costs of start-up
activities and organization costs as they are incurred. The Partnership will
adopt this Statement in 1999. The General Partners believe that adoption of this
Statement will not have a material effect on the Partnership's financial
position or results of operations.

       The Partnership's leases as of December 31, 1998, and the leases the
Partnership expects to enter into, are or are expected to be on a triple-net
basis and contain provisions that management believes will 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. 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.

Proposed Merger

       On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with APF, pursuant to which the Partnership would be merged with and into
a subsidiary of APF. As consideration for the Merger, APF has agreed to issue
3,299,149 APF Shares. In order to assist the General Partners in evaluating the
proposed merger consideration, the General Partners retained Valuation
Associates, a nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation Associates'
appraisal, the fair value of the Partnership's property portfolio and other
assets was $32,493,818 as of December 31, 1998. The APF Shares are expected to
be listed for trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at the
option of the former Limited Partners. At a special meeting of the Limited
Partners that is expected to be held in the fourth quarter of 1999, Limited
Partners holding in excess of 50% of the Partnership's outstanding limited
partnership interests must approve the Merger prior to consummation of the
transaction. If the Limited Partners at the special meeting approve the Merger,
APF will own the Properties and other assets of the Partnership. The General
Partners intend to recommend that the Limited Partners of the Partnership
approve the Merger. In connection with their recommendation, the General
Partners will solicit the consent of the Limited Partners at the special
meeting.

Year 2000 Readiness Disclosure

Overview of Year 2000 Problem

       The year 2000 problem concerns the inability of information and non-
information technology systems to properly recognize and process date sensitive
information beyond January 1, 2000. The failure to accurately recognize the year
2000 could result in a variety of problems from data miscalculations to the
failure of entire systems.

                                       11
<PAGE>

Information and Non-Information Technology Systems

       The Partnership does not have any information or non-information
technology systems. The General Partners and their affiliates provide all
services requiring the use of information and non-information technology systems
pursuant to a management agreement with the Partnership. The information
technology system of the General Partners' affiliates consists of a network of
personal computers and servers built using hardware and software from mainstream
suppliers. The non-information technology systems of the affiliates are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The affiliates
have no internally generated programmed software coding to correct, because
substantially all of the software utilized by the affiliates is purchased or
licensed from external providers. The maintenance of non-information technology
systems at the Partnership's restaurant properties is the responsibility of the
tenants of such properties in accordance with the terms of the Partnership's
leases.

The Y2K Team

       In early 1998, the General Partners and their affiliates formed a Year
2000 committee (the "Y2K Team") for the purpose of identifying, understanding
and addressing the various issues associated with the year 2000 problem. The Y2K
Team consists of the General Partners and members from their affiliates,
including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management.

Assessing Year 2000 Readiness

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

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

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

       As of September 15, 1999, the Y2K Team had received responses from
approximately 60% of the third parties. All of the responses were in writing. Of
the third parties responding, all indicated that they are currently year 2000
compliant or will be year 2000 compliant prior to the year 2000. Although the
Y2K Team continues to receive positive responses from the companies with which
the Partnership has third party relationships regarding their year 2000
compliance, the General Partners cannot be assured that the third parties have
adequately considered the impact of the year 2000.

       In addition, the Y2K Team has requested documentation from the
Partnership's tenants. The Y2K Team is in the process of evaluating the
responses and expects to complete this process by October 31, 1999. The
Partnership has also instituted a policy of requiring any new tenants to
indicate that their systems are year 2000 compliant or are expected to be year
2000 compliant prior to the year 2000.

Achieving Year 2000 Compliance

       The Y2K Team has identified and completed upgrades of the hardware
equipment that was not year 2000 compliant. In addition, the Y2K Team has
identified and completed upgrades of the software applications that were

                                       12
<PAGE>

not year 2000 compliant, although the General Partners cannot be assured that
the upgrade solutions provided by the vendors have addressed all possible year
2000 issues.

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

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

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

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

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

Risk of Inability of Transfer Agent to Accurately Maintain Partnership Records

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

       The Y2K Team has developed a contingency plan pursuant to which the
General Partners and their affiliates would maintain the records of the
Partnership manually, in the event that the systems of the transfer agent are
not year 2000 compliant. The General Partners and their affiliates would have to
allocate resources to internally perform the functions of the transfer agent.
The General Partners do not anticipate that the additional cost of these
resources would have a material impact on the results of operations of the
Partnership.

