<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  0-19144

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

            Florida                                       59-2922954
(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 ($500 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 70,000 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 $500 per Unit.

                     DOCUMENTS INCORPORATED BY REFERENCE:
                                     None
<PAGE>

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


                                    PART I

Item 1.  Business

     CNL Income Fund VI, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 17, 1988.  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 June 8, 1989, the
Partnership offered for sale up to $35,000,000 in limited partnership interests
(the "Units") (70,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
December 16, 1988.  The offering terminated on January 22, 1990, 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 selected 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, totalled $30,975,000, and were used to acquire 42 Properties,
including interests in four Properties owned by joint ventures in which the
Partnership is a co-venturer.  During the year ended December 31, 1994, the
Partnership sold its Properties in Batesville and Heber Springs, Arkansas, to
the tenant and reinvested the net sales proceeds in a Jack in the Box Property
in Dallas, Texas, and a Jack in the Box Property in Yuma, Arizona, which is
owned as tenants-in-common with an affiliate of the General Partners.  In
addition, during the year ended December 31, 1995, the Partnership sold its
Property in Little Canada, Minnesota, and reinvested the majority of the net
sales proceeds in a Denny's Property in Broken Arrow, Oklahoma.  During the year
ended December 31, 1996, the Partnership reinvested the remaining net sales
proceeds from the sale of the Property in Little Canada, Minnesota, in a
Property located in Clinton, North Carolina, with affiliates of the General
Partners as tenants-in-common.  Also, during the year ended December 31, 1996,
the Partnership sold its Property in Dallas, Texas.  During the year ended
December 31, 1997, the Partnership reinvested the net sales proceeds from the
sale of the Property in Dallas, Texas, in a Bertucci's Property located in
Marietta, Georgia.  In addition, during 1997, the Partnership sold its
Properties in Plattsmouth, Nebraska; Venice, Florida; Naples, Florida, and
Whitehall, Michigan, and the Property in Yuma, Arizona, which was held as
tenants-in-common with an affiliate of the General Partners, and reinvested a
portion of these net sales proceeds in two IHOP Properties, one in each of
Elgin, Illinois, and Manassas, Virginia, and in a Property in Vancouver,
Washington, as tenants-in-common with affiliates of the General Partners.  In
addition, Show Low Joint Venture, a joint venture in which the Partnership is a
co-venturer with an affiliate of the General Partners, sold its Property in Show
Low, Arizona.  The joint venture reinvested the net sales proceeds in a Property
in Greensboro, North Carolina.  During 1998, the Partnership reinvested the net
sales proceeds from the sales of the Properties in Whitehall, Michigan and
Plattsmouth, Nebraska in one Property in Overland Park, Kansas and one Property
in Memphis, Tennessee, as tenants-in-common, with affiliates of the General
Partners.  In addition, in 1998, the Partnership sold its Property in Deland,
Florida, Liverpool, New York, Melbourne, Florida, and Bellevue, Nebraska.  The
Partnership reinvested the net sales proceeds from the sales of the Property in
Deland, Florida in one Property in Fort Myers, Florida, as tenants-in-common,
with an affiliate of the General Partners and the Partnership reinvested the net
sales proceeds from the sales of the Properties in Melbourne, Florida and
Bellevue, Nebraska in two joint ventures, Warren Joint Venture and Melbourne
Joint Venture, respectively, to each purchase and hold one restaurant Property.
As a result of the above transactions, as of December 31, 1998, the Partnership
owned 42 Properties.  The 42 Properties include six Properties owned by joint
ventures in which the Partnership is a co-venturer and five Properties owned
with affiliates as tenants-in-common. Generally, the Properties are leased on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.

                                       2
<PAGE>

     On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "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 General 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 or
joint venture 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,
the joint ventures in which the Partnership is a co-venturer and the properties
owned with affiliates as tenants-in-common provide for initial terms, ranging
from five to 20 years (the average being 18 years), and expire between 2003 and
2018. 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 $30,000 to $222,800.
Generally, the leases provide for percentage rent based on sales in excess of a
specified amount.  In addition, some of the leases provide that, commencing in
the fourth to sixth lease year, the percentage rent will be an amount equal to
the greater of the percentage rent calculated under the lease formula or a
specified percentage (ranging from one to five percent) of the purchase price or
gross sales.

