<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  0-19139

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

           Florida                                      59-2963338
(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 partnership interest ($1 per Unit)
                               (Title of class)

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

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

     Aggregate market value of the voting stock held by nonaffiliates of the
registrant:  The registrant registered an offering of 35,000,000 units of
limited partnership interest (the "Units") on Form S-11 under the Securities Act
of 1933, as amended.  Since no established market for such Units exists, there
is no market value for such Units.  Each Unit was originally sold at $1 per
Unit.

                     DOCUMENTS INCORPORATED BY REFERENCE:
                                     None
<PAGE>

     The Form 10-K of CNL Income Fund VIII, 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, Item 7A. Quantitative and Qualitative Disclosures
About Market Risk (incorporating by reference disclosure contained in Item 7.)
and Item 8. Financial Statements and Supplementary Data.

                                    PART I

Item 1.  Business

     CNL Income Fund VIII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 18, 1989.  The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners").  Beginning on August 2, 1990, the
Partnership offered for sale up to $35,000,000 of limited partnership interests
(the "Units") (35,000,000 Units at $1 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
January 30, 1990.  The offering terminated on March 7, 1991, 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 and family-style restaurant chains
(the "Restaurant Chains").  Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$30,975,000, and were used to acquire 38 Properties, including interests in
eight Properties owned by joint ventures in which the Partnership is a co-
venturer, and to establish a working capital reserve for Partnership purposes.
During the year ended December 31, 1995, the Partnership sold its Property in
Ocoee, Florida and reinvested the majority of the net sales proceeds in a
Property in North Fort Myers, Florida.  Also, during the year ended December 31,
1995, the Partnership sold two Properties in Jacksonville, Florida.  During the
year ended December 31, 1996, the Partnership reinvested the remaining net sales
proceeds from the 1995 sale of the Property in Ocoee, Florida, in Middleburg
Joint Venture, in which the Partnership is a co-venturer to purchase and hold
one property in Middleburg Heights, Ohio.  Also, during the year ended December
31, 1996, the Partnership sold its Property in Orlando, Florida.  As a result of
the above transactions, as of December 31, 1998, the Partnership owned 36
Properties.  The 36 Properties included interests in nine Properties owned by
joint ventures in which the Partnership is a co-venturer.  The Properties are
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.

Leases

     Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms, ranging from 14 to 20 years (the

                                       1
<PAGE>

average being 18 years), and expire between 2005 and 2016. All leases are on a
triple-net basis, with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities. The leases of the Properties provide
for minimum base annual rental payments (payable in monthly installments)
ranging from approximately $41,300 to $213,800. All of the leases provide for
percentage rent, based on sales in excess of a specified amount. In addition, a
majority of the leases provide that, commencing in specified lease years
(ranging from the third to the sixth lease year), the annual base rent required
under the terms of the lease will increase.

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

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

     During 1994, the lease relating to the Property in Tiffin, Ohio, was
amended to provide for the payment of reduced annual base rent with no scheduled
rent increases.  However, the lease amendment provided for a lower percentage
rent breakpoint, as compared to the original lease agreement, a change that was
designed to result in higher percentage rent payments at any time that
percentage rent became payable.  In accordance with a provision in the
amendment, as a result of the tenant assigning the lease to a new tenant during
1998, the rents under the assigned lease reverted back to those required under
the original lease agreement.

     During 1998, the leases relating to the Burger King Properties in New City
and Syracuse, New York and New Philadelphia and Mansfield, Ohio, and Asheville,
North Carolina, were amended to provide for rent reductions from August 1998
through the end of the lease terms.

Major Tenants

     During 1998, three lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation, Carrols Corporation and Restaurant
Management Services, Inc., each contributed more than ten percent of the
Partnership's total rental income (including rental income from the
Partnership's consolidated joint venture and the Partnership's share of rental
income from eight Properties owned by unconsolidated joint ventures).  As of
December 31, 1998, Golden Corral Corporation was the lessee under leases
relating to four restaurants, Carrols Corporation was the lessee under leases
relating to five restaurants and Restaurant Management Services, Inc. was the
lessee under leases relating to five restaurants.  It is anticipated that, based
on the minimum rental payments required by the leases, these three lessees each
will continue to contribute more than ten percent of the Partnership's total
rental income in 1999.  In addition, three Restaurant Chains, Golden Corral
Family Steakhouse Restaurants, Burger King and Shoney's, each accounted for more
than ten percent of the Partnership's total rental income in 1998 (including
rental income from the Partnership's consolidated joint venture and the
Partnership's share of rental income from eight Properties owned by
unconsolidated joint ventures).  In 1999, it is anticipated that these three
Restaurant Chains each will continue to account for more than ten percent of the
Partnership's total rental income to which the Partnership is entitled under the
terms of the leases.  Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to re-
lease the Properties in a timely manner.  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

     The Partnership has entered into a joint venture arrangement, Woodway Joint
Venture, with an unaffiliated entity to purchase and hold one Property.  In
addition, the Partnership has entered into three separate joint venture
arrangements:  Asheville Joint Venture with CNL Income Fund VI, Ltd., an
affiliate of the General Partners, to purchase and hold one Property; CNL
Restaurant Investments II with CNL Income Fund VII, Ltd. and CNL Income Fund IX,
Ltd., affiliates of the General Partners, to purchase and hold six Properties;
and Middleburg Joint Venture with CNL Income Fund XII, Ltd., an affiliate of the
General Partners, to purchase 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 arrangements provide for the Partnership and its joint
venture partners to share in all costs and benefits associated with the joint
ventures in accordance with their respective percentage interests in the joint

                                       2
<PAGE>

ventures.  The Partnership has an 87.68% interest in Woodway Joint Venture, an
85.54% interest in Asheville Joint Venture, a 36.8% interest in CNL Restaurant
Investments II, and a 12.46% interest in Middleburg 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 ventures.