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

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

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

                                       13
<PAGE>

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

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

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

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

Item 8. Financial Statements and Supplementary Data

                                       14
<PAGE>

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

                                   CONTENTS
                                   --------

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Accountants                                            16

Financial Statements:

 Balance Sheets                                                              17

 Statements of Income                                                        18

 Statements of Partners' Capital                                             19

 Statements of Cash Flows                                                    20

 Notes to Financial Statements                                               22
</TABLE>

                                       15
<PAGE>

                       Report of Independent Accountants
                       ---------------------------------



To the Partners
CNL Income Fund XVIII, 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 XVIII, Ltd. (a Florida limited partnership) at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. 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 statements. These financial
statements and financial statement 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 generally accepted
auditing standards 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
January 21, 1999, except for Note 11 for which the date is March 11, 1999.

                                       16
<PAGE>

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

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


<TABLE>
<CAPTION>
                                                                      December 31,
                                                                  1998            1997
                                                               ------------   ------------
<S>                                                            <C>            <C>
               ASSETS
               ------
Land and buildings on operating leases, less
   accumulated depreciation and allowance
   for loss on land                                             $22,876,012    $21,311,062
Net investment in direct financing leases                         5,937,312      6,004,878
Investment in joint venture                                         160,395             --
Cash and cash equivalents                                         1,839,613      4,143,327
Receivables, less allowance for doubtful
   accounts of $62,189 and $35                                           --         68,000
Prepaid expenses                                                      3,653             --
Organization costs, less accumulated
   amortization of $4,411 and $2,411                                  5,589          7,589
Accrued rental income                                               230,999        111,867
Other assets                                                         59,044        160,532
                                                               ------------   ------------
                                                                $31,112,617    $31,807,255
                                                               ============   ============


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

Accounts payable                                                $     2,558    $    10,456
Accrued construction costs payable                                       --      1,108,627
Distributions payable                                               700,000        510,636
Due to related parties                                               32,775        118,231
Rents paid in advance                                                 7,351         28,277
Deferred rental income                                              101,436        184,448
                                                               ------------   ------------
       Total liabilities                                            844,120      1,960,675

Partners' capital                                                30,268,497     29,846,580
                                                               ------------   ------------

                                                                $31,112,617    $31,807,255
                                                               ============   ============
</TABLE>

                See accompanying notes to financial statements.

                                       17
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                              Year Ended December 31,

                                                          1998            1997            1996
                                                      ------------    ------------     -----------
<S>                                                   <C>             <C>              <C>
Revenues:

 Rental income from operating leases                   $2,396,215      $  950,316        $  1,373
 Earned income from direct financing
   leases                                                 557,070         340,305              --
 Interest and other income                                144,472         162,621          30,241
                                                      ------------    ------------     -----------
                                                        3,097,757       1,453,242          31,614
                                                      ------------    ------------     -----------
Expenses:
 General operating and administrative                     145,661         123,708           3,980
 Professional services                                     25,670          20,429              --
 Management fees to related party                          28,038          11,842              12
 State and other taxes                                      8,605             424              --
 Depreciation and amortization                            374,473         142,079             712
 Transaction costs                                         15,522              --              --
                                                      ------------    ------------     -----------
                                                          597,969         298,482           4,704
                                                      ------------    ------------     -----------

Income Before Provision for Loss
 on Land                                                2,499,788       1,154,760          26,910

Provision for Loss on Land                               (197,466)             --              --
                                                      ------------    ------------     -----------

Net Income                                             $2,302,322      $1,154,760        $ 26,910
                                                      ============    ============     ===========

Allocation of Net Income:
 General partners                                      $   (1,582)     $   (1,421)       $     (7)
 Limited partners                                       2,303,904       1,156,181          26,917
                                                      ------------    ------------     -----------

                                                       $2,302,322      $1,154,760        $ 26,910
                                                      ============    ============     ===========

Net Income Per Limited Partner Unit                    $     0.66      $     0.51        $   0.05
                                                      ============    ============     ===========

Weighted Average Number of
 Limited Partner Units Outstanding                      3,495,278       2,279,801         503,436
                                                      ============    ============     ===========
</TABLE>

                See accompanying notes to financial statements.