     Generally, the leases of the Properties provide for two, three or 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, or pursuant to a formula
based on the original purchase price of the Property, after a specified portion
of the lease term has elapsed.  Fair market value will be determined through an
appraisal by an independent appraisal firm.

     The leases also generally provide that, in the event the Partnership wishes
to sell the 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 1998, the lease relating to the Church's Property in Gainesville,
Florida was amended to provide for rent reductions effective July 1997 through
June 2002, at which time the rental payments will revert back to the original
agreement.

Major Tenants

     During 1998, four lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation, Restaurant Management Services, Inc., Mid-
America Corporation, and IHOP Properties Inc., each contributed more than ten
percent of the Partnership's total rental income (including rental income from
the Partnership's consolidated joint venture in which the Partnership is a co-
venturer and the Partnership's share of the rental income from the five
properties owned by unconsolidated joint venturers and five Properties owned
with affiliates as tenants-in-common).  As of December 31, 1998, Golden Corral
Corporation was the lessee under leases relating to five restaurants, Restaurant
Management Services, Inc. was the lessee under leases relating to seven
restaurants, Mid-America Corporation was the lessee under leases relating to
four restaurants, and IHOP Properties Inc. was the lessee under leases relating
to five restaurants.  It is anticipated that, based on the minimum rental
payments required by the leases,

                                       3
<PAGE>

these four 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 ("Golden Corral"), Burger King and
IHOP, each accounted for more than ten percent of the Partnership's total rental
income in 1998 (including the Partnership's consolidated joint venture and the
Partnership's share of the rental income from the five Properties owned by
unconsolidated joint ventures in which the Partnership is a co-venturer and five
Properties owned with affiliates as tenants-in-common). 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 and Tenancy in Common Arrangements

     The Partnership has entered into a joint venture arrangement, Caro Joint
Venture, with an unaffiliated entity to purchase and hold one Property.  In
addition, the Partnership has entered into the following separate joint venture
arrangements:  Auburn Joint Venture with CNL Income Fund IV, Ltd., an affiliate
of the General Partners, to purchase and hold one Property; Show Low Joint
Venture with CNL Income Fund II, Ltd., an affiliate of the General Partners, to
purchase and hold one Property; Asheville Joint Venture with CNL Income Fund
VIII, Ltd., an affiliate of the General Partners, to purchase and hold one
Property; Melbourne Joint Venture with CNL Income Fund XIV, Ltd., an affiliate
of the General Partners, to purchase and hold one Property; and Warren Joint
Venture with CNL Income Fund IV, 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
venture in accordance with their respective percentage interest in the joint
venture. The Partnership has 66.14% interest in Caro Joint Venture, a 3.9%
interest in Auburn Joint Venture, a 36 percent interest in Show Low Joint
Venture, a 14.46% interest in Asheville Joint Venture, a 50 percent interest in
Melbourne Joint Venture, and a 64.29% interest in Warren Joint Venture. The
Partnership and its joint venture partners are jointly and severally liable for
all debts, obligations and other liabilities of the joint venture.

     Each joint venture has an initial term of 20 years and, after the
expiration of the initial term, continues in existence form year to year unless
terminated at the option of either joint venturer by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve the joint
venture.

     The Partnership has management control of Caro Joint Venture and share
management control equally with affiliates of the General Partners for Auburn
Joint Venture, Show Low Joint Venture, Asheville Joint Venture, Melbourne Joint
Venture, and Warren Joint Venture.  The joint venture agreements restrict each
venturer's ability to sell, transfer to 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 Auburn Joint Venture, Show Low Joint
Venture, Caro Joint Venture, Asheville Joint Venture, Melbourne Joint Venture,
and Warren Joint Venture is distributed 3.9%, 36.0%, 66.14%, 14.46%, 50 percent
and 64.29%, respectively, to the Partnership and the balance is distributed to
each of the other joint venture partners in accordance with its respective
percentage interest in the joint venture.  Any liquidation proceeds, after
paying joint venture debts and liabilities and funding reserves for contingent
liabilities, will be distributed first to the joint venture partners with
positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter in proportion to each joint venture
partner's percentage interest in the joint venture.