     Woodway Joint Venture, Asheville Joint Venture and Middleburg Joint Venture
each have an initial term of 20 years and, after the expiration of the initial
term, continue in existence from year to year unless terminated at the option of
either joint venturer or by an event of dissolution.  Events of dissolution
include the bankruptcy, insolvency or termination of any joint venturer, sale of
the Property owned by the joint venture and mutual agreement of the Partnership
and each joint venture partner to dissolve the joint venture.  CNL Restaurant
Investments II's joint venture agreement does not provide for a fixed term, but
continues in existence until terminated by any of the joint venturers.

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

     Net cash flow from operations of Woodway Joint Venture, Asheville Joint
Venture, CNL Restaurant Investments II and Middleburg Joint Venture is
distributed 87.68%, 85.54%, 36.8%, and 12.46%, respectively, to the Partnership
and the balance is distributed to each of the other joint venture partners in
accordance  with their 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.

     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.

Certain Management Services

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

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

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.

                                       3
<PAGE>

Item 2.  Properties

     As of December 31, 1998, the Partnership owned 36 Properties.  Of the 36
Properties, 27 are owned by the Partnership in fee simple and nine are owned
through joint venture arrangements.  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.  The Partnership's Property sites range from approximately 17,400 to
467,400 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.

          State                                    Number of Properties
          ------                                   --------------------

          Arizona                                             1
          Florida                                             7
          Indiana                                             1
          Louisiana                                           1
          Michigan                                            3
          Minnesota                                           1
          North Carolina                                      2
          New York                                            2
          Ohio                                                9
          Tennessee                                           2
          Texas                                               6
          Virginia                                            1
                                                          --------
          TOTAL PROPERTIES:                                  36
                                                          ========

     Buildings.  Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs.  The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile.  Building sizes range from approximately
1,300 to 10,900 square feet.  All buildings on  Properties are freestanding and
surrounded by paved parking areas.  Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations. As of December 31, 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 (including its consolidated
joint venture) and the unconsolidated joint ventures, for federal income tax
purposes was $26,164,478 and $8,899,266, respectively.

                                       4
<PAGE>

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

          Restaurant Chain                       Number of Properties
          ----------------                       --------------------

          Burger King                                     13
          Denny's                                          1
          Golden Corral                                    5
          Hardee's                                         4
          Jack in the Box                                  2
          KFC                                              2
          Perkins                                          1
          Popeyes                                          1
          Quincy's                                         1
          Shoney's                                         5
          Wendy's                                          1
                                                       --------
          TOTAL PROPERTIES:                               36
                                                       ========

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

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

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

     At December 31, 1998, 1997, 1996, 1995, and 1994 all of the Properties were
occupied.  The following is a schedule of the average annual rent for each of
the five years ended December 31:

<TABLE>
<CAPTION>
                                               For the Year Ended December 31:
                               1998         1997         1996          1995          1994
                            ----------   ----------   ----------    ----------    ----------
<S>                         <C>          <C>          <C>           <C>           <C>
Rental Revenues (1)         $3,443,094   $3,467,720   $3,552,341    $3,676,557    $3,708,190
Properties                          36           36           36            36            38
Average Rent per Unit       $   95,642   $   96,326   $   98,676    $  102,127    $   97,584
</TABLE>

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

                                       5
<PAGE>

     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                     4           654,131            19.21%
         2006                     1           118,136             3.47%
         2007                    --                --               --
         2008                    --                --               --
         Thereafter              31         2,632,192            77.32%
                          ---------     -------------    -------------
         Totals                  36         3,404,459           100.00%
                          =========     =============    =============
</TABLE>

     Leases with Major Tenants.  The terms 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 - Leases.

     Golden Corral Corporation leases four Golden Corral restaurants.  The
initial term of each lease is 15 years (expiring in 2005) and the average
minimum base annual rent is approximately $163,500 (ranging from approximately
$145,500 to $189,700).

     Restaurant Management Services leases four Shoney's restaurants and one
Popeyes restaurant.  The initial term of each lease is 20 years (expiring
between 2010 and 2015) and the average minimum base annual rent is approximately
$104,500 (ranging from approximately $41,300 to $139,400).

     Kunofsky Realty, Inc. leases five Burger King restaurants.  The initial
term of each lease is 20 years (expiring in 2011) and the average minimum base
annual rent is approximately $89,600 (ranging from approximately $83,000 to
$98,000).

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 August 18, 1989, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains.
The leases are triple-net leases, with the lessee generally responsible for all
repairs and maintenance, property taxes, insurance and utilities.  As of
December 31, 1998, the Partnership owned 36 Properties, either directly or
indirectly through joint venture arrangements.

Capital Resources

     The Partnership's primary source of capital for the years ended December
31, 1998, 1997, and 1996 was cash from operations (which includes cash received
from tenants, distributions from joint ventures and interest re-

                                       6
<PAGE>

ceived, less cash paid for expenses). Cash from operations was $3,562,592,
$3,543,056, and $3,462,668 for the years ended December 31, 1998, 1997, and
1996, respectively. The increase in cash from operations for 1998, as compared
to 1997, was primarily a result of changes in the Partnership's working capital,
and the increase in cash from operations for 1997, as compared to 1996, was
primarily a result of changes in income and expenses as discussed in "Results of
Operations" below and changes in the Partnership's working capital.

     Other sources and uses of capital included the following during the years
ended December 31, 1998, 1997, and 1996.

     In May 1996, the Partnership reinvested the remaining net sales proceeds of
approximately $234,100 from the 1995 sale of the Property in Ocoee, Florida, in
Middleburg Joint Venture, which purchased a Property in Middleburg Heights,
Ohio.  The Partnership has an approximate 12 percent interest in the profits and
losses of Middleburg Joint Venture and the remaining interest in this joint
venture is held by an affiliate of the Partnership which has the same General
Partners.