                                       18
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

<TABLE>
<CAPTION>
                                                General Partners                            Limited Partners
                                           ---------------------------   ---------------------------------------------------------
                                                           Accumulated                                   Accumulated   Syndication
                                           Contributions     Earnings    Contributions   Distributions     Earnings       Costs
                                           -------------   -----------   -------------   -------------   -----------   -----------
<S>                                        <C>             <C>           <C>             <C>             <C>           <C>
Balance, December 31, 1995                        $1,000      $     --     $        --     $        --    $       --   $        --

 Contributions from limited partners                  --            --       8,421,815              --            --            --
 Distributions to limited partners
   ($0.11 per limited partner unit)                   --            --              --         (57,846)           --
 Syndication costs                                    --            --              --              --            --    (1,395,666)
 Net income                                           --            (7)             --              --        26,917            --
                                           -------------   -----------   -------------   -------------   -----------   -----------

Balance, December 31, 1996                         1,000            (7)      8,421,815         (57,846)       26,917    (1,395,666)

 Contributions from limited partners                  --            --      25,723,944              --            --            --
 Distributions to limited partners
   ($0.57 per limited partner unit)                   --            --              --      (1,310,885)           --
 Syndication costs                                    --            --              --              --            --    (2,717,452)
 Net income                                           --        (1,421)             --              --     1,156,181            --
                                           -------------   -----------   -------------   -------------   -----------   -----------

Balance, December 31, 1997                         1,000        (1,428)     34,145,759      (1,368,731)    1,183,098    (4,113,118)

 Contributions from limited partners                  --            --         854,241              --            --            --
 Distributions to limited partners
   ($0.76  per limited partner unit)                  --            --              --      (2,657,764)           --
 Syndication costs                                    --            --              --              --            --       (76,882)
 Net income                                           --        (1,582)             --              --     2,303,904            --
                                           -------------   -----------   -------------   -------------   -----------   ------------

Balance, December 31, 1998                        $1,000      $ (3,010)    $35,000,000     $(4,026,495)   $3,487,002   $(4,190,000)
                                           =============   ===========   =============   =============   ===========   ============

<CAPTION>
                                              Total
                                           ------------
<S>                                        <C>
Balance, December 31, 1995                  $     1,000

 Contributions from limited partners          8,421,815
 Distributions to limited partners
   ($0.11 per limited partner unit)             (57,846)
 Syndication costs                           (1,395,666)
 Net income                                      26,910
                                           ------------

Balance, December 31, 1996                    6,996,213

 Contributions from limited partners         25,723,944
 Distributions to limited partners
   ($0.57 per limited partner unit)          (1,310,885)
 Syndication costs                           (2,717,452)
 Net income                                   1,154,760
                                           ------------

Balance, December 31, 1997                   29,846,580

 Contributions from limited partners            854,241
 Distributions to limited partners
   ($0.76  per limited partner unit)         (2,657,764)
 Syndication costs                              (76,882)
 Net income                                   2,302,322
                                           ------------

Balance, December 31, 1998                  $30,268,497
                                           ============
</TABLE>

                See accompanying notes to financial statements.

                                       19
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                   1998               1997                1996
                                                              --------------     ---------------     ---------------
<S>                                                           <C>                <C>                 <C>
Increase (Decrease) in Cash and Cash
 Equivalents:
   Cash Flows from Operating Activities:
     Cash received from tenants                                  $ 2,884,620        $  1,353,968         $        --
     Distributions from joint venture                                  5,630                  --
     Interest received                                               141,408             161,826              30,241
     Cash paid for expenses                                         (199,920)           (154,038)             (3,095)
                                                              --------------     ---------------     ---------------
       Net cash provided by operating
         activities                                                2,831,738           1,361,756              27,146
                                                              --------------     ---------------     ---------------

   Cash Flows from Investing Activities:
     Additions to land and buildings on
       operating leases                                           (3,134,046)        (18,581,999)         (1,533,446)
     Investment in direct financing leases                           (12,945)         (5,962,087)
     Investment in joint venture                                    (166,025)                 --
     Increase in other assets                                             --                  --            (276,848)
     Other                                                                --                 107                (107)
                                                              --------------     ---------------     ---------------

       Net cash used in investing activities                      (3,313,016)        (24,543,979)         (1,810,401)
                                                              --------------     ---------------     ---------------

   Cash Flows from Financing Activities:
     Reimbursement of acquisition and syndication
       costs by related parties on behalf of the
       Partnership                                                   (37,135)           (396,548)           (497,420)
     Contributions from limited partners                             854,241          25,723,944           8,498,815
     Distributions to limited partners                            (2,468,400)           (855,957)             (2,138)
     Payment of syndication costs                                   (161,142)         (2,450,214)           (845,657)
     Other                                                           (10,000)            (67,000)
                                                              --------------     ---------------     ---------------
         Net cash provided by (used in)
          financing activities                                    (1,822,436)         21,954,225           7,153,600
                                                              --------------     ---------------     ---------------

Net Increase (Decrease) in Cash and Cash Equivalents              (2,303,714)         (1,227,998)          5,370,345

Cash and Cash Equivalents at Beginning of Year                     4,143,327           5,371,325                 980
                                                              --------------     ---------------     ---------------

Cash and Cash Equivalents at End of Year                         $ 1,839,613        $  4,143,327         $ 5,371,325
                                                              ==============     ===============     ===============
</TABLE>

                See accompanying notes to financial statements.