     In addition to the above joint venture arrangements, the Partnership has
entered into agreements to hold a Property in Vancouver, Washington, as tenants-
in-common, with CNL Income Fund, Ltd., CNL Income Fund II, Ltd., and CNL Income
Fund V, Ltd., affiliates of the General Partners; a Property in Clinton, North
Carolina, as tenants-in-common, with CNL Income Fund IV, Ltd., CNL Income Fund
X, Ltd., and CNL Income Fund XV, Ltd., affiliates of the General Partners; a
Property in Overland Park, Kansas, as tenants-in-common, with CNL Income Fund
II, Ltd. and CNL Income Fund III, Ltd., affiliates of the General Partners; a
Property in Memphis, Tennessee, as tenants-in-

                                       4
<PAGE>

common, with CNL Income Fund II, Ltd. and CNL Income Fund XVI, Ltd., affiliates
of the General Partners; and a Property in Ft. Myers, Florida, as tenants-in-
common, with CNL Income Fund XV, Ltd., an affiliate of the General Partners. The
agreements provide for the Partnership and the affiliates to share in the
profits and losses of the Property and net cash flow from the Properties, in
proportion to each co-tenant's percentage interest. The Partnership owns a
23.04%, an 18 percent, a 34.74%, a 46.2% and an 85 percent interest in the
Properties in Vancouver, Washington; Clinton, North Carolina; Overland Park,
Kansas; Memphis, Tennessee; and Ft. Myers, Florida, respectively.

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

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

Certain Management Services

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

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

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.

                                       5
<PAGE>

Item 2.  Properties

     As of December 31, 1998, the Partnership owned 42 Properties.  Of the 42
Properties, 31 are owned by the Partnership in fee simple, six are owned through
joint venture arrangements and five are owned through tenancy in common
arrangements.  See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements.  The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement.  Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.  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 11,500 to
88,200 square feet depending upon building size and local demographic factors.
Sites purchased by the Partnership are in locations zoned for commercial use
which have been reviewed for traffic patterns and volume.

     The following table lists the Properties owned by the Partnership as of
December 31, 1998 by state.  More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with the Partnership's Form 10-K for the year ended December
31, 1998.

<TABLE>
<CAPTION>
          State                                             Number of Properties
          -----                                             --------------------
          <S>                                               <C>
          Florida                                                    11
          Georgia                                                     1
          Illinois                                                    1
          Indiana                                                     1
          Kansas                                                      1
          Massachusetts                                               1
          Michigan                                                    3
          North Carolina                                              3
          New Mexico                                                  1
          Ohio                                                        1
          Oklahoma                                                    2
          Pennsylvania                                                1
          Tennessee                                                   8
          Texas                                                       3
          Virginia                                                    2
          Washington                                                  1
          Wyoming                                                     1
                                                               --------
          TOTAL PROPERTIES:                                          42
                                                               ========
</TABLE>

     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
1,200 to 10,700 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 depreciable lives of 31.5
and 39 years for federal income tax purposes.  As of December 31, 1998, the
aggregate cost of the Properties owned by the Partnership and joint ventures
(including Properties owned through tenancy in common arrangements) for federal
income tax purposes was $25,492,208 and $12,463,859, respectively.

                                       6
<PAGE>

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

<TABLE>
<CAPTION>
          Restaurant Chain                                  Number of Properties
          ----------------                                  --------------------
          <S>                                               <C>
          5 & Diner                                                   1
          Arby's                                                      1
          Bennigan's                                                  1
          Bertucci's                                                  1
          Burger King                                                 5
          Captain D's                                                 1
          Chevy's Fresh Mex                                           1
          Church's                                                    2
          Darryl's                                                    1
          Denny's                                                     2
          Golden Corral                                               5
          Hardee's                                                    2
          IHOP                                                        5
          Jack in the Box                                             1
          KFC                                                         3
          Loco Lupe's Mexican Restaurant                              1
          Popeyes                                                     4
          Shoney's                                                    1
          Taco Bell                                                   1
          Waffle House                                                3
                                                               --------
          TOTAL PROPERTIES:                                          42
                                                               ========
</TABLE>

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

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

     Leases.  The Partnership leases the Properties to operators of selected
national and regional fast-food 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.