     In October 1996, the Partnership sold its Property in Orlando, Florida, to
the tenant for $1,375,000.  In connection therewith, the Partnership accepted a
promissory note in the principal sum of $1,388,568, representing the gross sales
price of $1,375,000 plus tenant closing costs of $13,568 that the Partnership
financed on behalf of the tenant.  The promissory note bears interest at a rate
of 10.75% per annum and is collateralized by a mortgage on the Property.  The
promissory note is being collected in 12 monthly installments of interest only,
afterwards, in 24 monthly installments of $15,413 consisting of principal and
interest, and thereafter in 144 monthly installments of $16,220 consisting of
principal and interest.  The mortgage note receivable balances at December 31,
1998 and 1997 of $1,356,466 and $1,394,979, respectively, include accrued
interest of $12,044 and $12,386, respectively, relating to this Property.
Proceeds received from the collection of this mortgage note will be distributed
to the Limited Partners or will be used for other Partnership purposes.  This
Property was originally acquired by the Partnership in December 1990 and had a
cost of approximately $1,177,000, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $198,000 in excess of its original purchase price.  Due to the
fact that the Partnership had recognized accrued rental income since the
inception of the lease relating to the straight lining of future scheduled rent
increases in accordance with generally accepted accounting principles, the
Partnership wrote off the cumulative balance of such accrued rental income at
the time of the sale of this Property, resulting in a loss of $99,031 for
financial reporting purposes.  Due to the fact that the straight lining of
future scheduled rent increases over the term of the lease is a non-cash
accounting adjustment, the write off of these amounts is a loss for financial
statement purposes only.

     In July 1998, the Partnership received $116,397 as a settlement from the
Florida Department of Transportation for a right of way taking relating to a
parcel of land on its Property in Brooksville, Florida. In connection therewith,
the Partnership recognized a gain of $108,176 for financial reporting purposes.
The Partnership anticipates that it will distribute amounts sufficient to enable
the limited partners to pay federal and state income taxes, if any (at a level
reasonably assumed by the general partners), resulting from the right of way
taking.  The Partnership intends to reinvest the proceeds in an additional
Property or use the funds for other Partnership purposes.

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

     Currently, rental income from the Partnership's Properties and net sales
proceeds from the sale of Properties, pending reinvestment in additional
Properties, are invested in money market accounts or other short-term, highly
liquid investments such as demand deposit accounts at commercial banks, CDs and
money market accounts with less than a 30-day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners.  The increase during 1998, as compared to 1997,
is primarily due to the receipt of a settlement for a right-of-way taking
related to the Partnership's Property in Brooksville, Florida, as described
above. At December 31, 1998, the Partnership had $1,809,258 invested in such
short-term investments as compared to $1,602,236 at December 31, 1997.  The
increase during 1998, as compared to 1997, is primarily due to the receipt of a
settlement for a right-of-way taking related to the Partnership's Property in
Brooksville, Florida, as described above.  As of December 31, 1998, the average
interest rate earned on the rental income deposited in demand deposit accounts
at commercial banks was approximately two percent annually.  The funds remaining
at December 31, 1998, after the payment of distributions and other liabilities,
will be used to meet the Partnership's working capital and other needs.

                                       7
<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 continue to generate cash flow in excess
of operating expenses.

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

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

     The Partnership generally distributes cash from operations remaining after
the payment of the operating expenses of the Partnership, to the extent that the
General Partners determine that such funds are available for distribution.
Based on cash from operations, and for the years ended December 31, 1998 and
1996, cumulative excess operating reserves, the Partnership declared
distributions to the Limited Partners of $3,850,003, $3,150,003, and $3,412,500
for the years ended December 31, 1998, 1997, and 1996, respectively.  This
represents distributions of  $0.110 per Unit for the year ended December 31,
1998, $0.090 per Unit for the year ended December 31, 1997, and $0.098 per Unit
for the year ended December 31, 1996.  No amounts 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.

     During 1998, 1997, and 1996, affiliates incurred $98,613, $80,998, and
$100,264, respectively, for certain operating expense on behalf of the
Partnership.  As of December 31, 1998 and 1997 the Partnership owed $20,216 and
$4,599, respectively, to affiliates for such amounts and accounting and
administrative services.  As of March 11, 1999, the Partnership had reimbursed
the affiliates all such amounts.  In addition, during the years ended December
31, 1996 and 1995 the Partnership incurred $41,250 and $13,800, respectively, in
real estate disposition fees due to an affiliate as a result of its services in
connection with the sale of the Property in Orlando, Florida and the two
Properties in Jacksonville, Florida.  No such fees were incurred during the year
ended December 31, 1998 and 1997.  The payment of such fees is deferred until
the Limited Partners have received the sum of their 10% Preferred Return and
their adjusted capital contributions.  Other liabilities of the Partnership,
including distributions payable, increased to $1,231,946 at December 31, 1998,
from $873,875 at December 31, 1997.  The increase in other liabilities is
primarily attributable to the Partnership's accruing a special distribution
payable to the Limited Partners of $350,000 at December 31, 1998, from
cumulative excess operating reserves.  No special distribution payable was
accrued at December 31, 1997.  The General Partners believe that the Partnership
has sufficient cash on hand to meet its current working capital needs.

Long-Term Liquidity

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

Results of Operations

     During 1996 and 1997, the Partnership and its consolidated joint venture,
Woodway Joint Venture, owned and leased 29 wholly-owned Properties (including
one Property in Orlando, Florida, which was sold in October 1996) and during
1998, the Partnership and its consolidated joint venture, Woodway Joint Venture,
owned and leased 28 wholly-owned Properties.  In addition, during 1996, 1997,
and 1998, the Partnership was a co-venturer in three joint ventures that owned
and leased a total of eight Properties.  As of  December 31, 1998, the
Partnership owned, either directly or through joint venture arrangements, 36
Properties which are subject to long-term, triple-net leases.  The leases of the
Properties provide for minimum base annual rental amounts (payable in monthly
installments) ranging from approximately $41,300 to $213,800.  All of the leases
provide for percentage rent based on sales in excess of a specified amount.  In
addition, a majority of the leases provide that, commencing in specified lease
years (ranging from the third to sixth lease year), the annual base rent
required under the terms of the lease will

                                       8
<PAGE>

increase. For further description of the Partnership's leases and Properties,
see Item 1. Business - Leases and Item 2. Properties, respectively.