                                       20
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                1998            1997            1996
                                                           -------------   --------------   ------------
<S>                                                        <C>             <C>              <C>
Reconciliation of Net Income to Net Cash
 Provided by Operating Activities:

   Net income                                                 $2,302,322       $1,154,760       $ 26,910
                                                           -------------   --------------   ------------
   Adjustments to reconcile net income to
     net cash provided by operating
     activities:
       Depreciation                                              372,473          140,079            301
       Amortization                                                2,000            2,000            411
       Distributions from joint venture                            5,630               --             --
       Provision for loss on land                                197,466               --             --
       Decrease in net investment in direct
         financing leases                                         81,211           28,084             --
       Increase (decrease) in receivables                         68,000          (66,771)        (1,227)
       Increase in prepaid expenses                               (3,653)              --             --
       Increase in accrued rental income                        (119,132)        (128,079)          (146)
       Increase in accounts payable                                2,102              398             57
       Increase in due to related parties,
         excluding acquisition,
         organization and syndication costs
         paid on behalf of the Partnership                        27,257            2,202            820
       Increase (decrease) in rents paid
         in advance                                              (20,926)          28,277             --
       Increase (decrease) in deferred
         rental income                                           (83,012)         200,806             --
       Other                                                          --               --             20
                                                           -------------   --------------   ------------
         Total adjustments                                       529,416          206,996            236
                                                           -------------   --------------   ------------

Net Cash Provided by Operating Activities                     $2,831,738       $1,361,756       $ 27,146
                                                           =============   ==============   ============

Supplemental Schedule of Non-Cash Investing
 and Financing Activities:

   Related parties paid certain acquisition
     and syndication costs on behalf of the
     Partnership as follows:
       Acquisition costs                                      $   35,842       $  134,138       $ 18,036
       Syndication costs                                              --          211,216        285,858
                                                           -------------   --------------   ------------
                                                              $   35,842       $  345,354       $303,894
                                                           =============   ==============   ============
   Distributions declared and unpaid at
     December 31                                              $  700,000       $  510,636       $ 55,708
                                                           =============   ==============   ============
</TABLE>

                See accompanying notes to financial statements.

                                       21
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     Organization and Nature of Business - CNL Income Fund XVIII, 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, family-style and casual dining restaurant chains. Under
     the terms of a registration statement filed with the Securities and
     Exchange Commission, the Partnership was authorized to sell a maximum of
     3,500,000 units ($35,000,000) of limited partnership interest. A total of
     3,500,000 units ($35,000,000) of limited partnership interest had been sold
     as of December 31, 1998.

     The Partnership was a development stage enterprise from February 10, 1995
     through October 11, 1996. Since operations had not begun, activities
     through October 11, 1996, were devoted to organization of the Partnership.

     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 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 the direct
     financing or 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) (see 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.

                                       22
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

          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 (including rental payments, if any, required
          during the construction of a property) 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.

          Accrued rental income represents the aggregate amount of income
          recognized on a straight-line basis in excess of scheduled
          rental payments to date. In contrast, deferred rental income
          represents the aggregate amount of scheduled rental payments to
          date (including rental payments due during construction and
          prior to the property being placed in service) in excess of
          income recognized on a straight-line basis over the lease term
          commencing on the date the property is placed in service.
          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 writes-off 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, will be removed from the accounts and gains
     or losses from sales will be 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 the 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.

                                       23
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     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 Venture - The Partnership's investment in Columbus
     ---------------------------
     Joint Venture is 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.

     Organization Costs - Organization costs are amortized over five years
     ------------------
     using the straight-line method upon commencement of operations. In April
     1998, the American Institute of Certified Public Accountants issued
     Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities."
     The Statement, which is effective for fiscal years beginning after December
     15, 1998, requires that an entity expense the costs of start-up activities
     and organization costs as they are incurred. The Partnership will adopt
     this Statement in 1999. The general partners believe that adoption of this
     Statement will not have a material effect on the Partnership's financial
     position or results of operations.