                                       7
<PAGE>

     At December 31, 1998, 1997, 1996, 1995 and 1994, the Properties were 100%,
95%, 98%, 100%, and 100% occupied, respectively.  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)              $3,342,220          $3,139,283          $3,568,754          $3,431,074          $3,465,440
Properties                               42                  39                  42                  42                  42
Average Rent per Unit            $   79,577          $   80,494          $   84,970          $   81,692          $   82,510
</TABLE>

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

     The following is a schedule of lease expirations for leases in place as of
December 31, 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                            4                 624,648                    19.98%
             2005                            5                 533,411                    17.06%
             2006                            1                 111,414                     3.56%
             2007                           --                      --                       --
             2008                            3                 122,654                     3.92%
             Thereafter                     29               1,734,127                    55.48%
                                    ----------              ----------               ----------
             Totals                         42               3,126,254                   100.00%
                                    ==========              ==========               ==========
</TABLE>

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

     Restaurant Management Services leases four Popeyes restaurants, two
Church's Fried Chicken restaurant and one other restaurant (formerly operated as
a Captain D's).  The initial term of each lease is 20 years (expiring between
2009 and 2010) and the average minimum base annual rent is approximately $49,600
(ranging from approximately $30,000 to $61,900).

     Golden Corral Corporation leases five Golden Corral restaurants.  The
initial term of each lease is 15 years (expiring between 2004 and 2011) and the
average minimum base annual rent is approximately $152,900 (ranging from
approximately $88,000 to $185,700).

     Mid-America Corporation leases four Burger King restaurants.  The initial
term of each lease is between 14 and 16 years (expiring between 2004 and 2006)
and the average minimum base annual rent is approximately $110,500 (ranging from
approximately $108,100 to $111,300).

     IHOP Properties, Inc. leases five IHOP restaurants.  The initial term of
each lease is 20 years (expiring between 2017 and 2018) and the average minimum
base annual rent is approximately $141,600 (ranging from approximately $114,500
to $163,200).

                                       8
<PAGE>

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 17, 1988, 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 lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities.  As of
December 31, 1998, the Partnership owned 42 Properties, either directly or
indirectly through joint venture or tenancy in common arrangements.

Capital Resources

     During the years ended December 31, 1998, 1997, and 1996, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures and interest received, less cash paid for
expenses) of $3,243,660, $3,156,041, and $3,310,762 for the years ended December
31, 1998, 1997, and 1996, respectively.  The increase in cash from operations
during 1998 and 1997, each as compared to the previous year, is primarily a
result of changes in income and expenses as described in "Results of Operations"
below and changes in the Partnership's working capital during each of the
respective years.

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

     In January 1996, the Partnership reinvested the remaining net sales
proceeds from the 1995 sale of the Property in Little Canada, Minnesota, in a
Golden Corral Property located  in Clinton, North Carolina, with affiliates of
the General Partners as tenants-in-common.  In connection therewith, the
Partnership and its affiliates entered into an agreement whereby each co-tenant
will share in the profits and losses of the Property in proportion to its
applicable percentage interest.  As of December 31, 1998, the Partnership owned
an 18 percent interest in this Property.

     In March 1996, the Partnership entered into an agreement with the tenant of
the Properties in Chester, Pennsylvania, and Orlando, Florida, for payment of
certain rental payment deferrals the Partnership had granted to the tenant
through March 31, 1996.  Under the agreement, the Partnership agreed to abate
approximately $42,700 of the rental payment deferral amounts.  The tenant made
payments of approximately $18,600 in each of April 1996, March 1997, and April
1998 in accordance with the terms of the agreement, and has agreed to pay the
Partnership the remaining balance due of approximately $74,400 in four remaining
annual installments through 2002.

     In December 1996, the Partnership sold its Property in Dallas, Texas, to an
unrelated third party for $1,016,000 and received net sales proceeds of
$982,980.  This Property was originally acquired by the Partnership in June 1994
and had a cost of approximately $980,900, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the Property
for approximately $2,100 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 on land and building
of $1,706 for financial reporting purposes.  Due to the fact that the straight-
lining of future 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 February 1997, the Partnership reinvested the net
sales proceeds, along with additional funds, in a Bertucci's Property located in
Marietta, Georgia, for a total cost of approximately $1,112,600.  The
transaction relating to the sale of the Property in Dallas, Texas and the
reinvestment of

                                       9
<PAGE>

the net sales proceeds was structured to qualify as a like-kind exchange
transaction for federal income tax purposes.