     During the years ended December 31, 1998, 1997, and 1996, the Partnership
and its consolidated joint venture, Woodway Joint Venture, earned $2,991,048,
$3,015,642, and $3,182,058, respectively, in rental income from operating leases
and earned income from direct financing leases.  The decrease in rental and
earned income for 1998, as compared to 1997, is primarily due to the fact that
the leases relating to the Burger King Properties in New City and Syracuse, New
York and New Philadelphia and Mansfield, Ohio were amended to provide for rent
reductions from August 1998 through the end of the lease terms.  The decrease in
rental and earned income during 1997, as compared to 1996, is primarily
attributable to the sale of the Property in Orlando, Florida, in October 1996,
as described above in "Capital Resources."

     For the years ended December 31, 1998, 1997, and 1996, the Partnership also
earned $101,911, $85,735, and $31,712, respectively, in contingent rental
income.  The increase in contingent rental income for 1998, as compared to 1997,
is primarily attributable to an increase in gross sales for certain restaurant
Properties requiring the payment of contingent rental income.  The increase in
contingent rental income during 1997 as compared to 1996, is primarily
attributable to (i) the Partnership adjusting estimated contingent rental
amounts accrued at December 31, 1996, to actual amounts during the year ended
December 31, 1997, and (ii) increased gross sales of certain restaurant
Properties requiring the payment of contingent rental income.

     During the years ended December 31, 1998, 1997, and 1996, the Partnership
also earned $269,744, $238,338, and $127,246, respectively, in interest and
other income.  The increase in interest and other income during 1997 as
compared to 1996, is primarily attributable to the interest earned on the
mortgage notes accepted in connection with the sale of the one Property located
in Orlando, Florida, in October 1996 and the two Properties located in
Jacksonville, Florida, in December 1995.

     For the years ended December 31, 1998, 1997, and 1996, the Partnership also
earned $276,721, $293,480, and $266,500, respectively, attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a co-
venturer.  The decrease in net income by joint ventures for 1998, as compared to
1997, is primarily due to the fact that the lease relating to the Burger King
Property in Asheville, North Carolina of Asheville Joint Venture was amended to
provide for rent reductions from August 1998 through the end of the lease term.
The increase in net income earned by joint ventures during 1997 as compared to
1996, is primarily attributable to the fact that the Partnership invested in
Middleburg Joint Venture in May 1996, as described above in "Capital Resources."

     During the year ended December 31, 1998, three lessees of the Partnership
and its consolidated joint venture, Golden Corral Corporation, Carrols
Corporation and Restaurant Management Services, Inc., each contributed more than
ten percent of the Partnership's total rental income (including rental income
from the Partnership's consolidated joint venture and the Partnership's share of
rental income from eight Properties owned by joint ventures).  As of December
31, 1998, Golden Corral Corporation was the lessee under leases relating to four
restaurants, Carrols Corporation was the lessee under leases relating to five
restaurants and, Restaurant Management Services, Inc. was the lessee under
leases relating to five restaurants.  It is anticipated that, based on the
minimum annual rental payments required by the leases, these three lessees will
continue to contribute more than ten percent of the Partnership's total rental
income during 1999.  In addition, during the year ended December 31, 1998, three
Restaurant Chains, Golden Corral Family Steakhouse Restaurants, Burger King and
Shoney's, each accounted for more than ten percent of the Partnership's total
rental income (including rental income from the Partnership's consolidated joint
venture and the Partnership's share of rental income from eight Properties owned
by unconsolidated joint ventures).  In 1999, it is anticipated that these three
Restaurant Chains each will continue to account for more than ten percent of the
Partnership's total rental income to which the Partnership is entitled under the
terms of the leases.  Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to re-
lease the Property in a timely manner.

     Operating expenses, including depreciation and amortization expense, were
$445,170, $377,922, and $397,587 for the years ended December 31, 1998, 1997,
and 1996, respectively.  The increase in operating expenses during 1998, as
compared to 1997, is partially due to an increase in depreciation expense
relating to the fact that during 1998, the Partnership reclassified the leases
for its Properties in New City and Syracuse, New York and New Philadelphia and
Mansfield, Ohio from direct financing leases to operating leases due to lease
amendments.

     The increase in operating expenses for 1998, is also partially due to the
fact that the Partnership incurred $21,042 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

                                       9
<PAGE>

the General Partners will bear the portion of such transaction costs based upon
the percentage of "Against" votes and abstentions.

     The decrease in operating expenses during 1997, as compared to 1996, is
primarily attributable to a decrease in accounting and administrative expenses
associated with operating the Partnership and its Properties.

     As a result of the right of way settlement for the Partnership's Property
in Brooksville, Florida, as described above in "Capital Resources," the
Partnership recognized a gain on sale of land of $108,176 during the year ended
December 31, 1998, for financial reporting purposes.  As a result of the 1996
sale of the Property in Orlando, Florida, as described above in "Capital
Resources," the Partnership recognized a loss of $99,031 for the year ended
December 31, 1996.  No Properties were sold during 1997.

     The Partnership's leases as of December 31, 1998, are triple-net leases and
contain provisions that the General Partners believe mitigate the adverse effect
of inflation.  Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease.  Management expects that increases in restaurant sales volume 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
4,042,635 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 $39,843,631 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.

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 prob-

                                       10
<PAGE>

lem. 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 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.

                                       11
<PAGE>

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.

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.

Interest Rate Risk

     The Partnership has provided fixed rate mortgages to borrowers.  The
principal amounts outstanding under the mortgage notes totaled $1,795,920 at
December 31, 1998.  The General Partners believe that the estimated fair value
of the mortgage notes at December 31, 1998 approximated the outstanding
principal amounts.

     The Partnership is exposed to equity loss in the event of changes in
interest rates.  The fair value of the mortgage notes would decline if interest
rates rise.

                                       12
<PAGE>

     The following table presents the expected cash flows of principal that are
sensitive to these changes.