     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.

                                       24
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

     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 (Note 6).

     Rents Paid in Advance - Rents paid in advance by lessees for future
     ---------------------
     periods are deferred upon receipt and are recognized as revenues during the
     period in which the rental income is earned. Rents paid in advance include
     "interim rent" payments required to be paid under the terms of certain
     leases for construction properties equal to a pre-determined rate times the
     amount funded by the Partnership during the period commencing with the
     effective date of the lease to the date minimum annual rent becomes
     payable. Once minimum annual rent becomes payable, the "interim rent"
     payments are amortized and recorded as income either (i) over the lease
     term so as to produce a constant periodic rate of return for leases
     accounted for using the direct financing method, or (ii) over the lease
     term using the straight-line method for leases accounted for using the
     operating method, whichever is applicable.

     Weighted Average Number of Limited Partner Units Outstanding - Net income
     ------------------------------------------------------------
     and distributions per limited partner unit are calculated based upon the
     weighted average number of units of limited partnership interest
     outstanding during the period the Partnership was operational.

     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. Actual results could differ from those estimates.

     Reclassification - Certain items in the prior years' financial statements
     ----------------
     have been reclassified to conform to 1998 presentation. These
     reclassifications had no effect on partners' capital or net income.

2.   Leases:
     ------

     The Partnership leases its land and buildings 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." Some of the Partnership's leases are
     classified as operating leases and some of the 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

                                       25
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


2.   Leases - Continued:
     ------------------

     the land portions of the majority of the leases are operating leases. The
     leases have initial terms of 15 to 26 years and the majority of the leases
     provide for minimum and contingent rentals. In addition, the tenant 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 the tenants to renew the leases for two to five 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>
                                                         1998                1997
                                                   ---------------     ---------------
          <S>                                      <C>                 <C>
          Land                                         $11,982,332         $10,812,849
          Buildings                                     11,603,999           9,476,977
                                                   ---------------     ---------------
                                                        23,586,331          20,289,826
          Less accumulated depreciation                   (512,853)           (140,380)
                                                   ---------------     ---------------
                                                        23,073,478          20,149,446
          Construction in progress                              --           1,161,616
                                                   ---------------     ---------------
                                                        23,073,478          21,311,062
          Less allowance for loss on
             land                                         (197,466)                 --
                                                   ---------------     ---------------
                                                       $22,876,012         $21,311,062
                                                   ===============     ===============
</TABLE>

     During the year ended December 31, 1998, the Partnership established an
     allowance for loss on land of $197,466, relating to the property located in
     Minnetonka, Minnesota. The tenant of this property declared bankruptcy in
     October 1998 and rejected the lease relating to this property. The
     allowance represents the difference between the carrying value of the
     property at December 31, 1998, and the current estimate of net realizable
     value for this property.

     Generally, the leases provide for escalating guaranteed minimum rents
     throughout the lease term. 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, 1998, 1997, and 1996, the Partnership recognized
     $209,725, $128,079, and $146, respectively, of such rental income.

                                       26
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     The following is a schedule of the future minimum lease payments to be
     received on the noncancellable operating leases at December 31, 1998:

<TABLE>
          <S>                                             <C>
          1999                                            $ 2,236,248
          2000                                              2,238,166
          2001                                              2,239,693
          2002                                              2,314,933
          2003                                              2,377,365
          Thereafter                                       26,771,320
                                                          -----------

                                                          $38,177,725
                                                          ===========
</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 term. 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 tenant's gross sales.

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>
                                                              1998               1997
                                                          ------------      -------------
          <S>                                             <C>               <C>
          Minimum lease payments
           receivable                                      $12,564,207        $13,241,374
          Estimated residual values                          1,420,667          1,773,526
          Less unearned income                              (8,047,562)        (9,010,022)
                                                          ------------      -------------
          Net investment in direct financing
           leases                                          $ 5,937,312        $ 6,004,878
                                                          ============      =============
</TABLE>

                                       27
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     The following is a schedule of future minimum lease payments to be received
     on direct financing leases at December 31, 1998:

<TABLE>
          <S>                                               <C>
          1999                                              $   677,167
          2000                                                  677,167
          2001                                                  677,167
          2002                                                  683,170
          2003                                                  691,575
          Thereafter                                          9,157,961
                                                            ------------

                                                            $12,564,207
                                                            ============
</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 Venture:
     ---------------------------