     In January 1997, Show Low Joint Venture, in which the Partnership owns a 36
percent interest, sold the Property to the tenant for $970,000, resulting in a
gain to the joint venture of approximately $360,000 for financial reporting
purposes.  The Property was originally contributed to Show Low Joint Venture in
July 1990 and had a total cost of approximately $663,500, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the joint venture sold
the Property for approximately $306,500 in excess of its original purchase
price.  In June 1997, Show Low Joint Venture reinvested $782,413 of the net
sales proceeds in a Property in Greensboro, North Carolina.  As of December 31,
1998, the Partnership had received approximately $70,000 representing a return
of capital for its pro-rata share of the uninvested net sales proceeds.

     In July 1997, the Partnership sold the Property in Whitehall, Michigan, to
an unrelated third party, for $665,000 and received net sales proceeds of
$626,907, resulting in a loss of $79,777 for financial reporting purposes, as
described below in "Results of Operations."  The net sales proceeds were
reinvested in a Property in Overland Park, Kansas, with affiliates of the
General Partners as tenants-in-common, in January 1998.  In connection
therewith, the Partnership and the affiliates entered into an agreement whereby
each co-tenant will share in the profits and losses of the Property in
proportion to its applicable percentage interest.  As of December 31, 1998, the
Partnership owned a 34.74% interest in this Property.

     In addition, in July 1997, the Partnership sold its Property in Naples,
Florida, to an unrelated third party, for $1,530,000 and received net sales
proceeds of $1,477,780, resulting in a gain of $186,550 for financial reporting
purposes.  This Property was originally acquired by the Partnership in December
1989 and had a cost of approximately $1,083,900, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the Property
for approximately $403,800 in excess of its original purchase price.  In
December 1997, the Partnership reinvested the net sales proceeds in an IHOP
Property in Elgin, Illinois, for a total cost of approximately $1,484,100.  A
portion of the transaction, relating to the sale of the Property in Naples,
Florida, and the reinvestment of the net sales proceeds was structured to
qualify as a like-kind exchange transaction for federal income tax purposes.
The Partnership distributed amounts sufficient to enable the Limited Partners to
pay federal and state income taxes, at a level reasonably assumed by the General
Partners, resulting from the sale.

     In addition, in July 1997, the Partnership sold its Property in
Plattsmouth, Nebraska, to the tenant, for $700,000 and received net sales
proceeds of $697,650, resulting in a gain of $156,401 for financial reporting
purposes. This Property was originally acquired by the Partnership in January
1990 and had a cost of approximately $561,000, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the Property
for approximately $138,400 in excess of its original purchase price.  In January
1998, the Partnership reinvested the net sales proceeds in an IHOP Property in
Memphis, Tennessee, with affiliates of the General Partners as tenants-in-
common.  In connection therewith, the Partnership and the affiliates entered
into an agreement whereby each co-tenant will share in the profits and losses of
the Property in proportion to its applicable percentage interest.  As of
December 31, 1998, the Partnership owned a 46.2% interest in this Property.  The
Partnership distributed amounts sufficient to enable the Limited Partners to pay
federal and state income taxes at a level reasonably assumed by the General
Partners, resulting from the sale.

     In June 1997, the Partnership terminated the lease with the tenant of the
Property in Greensburg, Indiana.  In connection therewith, the Partnership
accepted a promissory note from this former tenant for $13,077 for amounts
relating to past due real estate taxes the Partnership had incurred as a result
of the former tenant's financial difficulties.  The promissory note, which is
uncollateralized, bears interest at a rate of ten percent per annum, and is
being collected in 36 monthly installments.  Receivables at December 31, 1998,
included $9,561 of such amounts.  In July 1997, the Partnership entered into a
new lease for the Property in Greensburg, Indiana, with a new tenant to operate
the Property as an Arby's restaurant.  In connection therewith, the Partnership
agreed to fund $125,000 in renovation costs.  The renovations were completed in
October 1997, at which time payments of rent commenced.