                                              Mortgage notes
                                                Fixed Rates
                                              --------------
          1999                                    $   47,552
          2000                                        61,451
          2001                                        68,361
          2002                                        76,049
          2003                                        84,601
          Thereafter                               1,457,906
                                              --------------
                                                  $1,795,920
                                              ==============

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

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


Item 8.   Financial Statements and Supplementary Data

                                       13
<PAGE>

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

                                   CONTENTS
                                   --------

                                                                          Page
                                                                          ----

Report of Independent Accountants                                           15

Financial Statements:

  Balance Sheets                                                            16

  Statements of Income                                                      17

  Statements of Partners' Capital                                           18

  Statements of Cash Flows                                                  19

  Notes to Financial Statements                                             21

                                       14
<PAGE>

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


To the Partners
CNL Income Fund VIII, 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 VIII, 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
February 4, 1999, except for Note 11 for which the date is March 11, 1999

                                       15
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                       1998                       1997
                                                                    -----------               -----------
                 ASSETS
                 ------
<S>                                                                 <C>                       <C>
 Land and buildings on operating leases, less
   accumulated depreciation                                         $15,769,278               $13,960,232
Net investment in direct financing leases                             7,802,785                10,044,975
Investment in joint ventures                                          2,809,759                 2,877,717
Mortgage notes receivable                                             1,811,726                 1,853,386
Cash and cash equivalents                                             1,809,258                 1,602,236
Receivables, less allowance for doubtful
   accounts of $24,636 and $19,228                                       84,265                    51,393
Prepaid expenses                                                          3,959                     4,357
Accrued rental income, less allowance for
   doubtful accounts of $4,501 in 1998 and                            1,927,418                 1,811,329
   1997
Other assets                                                             52,671                    52,671
                                                                    -----------               -----------

                                                                    $32,071,119               $32,258,296
                                                                    ===========               ===========

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

Accounts payable                                                    $     4,258               $     8,359
Escrowed real estate taxes payable                                       27,838                    24,459
Distributions payable                                                 1,137,501                   787,501
Due to related parties                                                   75,266                    59,649
Rents paid in advance and deposits                                       62,349                    53,556
                                                                    -----------               -----------
   Total liabilities                                                  1,307,212                   933,524

Minority interest                                                       108,600                   108,374

Partners' capital                                                    30,655,307                31,216,398
                                                                    -----------               -----------

                                                                    $32,071,119               $32,258,296
                                                                    ===========               ===========
</TABLE>

                See accompanying notes to financial statements.

                                       16
<PAGE>

                          CNL INCOME FUND VIII, 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                             $ 1,897,209           $ 1,804,273           $ 1,867,968
 Earned income from direct financing leases                        1,093,839             1,211,369             1,314,090
 Contingent rental income                                            101,911                85,735                31,712
 Interest and other income                                           269,744               238,338               127,246
                                                                 -----------           -----------           -----------
                                                                   3,362,703             3,339,715             3,341,016
                                                                 -----------           -----------           -----------
Expenses:
 General operating and administrative                                146,943               140,586               156,177
 Professional services                                                24,837                23,284                27,682
 State and other taxes                                                 5,372                 5,081                 4,757
 Depreciation                                                        246,976               208,971               208,971
 Transaction costs                                                    21,042                    --                    --
                                                                 -----------           -----------           -----------
                                                                     445,170               377,922               397,587
                                                                 -----------           -----------           -----------

Income Before Minority Interest in Income of
 Consolidated Joint Venture, Equity in
 Earnings of Unconsolidated Joint Ventures
 and Gain (Loss) on Sale of Land and
 Buildings                                                         2,917,533             2,961,793             2,943,429

Minority Interest in Income of Consolidated
 Joint Venture                                                       (13,518)              (13,706)              (13,906)

Equity in Earnings of Unconsolidated Joint
 Ventures                                                            276,721               293,480               266,500

Gain (Loss) on Sale of Land and Buildings                            108,176                    --               (99,031)
                                                                 -----------           -----------           -----------

Net Income                                                       $ 3,288,912           $ 3,241,567           $ 3,096,992
                                                                 ===========           ===========           ===========

Allocation of Net Income:
 General partners                                                $    31,807           $    32,416           $    31,413
 Limited partners                                                  3,257,105             3,209,151             3,065,579
                                                                 -----------           -----------           -----------

                                                                 $ 3,288,912           $ 3,241,567           $ 3,096,992
                                                                 ===========           ===========           ===========

Net Income Per Limited Partner Unit                              $     0.093           $     0.092           $     0.088
                                                                 ===========           ===========           ===========

Weighted Average Number of
 Limited Partner Units Outstanding                                35,000,000            35,000,000            35,000,000
                                                                 ===========           ===========           ===========
</TABLE>

                See accompanying notes to financial statements.

                                       17
<PAGE>

                          CNL INCOME FUND VIII, 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        Total
                               -------------  -----------   -------------  -------------   ------------  -----------  ------------
<S>                            <C>            <C>           <C>            <C>             <C>           <C>          <C>
Balance, December 31, 1995     $       1,000  $   161,612   $  35,000,000  $ (15,772,138)  $ 16,064,868  $(4,015,000) $ 31,440,342

   Distributions to limited
       partners ($0.098 per
       limited partner unit)              --           --              --     (3,412,500)            --           --    (3,412,500)
   Net income                             --       31,413              --             --      3,065,579           --     3,096,992
                               -------------  -----------   -------------  -------------   ------------  -----------  ------------

Balance, December 31, 1996             1,000      193,025      35,000,000    (19,184,638)    19,130,447   (4,015,000)   31,124,834

   Distributions to limited
       partners ($0.090 per
       limited partner unit)              --           --              --     (3,150,003)            --           --    (3,150,003)
   Net income                             --       32,416              --             --      3,209,151           --     3,241,567
                               -------------  -----------   -------------  -------------   ------------  -----------  ------------

Balance, December 31, 1997             1,000      225,441      35,000,000    (22,334,641)    22,339,598   (4,015,000)   31,216,398

   Distributions to limited
       partners ($0.110 per
       limited partner unit)              --           --              --     (3,850,003)            --           --    (3,850,003)
   Net income                             --       31,807              --             --      3,257,105           --     3,288,912
                               -------------  -----------   -------------  -------------   ------------  -----------  ------------

Balance, December 31, 1998     $       1,000  $   257,248   $  35,000,000  $ (26,184,644)  $ 25,596,703  $(4,015,000) $ 30,655,307
                               =============  ===========   =============  =============   ============  ===========  ============
</TABLE>

                See accompanying notes to financial statements.