     In August 1998, the Partnership entered into a joint venture arrangement,
     Columbus Joint Venture, with affiliates of the general partners, to
     construct and hold one restaurant property. As of December 31, 1998, the
     Partnership had contributed $166,025, to purchase land and pay construction
     costs relating to the Property owned by the joint venture. The Partnership
     has agreed to contribute approximately $225,811 in additional construction
     costs to the joint venture. As of December 31, 1998, the Partnership had a
     39.93% interest in the profits and losses of the joint venture. The
     Partnership accounts for its investment in this property using the equity
     method since the Partnership shares control with affiliates, and amounts
     relating to its investment are included in investment in joint ventures.
     The following presents the combined, condensed financial information for
     the joint venture at December 31:

<TABLE>
<CAPTION>
                                                     1998               1997
                                                -------------      ------------
          <S>                                   <C>                <C>
          Land on operating lease and
             construction work in progress         $875,700           $  --
          Cash                                        3,935              --
          Liabilities                               477,945              --
          Partners' capital                         401,690              --
</TABLE>

                                       28
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


6.   Syndication Costs:
     -----------------

     Syndication costs consisting of legal fees, commissions, the due diligence
     expense reimbursement fee, printing and other expenses incurred in
     connection with the offering totalled $76,882, $2,717,452, and $1,395,666
     for the years ended December 31, 1998, 1997, and 1996, respectively. These
     offering expenses were charged to the limited partners' capital accounts to
     reflect the net capital proceeds of the offering.

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

     Generally, distributions of net cash flow, as defined in the limited
     partnership agreement of the Partnership, are made 95 percent to the
     limited partners and five percent to the general partners; provided,
     however, that for any particular year, the five percent of net cash flow to
     be distributed to the general partners will be subordinated to receipt by
     the limited partners in that year of an eight percent noncumulative,
     noncompounded return on their aggregate invested capital contributions (the
     "Limited Partners' 8% Return").

     Generally, net income (determined without regard to any depreciation and
     amortization deductions and gains and losses from the sale of properties)
     is allocated between the limited partners and the general partners first,
     in an amount not to exceed the net cash flow distributed to the partners
     attributable to such year in the same proportions as such net cash flow is
     distributed; and thereafter, 99 percent to the limited partners and one
     percent to the general partners. All deductions for depreciation and
     amortization are allocated 99 percent to the limited partners and one
     percent to the general partners.

     Net sales proceeds from the sale of a property not in liquidation of the
     Partnership generally will be distributed first to the limited partners in
     an amount sufficient to provide them with the return of their invested
     capital contributions, plus their cumulative Limited Partners' 8% Return.
     The general partners will then receive a return of their capital
     contributions and, to the extent previously subordinated and unpaid, a five
     percent interest in all net cash flow distributions. Any remaining net
     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
     will be, in general, allocated in the same manner as net sales proceeds are
     distributable. Any loss will be allocated first, on a pro rata basis to the
     partners with positive balances in their capital accounts; and thereafter,
     95 percent to the limited partners and five percent to the general
     partners.

                                       29
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     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 the
     partners with positive capital account 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 the years ended December 31, 1998, 1997, and 1996, the Partnership
     declared distributions to the limited partners of $2,657,764, $1,310,885,
     and $57,846. No distributions have been made to the general partners to
     date.

                                       30
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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>
                                                                      1998                 1997                 1996
                                                                ---------------      ---------------      ---------------
          <S>                                                   <C>                  <C>                  <C>
          Net income for financial
           reporting purposes                                        $2,302,322           $1,154,760              $26,910

          Depreciation for tax reporting
           purposes in excess of depreciation
           for financial reporting purposes                             (33,436)             (45,009)                (386)

          Allowance for loss on land                                    197,466                   --                   --

          Direct financing leases recorded as
           operating leases for tax reporting
           purposes                                                      81,211               28,084                   --

          Capitalization of transaction costs for
           tax reporting purposes                                        15,522                   --                   --

          Capitalization of administrative expenses
           for tax reporting purposes                                        --                   --                3,662

          Equity in earnings of joint venture
           for tax reporting purposes in excess
           of equity in earnings of joint venture
           for financial reporting purposes                               7,168                   --                   --

          Accrued rental income                                        (209,725)            (128,079)                (146)

          Deferred rental income                                        (73,028)             281,415                   --

          Rents paid in advance                                         (20,926)              28,277                   --

          Allowance for doubtful accounts                                62,155                   34                   --

          Amortization for financial reporting
           purposes (less than) in excess of
           amortization for tax reporting
           purposes                                                      (3,984)                (732)                 183
                                                                ---------------      ---------------      ---------------

          Net income for federal income tax
           purposes                                                  $2,324,745           $1,318,750              $30,223
                                                                ===============      ===============      ===============
</TABLE>

                                       31
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     One of the individual general partners, James M. Seneff, Jr., is one of the
     principal shareholders of CNL Group, Inc., the parent company of CNL
     Securities Corp. and majority stockholder of CNL Fund Advisors, Inc. James
     M. Seneff, Jr. is director and chief executive officer of CNL Securities
     Corp. and is director, chairman of the board of directors and chief
     executive officer of CNL Fund Advisors, Inc. The other individual general
     partner, Robert A. Bourne, is director and president of CNL Securities
     Corp., is treasurer, director, and vice chairman of the board of directors
     of CNL Fund Advisors, Inc.

     CNL Securities Corp. was entitled to receive selling commissions amounting
     to 8.5% of the total amount raised from the sale of units of limited
     partnership interest for services in connection with the formation of the
     Partnership and the offering of units, a substantial portion of which was
     paid as commissions to other broker-dealers. For the years ended December
     31, 1998, 1997, and 1996, the Partnership incurred $72,611, $2,186,535, and
     $715,854, respectively, of which $67,539, $2,050,986, and $673,534,
     respectively, was reallowed to other broker-dealers.

     In addition, CNL Securities Corp. was entitled to receive a due diligence
     expense reimbursement fee equal to 0.5% of the total amount raised from the
     sale of units of limited partnership interest, a portion of which was
     reallowed to other broker-dealers and from which all due diligence expenses
     were paid. For the years ended December 31, 1998, 1997, and 1996, the
     Partnership incurred $4,271, $128,620, and $42,109, respectively, of such
     fees. The majority of these fees were reallowed to other broker-dealers for
     payment of bona fide due diligence expenses.

     CNL Fund Advisors, Inc. was entitled to receive acquisition fees for
     services in finding, negotiating and acquiring properties on behalf of the
     Partnership equal to 4.5% of the total amount raised from the sale of units
     of limited partnership interest. For the years ended December 31, 1998,
     1997, and 1996, the Partnership incurred $38,441, $1,157,577, and $378,982,
     respectively, of such fees. Such fees are included in land and buildings,
     net investment in direct financing leases, investment in joint venture and
     other assets.

                                       32
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     The Partnership and CNL Fund Advisors, Inc. have entered into a management
     agreement pursuant to which CNL Fund Advisors, Inc. receives annual
     management fees 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. The management fee, which will not
     exceed fees which are competitive for similar services in the same
     geographic area, may or may not be taken, in whole or in part as to any
     year, in the sole discretion of CNL Fund Advisors, Inc. All or any portion
     of the management fee not taken as to any fiscal year shall be deferred
     without interest and may be taken in such other fiscal year as CNL Fund
     Advisors, Inc. shall determine. For the years ended December 31, 1998,
     1997, and 1996, the Partnership incurred $28,038, $11,842, and $12,
     respectively, for such management fees.

     During the years ended December 31, 1998, 1997, and 1996, CNL Fund
     Advisors, Inc. and its affiliates provided various administrative services
     to the Partnership, including services related to accounting; financial,
     tax and regulatory compliance and reporting; lease and loan compliance;
     limited partners distributions and reporting; due diligence and marketing;
     and investor relations (including administrative services in connection
     with selling units of limited partnership interest), on a day-to-day basis.
     The expenses incurred for these services were classified as follows for the
     years ended December 31:

<TABLE>
<CAPTION>
                                              1998         1997        1996
                                           ----------   ----------  ----------
          <S>                              <C>          <C>         <C>
          Syndication costs                  $     --     $212,279    $106,887
          General operating and
           administrative expenses            104,709       98,207       2,980
                                           ----------   ----------  ----------
                                             $104,709     $310,486    $109,867
                                           ==========   ==========  ==========
</TABLE>

                                       33
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

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

<TABLE>
<CAPTION>
                                                          1998             1997
                                                      -------------    -----------
          <S>                                         <C>              <C>
          Due to CNL Fund Advisors, Inc.
           and its affiliates:
             Expenditures incurred on
               behalf of the Partnership                    $13,698       $  1,737
             Acquisition fees                                    --         29,757
             Accounting and
               administrative services                        9,608          1,921
             Management fees                                  2,379            556
             Other                                            7,090             --
                                                      -------------    -----------
                                                             32,775         33,971
                                                      -------------    -----------