                                       18
<PAGE>

                          CNL INCOME FUND VIII, 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                                $ 3,144,653         $ 3,114,439         $ 3,222,903
       Distributions from unconsolidated joint
         ventures                                                    344,643             356,589             323,531
       Cash paid for expenses                                       (185,270)           (163,215)           (194,218)
       Interest received                                             258,584             235,243             110,452
                                                                ------------        ------------        ------------
         Net cash provided by operating activities                 3,562,592           3,543,056           3,462,668
                                                                ------------        ------------        ------------

       Cash Flows from Investing Activities:
       Proceeds from sale of land and buildings                      116,397                  --                  --
       Additions to land and buildings on operating
         leases                                                           --                  --              (1,135)
       Investment in direct financing leases                              --                  --              (1,326)
       Investment in joint venture                                        --                  --            (234,059)
       Collections on mortgage notes receivable                       41,292               8,799               2,557
       Other                                                              36                  --             (34,793)
                                                                ------------        ------------        ------------
         Net cash provided by (used in) investing
          activities                                                 157,725               8,799            (268,756)
                                                                ------------        ------------        ------------

       Cash Flows from Financing Activities:
       Distributions to limited partners                          (3,500,003)         (3,412,502)         (3,325,000)
       Distributions to holder of minority interest                  (13,292)            (13,391)            (13,503)
                                                                ------------        ------------        ------------
         Net cash used in financing activities                    (3,513,295)         (3,425,893)         (3,338,503)
                                                                ------------        ------------        ------------

Net Increase (Decrease) in Cash and Cash Equivalents                 207,022             125,962            (144,591)

Cash and Cash Equivalents at Beginning of Year                     1,602,236           1,476,274           1,620,865
                                                                ------------        ------------        ------------

Cash and Cash Equivalents at End of Year                         $ 1,809,258         $ 1,602,236         $ 1,476,274
                                                                ============        ============        ============
</TABLE>

                See accompanying notes to financial statements.

                                       19
<PAGE>

                          CNL INCOME FUND VIII, 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                                                          $3,288,912         $3,241,567          $3,096,992
                                                                        -----------        -----------         -----------
     Adjustments to reconcile net income to net cash
       provided by operating activities:
       Depreciation                                                         246,976            208,971             208,971
       Minority interest in income of consolidated
          joint venture                                                      13,518             13,706              13,906
       Equity in earnings of unconsolidated
          joint ventures, net of distributions                               67,922             63,109              57,031
       Loss (gain) on sale of land and buildings                           (108,176)                --              99,031
       Decrease (increase) in receivables                                   (32,504)           (25,641)                429
       Decrease (increase) in prepaid expenses                                  398                 20              (1,465)
       Decrease in net investment in direct
          financing leases                                                  177,947            178,250             157,194
       Increase in accrued rental income                                   (116,089)          (128,736)           (219,757)
       Increase (decrease) in accounts
          payable and accrued expenses                                         (722)             9,987              12,203
       Increase (decrease) in due to related parties                         15,617              2,769              (4,505)
       Increase (decrease) in rents paid in advance                           8,793            (20,946)             42,638
          and deposits
                                                                        -----------        -----------         -----------
            Total adjustments                                               273,680            301,489             365,676
                                                                        -----------        -----------         -----------

Net Cash Provided by Operating Activities                                $3,562,592         $3,543,056          $3,462,668
                                                                        ===========        ===========         ===========

Supplemental Schedule of Non-Cash Investing and
   Financing Activities:

     Mortgage notes accepted in exchange for
          sale of land and buildings                                     $       --         $       --          $1,375,000
                                                                        -----------        -----------         -----------

     Distributions declared and unpaid at December 31                    $1,137,501         $  787,501          $1,050,000
                                                                        ===========        ===========         ===========
</TABLE>

                See accompanying notes to financial statements.

                                       20
<PAGE>

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

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

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

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

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

                                       21
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

          Accrued rental income represents the aggregate amount of
          income recognized on a straight-line basis in excess of
          scheduled rental payments to date. Whenever a tenant
          defaults under the terms of its lease, or events or changes
          in circumstance indicate that the tenant will not lease the
          property through the end of the lease term, the Partnership
          either reserves or 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, are removed from the accounts and gains or
     losses from sales are reflected in income.  The general partners of the
     Partnership review the properties for impairment whenever events or changes
     in circumstances indicate that the carrying amount of the assets may not be
     recoverable through operations.  The general partners determine whether an
     impairment in value has occurred by comparing the estimated future
     undiscounted cash flows, including the residual value of the property, with
     the carrying cost of the individual property.  If an impairment is
     indicated, the assets are adjusted to their fair value.  Although the
     general partners have made their best estimate of these factors based on
     current conditions, it is reasonably possible that changes could occur in
     the near term which could adversely affect the general partners' estimate
     of net cash flows expected to be generated from its properties and the need
     for asset impairment write-downs.

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

     Investment in Joint Ventures - The Partnership accounts for its 87.68%
     ----------------------------
     interest in Woodway Joint Venture using the consolidation method.  Minority
     interest represents the minority joint venture partner's proportionate
     share of the equity in the Partnership's consolidated joint venture.  All
     significant intercompany accounts and transactions have been eliminated.

     The Partnership's investments in Asheville Joint Venture, CNL Restaurant
     Investments II and Middleburg Joint Venture are accounted for using the
     equity method since the Partnership shares control with affiliates which
     have the same general partners.

                                       22
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

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

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

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

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

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

                                       23
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


2.   Leases:
     ------

     The Partnership leases its land and buildings primarily to operators of
     national and regional fast-food and family-style restaurants.  The leases
     are accounted for under the provisions of Statement of Financial Accounting
     Standards No. 13, "Accounting for Leases."  Some of the leases have been
     classified as operating leases and some of the leases have been classified
     as direct financing leases.  For property leases classified as direct
     financing leases, the building portions of the majority of property leases
     are accounted for as direct financing leases while the land portions of
     these leases are accounted for as operating leases. Substantially all
     leases are for 15 to 20 years and 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 tenants to renew the leases
     for two to four successive five-year periods subject to the same terms and
     conditions of 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                              $ 9,159,115        $ 9,167,336
          Buildings                           8,295,673          6,231,430
                                           ------------       ------------
                                             17,454,788         15,398,766

          Less accumulated depreciation      (1,685,510)        (1,438,534)
                                           ------------       ------------

                                            $15,769,278        $13,960,232
                                           ============       ============
</TABLE>

     In July 1998, the Partnership received $116,397 as a settlement from the
     Florida Department of Transportation for a right of way taking related to a
     parcel of land on its property in Brooksville, Florida.  In connection
     therewith, the Partnership recognized a gain of $108,176 for financial
     reporting purposes.