          Due to CNL Securities Corp.:
             Commissions                                    $    --       $ 79,069
             Marketing support and due
               diligence expense
               reimbursement fee                                 --          5,191
                                                      -------------    -----------
                                                                 --         84,260
                                                      -------------    -----------

                                                            $32,775       $118,231
                                                      =============    ===========
</TABLE>

                                       34
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     The following schedule presents total rental and earned income from
     individual lessees, each representing more than ten percent of the
     Partnership's total rental and earned income for each of the years ended
     December 31:

<TABLE>
<CAPTION>
                                        1998          1997         1996
                                     -----------  ------------  ----------
       <S>                           <C>          <C>           <C>
       Golden Corral Corp.             $626,564      $241,395      $   --
       Foodmaker, Inc.                  509,456       240,261          --
       IHOP Properties, Inc.                N/A       152,343          --
       Tiffany, L.L.C.                      N/A       154,153          --
       Platinum Rotisserie, L.L.C.          N/A       133,591          --
       Carrols Corporation                  N/A           N/A       1,373
</TABLE>

     In addition, the following schedule presents total rental and earned income
     from individual restaurant chains, each representing more than ten percent
     of the Partnership's total rental and earned income for each of the years
     ended December 31:

<TABLE>
<CAPTION>
                                        1998          1997         1996
                                     -----------  ------------  ----------
       <S>                           <C>          <C>           <C>
       Golden Corral                   $784,292      $395,548      $   --
       Jack in the Box                  509,456       240,261          --
       Boston Market                    455,118       231,489          --
       IHOP                                 N/A       152,343          --
       Burger King                          N/A           N/A       1,373
</TABLE>

     The information denoted by N/A indicates that for each period presented,
     the tenant or group of affiliated tenants and the chains did not represent
     more than ten percent of the Company's total rental, earned income and
     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.

     In 1998, Boston Chicken, Inc., Finest Foodservice, L.L.C., and WMJ Texas,
     Inc., the tenants of three of the Boston Market properties filed for
     bankruptcy and rejected the lease relating to one property. The Partnership
     will not recognize any rental income relating to this property until a new
     tenant for the property is located, or until the property is sold and

                                       35
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     the proceeds from such a sale are reinvested in an additional property.
     While the tenants have not rejected or affirmed the remaining two leases,
     there can be no assurance that some or all of the leases will not be
     rejected in the future. The lost revenues resulting from the one lease that
     was rejected, as described above, and the possible rejection of the
     remaining two leases could have an adverse effect on the results of
     operations of the Partnership if the Partnership is unable to re-lease
     these Properties in a timely manner. The General Partners are currently
     seeking either new tenant or purchaser for the one rejected Property.

11.  Subsequent Event:
     ----------------

     On March 11, 1999, the Partnership entered into an Agreement and Plan of
     Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which
     the Partnership would be merged with and into a subsidiary of APF (the
     "Merger"). As consideration for the Merger, APF has agreed to issue
     3,299,149 shares of its common stock, par value $0.01 per shares (the "APF
     Shares"). In order to assist the general partners in evaluating the
     proposed merger consideration, the general partners retained Valuation
     Associates, a nationally recognized real estate appraisal firm, to appraise
     the Partnership's restaurant property portfolio. Based on Valuation
     Associates' appraisal, the fair value of the Partnership's property
     portfolio and other assets was $32,493,818 as of December 31, 1998. The APF
     Shares are expected to be listed for trading on the New York Stock Exchange
     concurrently with the consummation of the Merger, and, therefore, would be
     freely tradable at the option of the former limited partners. At a special
     meeting of the partners, limited partners holding in excess of 50% of the
     Partnership's outstanding limited partnership interests must approve the
     Merger prior to consummation of the transaction. The general partners
     intend to recommend that the limited partners of the Partnership approve
     the Merger. In connection with their recommendation, the general partners
     will solicit the consent of the limited partners at the special meeting. If
     the limited partners reject the Merger, the Partnership will bear the
     portion of the transaction costs based upon the percentage of "For" votes
     and the general partners will bear the portion of such transaction costs
     based upon the percentage of "Against" votes and abstentions.

                                       36
<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 28th day of
October, 1999.

                                    CNL INCOME FUND XVIII, 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.

                                       37
<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         October 28, 1999
--------------------------------    (Principal  Financial  and Accounting
Robert A. Bourne                    Officer)

/s/ James M. Seneff, Jr.            Chief Executive Officer, Chairman and       October 28, 1999
--------------------------------    Director (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>

                                       38