                                       24
<PAGE>

                          CNL INCOME FUND VIII, 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:
     --------------------------------------------------

     Some leases provide for escalating guaranteed minimum rents throughout the
     lease terms.  Income from these scheduled rent increases is recognized on a
     straight-line basis over the terms of the leases.  For the years ended
     December 31, 1998, 1997, and 1996, the Partnership recognized $116,089,
     $128,736 (net $4,501 in reserves), and $219,757, respectively, of such
     rental income.

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

          1999                                         $ 1,889,012
          2000                                           1,919,651
          2001                                           2,017,044
          2002                                           2,065,510
          2003                                           2,096,121
          Thereafter                                    12,027,545
                                                       -----------

                                                       $22,014,883
                                                       ===========

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

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                   $14,095,756       $ 18,939,788
          Estimated residual values        2,457,619          3,040,615
          Less unearned income            (8,750,590)       (11,935,428)
                                         -----------       ------------

          Net investment in direct
            financing leases             $ 7,802,785       $ 10,044,975
                                         ===========       ============
</TABLE>

                                       25
<PAGE>

                          CNL INCOME FUND VIII, 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:
     -----------------------------------------------------

     In August 1998, four of the Partnership's leases were amended.  As a
     result, the Partnership reclassified these leases from direct financing
     leases to operating leases.  In accordance with the Statement of Financial
     Accounting Standards #13, "Accounting for Leases," the Partnership recorded
     each of the reclassified leases at the lower of original cost, present fair
     value, or present carrying value.  No losses on the termination of direct
     financing leases were recorded for financial reporting purposes.

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

          1999                                           $ 1,106,822
          2000                                             1,106,822
          2001                                             1,130,328
          2002                                             1,142,042
          2003                                             1,142,042
          Thereafter                                       8,467,700
                                                         -----------

                                                         $14,095,756
                                                         ===========

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

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

     The Partnership has an 85.54%, a 36.8%, and a 12.46% interest in the
     profits and losses of Asheville Joint Venture, CNL Restaurant Investments
     II, and Middleburg Joint Venture, respectively.  The remaining interests in
     these joint ventures are held by affiliates of the Partnership which have
     the same general partners.

                                       26
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     Asheville Joint Venture and Middleburg Joint Venture each own and lease one
     property, and CNL Restaurant Investments II owns and leases six properties
     to an operator of national fast-food or family-style restaurants.  The
     following presents the joint ventures' combined, condensed financial
     information at December 31:

<TABLE>
<CAPTION>
                                                                  1998                  1997
                                                              -----------           ------------
          <S>                                                 <C>                   <C>
          Land and buildings on operating
            leases, less accumulated
            depreciation                                       $6,320,059            $6,487,210
          Net investment in direct financing lease              1,319,045             1,335,223
          Cash                                                      1,176                   596
          Receivables                                              17,395                14,169
          Prepaid expenses                                            719                 1,017
          Accrued rental income                                   162,857               128,993
          Liabilities                                                 580                   864
          Partners' capital                                     7,820,671             7,966,344
          Revenues                                                940,168             1,001,284
          Net income                                              762,579               824,576
</TABLE>

     The Partnership recognized income totalling $276,721, $293,480, and
     $266,500 for the years ended December 31, 1998, 1997, and 1996,
     respectively, from these joint ventures.

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

     As of December 31, 1995, the Partnership had accepted two promissory notes
     in the principal sum totalling $460,000, in connection with the sale of two
     of its properties in Jacksonville, Florida.  The promissory notes, which
     are collateralized by mortgages on the properties, bear interest at a rate
     of ten percent per annum, and are being collected in 119 equal monthly
     installments of $2,106 and $1,931, with balloon payments of $218,252 and
     $200,324, respectively, due in December 2005.

                                       27
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     In addition, in connection with the sale in 1996 of its property in
     Orlando, Florida, the Partnership accepted a promissory note in the
     principal sum of $1,388,568, representing the gross sales price of
     $1,375,000 plus tenant closing costs of $13,568 that the Partnership
     financed on behalf of the tenant.  The promissory note bears interest at a
     rate of 10.75% per annum, is collateralized by a mortgage on the property
     and is being collected in 12 monthly installments of interest only, in 24
     monthly installments of $15,413 consisting of principal and interest, and
     thereafter in 144 monthly installments of $16,220 consisting of principal
     and interest.

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

<TABLE>
<CAPTION>
                                                     1998                 1997
                                                 -----------          -----------
          <S>                                    <C>                  <C>
          Principal balance                       $1,795,920           $1,837,212
          Accrued interest receivable                 15,806               16,174
                                                 -----------          -----------

                                                  $1,811,726           $1,853,386
                                                 ===========          ===========
</TABLE>

     The general partners believe that the estimated fair value of mortgage
     notes receivable at December 31, 1998 and 1997, approximated the
     outstanding principal amount based on estimated current rates at which
     similar loans would be made to borrowers with similar credit and for
     similar maturities.

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

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

                                       28
<PAGE>

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

     Generally, net sales proceeds from a liquidating sale of properties, will
     be used in the following order: i) first to pay and discharge all of the
     Partnership's liabilities to creditors, ii) second, to establish reserves
     that may be deemed necessary for any anticipated or unforeseen liabilities
     or obligations of the Partnership, iii) third, to pay all of the
     Partnership's liabilities, if any, to the general and limited partners, iv)
     fourth, after allocations of net income, gains and/or losses, to distribute
     to the partners with positive capital 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 $3,850,003, $3,150,003,
     and $3,412,500, respectively. No distributions have been made to the
     general partners to date.

                                       29
<PAGE>

                        (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                                $3,288,912        $3,241,567       $3,096,992

          Depreciation for tax reporting
               purposes in excess of
               depreciation for financial
               reporting purposes                                  (166,412)         (204,419)        (219,372)

          Direct financing leases recorded as
               operating leases for tax reporting
               purposes                                             177,946           178,250          157,197

          Allowance for doubtful accounts                             5,408            18,954          (23,716)

          Accrued rental income                                    (116,089)         (133,237)        (219,757)

          Rents paid in advance                                       9,293           (21,446)          42,637

          Gain or loss on sale of land and
               buildings for tax reporting
               purposes in excess of gain or loss
               for financial reporting purposes                       3,170               670           99,031

          Capitalized transaction costs for tax
               reporting purposes                                    21,042                --               --

          Equity in earnings of unconsolidated
               joint ventures for tax reporting
               purposes in excess of (less than)
               equity in earnings of
               unconsolidated joint ventures for
               financial reporting purposes                          15,563            (2,987)          13,320

          Minority interest in timing differences
               of consolidated joint venture                          1,443             1,571            1,677
                                                                 ----------        ----------       ----------
          Net income for federal income tax
               purposes                                          $3,240,276        $3,078,923       $2,948,009
                                                                 ==========        ==========       ==========
</TABLE>

                                       30
<PAGE>

                          CNL INCOME FUND VIII, 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 majority stockholder of CNL
     Fund Advisors, Inc.  The other individual general partner, Robert A.
     Bourne, serves as treasurer, director and vice chairman of the board of CNL
     Fund Advisors, Inc.  During the years ended December 31, 1998, 1997, and
     1996, CNL Fund Advisors, Inc. (hereinafter referred to as the "Affiliate")
     performed certain services for the Partnership, as described below.

     During the years ended December 31, 1998, 1997, and 1996, the Affiliate
     acted as manager of the Partnership's properties pursuant to a management
     agreement with the Partnership.  In connection therewith, the Partnership
     agreed to pay the Affiliate an annual, noncumulative, subordinated
     management fee of one percent of the sum of gross revenues from properties
     wholly owned by the Partnership and the Partnership's allocable share of
     gross revenues from joint ventures, but not in excess of competitive fees
     for comparable services.  These fees will be incurred and will be payable
     only after the limited partners receive their 10% Preferred Return.  Due to
     the fact that these fees are noncumulative, if the limited partners have
     not received their 10% Preferred Return in any particular year, no
     management fees will be due or payable for such year.  As a result of such
     threshold, no management fees were incurred during the years ended December
     31, 1998, 1997, and 1996.

     The Affiliate is also entitled to receive a deferred, subordinated real
     estate disposition fee, payable upon the sale of one or more properties
     based on the lesser of one-half of a competitive real estate commission or
     three percent of the sales price if the Affiliate provides a substantial
     amount of services in connection with the sale.  However, if the net sales
     proceeds are reinvested in a replacement property, no such real estate
     disposition fees will be incurred until such replacement property is sold
     and the net sales proceeds are distributed.  The payment of the real estate
     disposition fee is subordinated to receipt by the limited partners of their
     aggregate 10% Preferred Return, plus their adjusted capital contributions.
     During the year ended December 31, 1996, the Partnership incurred $41,250
     in deferred, subordinated real estate disposition fees as the result of the
     sale of the property in Orlando, Florida.  No deferred, subordinated real
     estate disposition fees were incurred for the years ended December 31, 1998
     and 1997.

                                       31
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     During the years ended December 31, 1998, 1997, and 1996, the Affiliate
     provided accounting and administrative services to the Partnership on a
     day-to-day basis.  The Partnership incurred $96,202, $80,461 and $89,317
     for the years ended December 31, 1998, 1997, and 1996, respectively, for
     such services.

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

<TABLE>
<CAPTION>
                                                   1998          1997
                                                 --------      --------
          <S>                                    <C>           <C>
          Due to Affiliates:
          Accounting and administrative
            services                              $20,216       $ 4,599
          Deferred, subordinated real
            estate disposition fee                 55,050        55,050
                                                 --------      --------
                                                  $75,266       $59,649
                                                 ========      ========
</TABLE>

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 (including the Partnership's
     share of total rental and earned income from the unconsolidated joint
     ventures) for each of the years ended December 31:

<TABLE>
<CAPTION>
                                                    1998         1997          1996
                                                 ----------   ----------    ----------
       <S>                                       <C>          <C>           <C>
       Golden Corral Corporation                  $728,641     $706,839      $663,889
       Restaurant Management Services, Inc.        527,360      531,110       533,990
       Carrols Corporation.                        482,081      523,517       526,034
       Flagstar Enterprises, Inc. and Quincy's
          Restaurants, Inc.                            N/A          N/A       356,720
</TABLE>

                                       32
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

     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 (including the
     Partnership's share of total rental and earned income from the
     unconsolidated joint ventures), for each of the years ended December 31:

<TABLE>
<CAPTION>
                                               1998         1997         1996
                                            ----------  -----------   ----------
       <S>                                  <C>         <C>           <C>
       Burger King                           $961,542    $1,003,419    $989,480
       Golden Corral Family Steakhouse
         Restaurants                          750,869       735,949     681,042
       Shoney's                               603,304       607,054     609,072
</TABLE>

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

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

11.  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
     4,042,635 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 $39,843,631 as of December 31, 1998.

                                       33
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     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.

                                       34
<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 28/th/ day of
October, 1999.

                              CNL INCOME FUND VIII, LTD.

                              By:   CNL REALTY CORPORATION
                                    General Partner

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


                              By:   ROBERT A. BOURNE
                                    General Partner

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


                              By:   JAMES M. SENEFF, JR.
                                    General Partner

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


<PAGE>

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

<TABLE>
<CAPTION>
             Signature                                Title                                    Date
             ---------                                -----                                    ----
<S>                                    <C>                                               <C>
/s/ Robert A. Bourne                   President, Treasurer and Director                 October 28, 1999
------------------------------------
Robert A. Bourne                       (Principal Financial and Accounting
                                       Officer)

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