     In September 1997, the Partnership sold its Property in Venice, Florida, to
an unrelated third party, for $1,245,000 and received net sales proceeds of
$1,201,648, resulting in a gain of $283,853 for financial reporting purposes.
This Property was originally acquired by the Partnership in August 1989 and had
a cost of approximately $1,032,400, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $174,300 in excess of its original purchase price.  In December
1997, the Partnership

                                       10
<PAGE>

reinvested the net sales proceeds in an IHOP Property in Manassas, Virginia, for
a total cost of approximately $1,126,800. A portion of the transaction relating
to the sale of the Property in Venice, Florida, and the reinvestment of the net
sales proceeds was structured to qualify as a like-kind exchange transaction for
federal income tax purposes. The Partnership distributed amounts sufficient to
enable the Limited Partners to pay federal and state income taxes at a level
reasonably assumed by the General Partners, resulting from the sale.

     In October 1997, the Partnership and an affiliate, as tenants-in-common,
sold the Property in Yuma, Arizona, in which the Partnership owned a 51.67%
interest, for a total sales price of $1,010,000 and received net sales proceeds
of $982,025, resulting in a gain, to the tenancy-in-common, of approximately
$128,400 for financial reporting purposes.  The Property was originally acquired
in July 1994 and had a total cost of approximately $861,700, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the Property
was sold for approximately $120,300 in excess of its original purchase price.
The Partnership received approximately $455,000, representing a return of
capital for its pro-rata share of the net sales proceeds.  In December 1997, the
Partnership reinvested the amounts received as a return of capital from the sale
of the Yuma, Arizona Property, in a Property in Vancouver, Washington, as
tenants-in-common with affiliates of the General Partners.  In connection
therewith, the Partnership and the affiliates entered into an agreement whereby
each co-tenant will share in the profits and losses of the Property in
proportion to its applicable percentage interest.  As of December 31, 1998, the
Partnership owned a 23.04% interest in this Property.  The transaction relating
to the sale of the Property in Yuma, Arizona and the reinvestment of the net
sales proceeds was structured to qualify as a like-kind exchange transaction for
federal income tax purposes.

     In January 1998, the Partnership sold its Property in Deland, Florida, to
the tenant, for $1,250,000 and received net sales proceeds of $1,234,122,
resulting in a gain of $345,122 for financial reporting purposes.  This Property
was originally acquired by the Partnership in October 1989 and had a cost of
approximately $1,000,000, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $234,100 in excess of its original purchase price.  In June 1998,
the Partnership reinvested the majority of the net sales proceeds in a Property
in Fort Myers, Florida, with an affiliate of the general partners as tenants-in-
common.  The transaction relating to the sale of the Property in Deland,
Florida, and the reinvestment of the net sales proceeds, was structured to
qualify as a like-kind exchange transaction for federal income tax purposes.

     In February 1998, the Partnership sold its Property in Melbourne, Florida,
for $590,000 and received net sales proceeds of $552,910.  Due to the fact that
during 1997, the Partnership recorded an allowance for loss of $158,239 for this
Property, no gain or loss was recognized for financial reporting purposes in
February 1998, relating to the sale.  In April 1998, the Partnership contributed
a portion of the net sales proceeds to Melbourne Joint Venture, with an
affiliate of the General Partners, to construct and hold one restaurant
Property.  As of December 31, 1998, the Partnership had contributed an amount
to purchase land and pay construction costs relating to the property owned by
the joint venture.  The Partnership has agreed to contribute additional amounts
to fund additional construction costs to the joint venture.  The Partnership
expects to have a 50 percent interest in the profits and losses of the joint
venture.

     In addition, in February 1998, the Partnership sold its Property in
Liverpool, New York, for $157,500 and received net sales proceeds of $145,221.
Due to the fact that in prior years the Partnership recorded an allowance for
loss of $181,970 for this Property, no gain or loss was recognized for financial
reporting purposes in February 1998, relating to the sale.  The Partnership
intends to reinvest the net sales proceeds from the sale of this Property in an
additional Property.

     In June 1998, the Partnership sold its Property in Bellevue, Nebraska, to a
third party and received sales proceeds of $900,000.  Due to the fact that
during 1998 the Partnership wrote off $155,528 in accrued rental income,
representing a portion of the accrued rental income that the Partnership had
recognized since the inception of the lease relating to the straight-lining of
future scheduled rent increases in accordance with generally accepted accounting
principles, no gain or loss was recorded for financial reporting purposes in
June 1998 relating to this sale.  This Property was originally acquired by the
Partnership in December 1989 and had a cost of approximately $899,500, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the Property for approximately $500 in excess of its original
purchase price. In September 1998, the Partnership contributed the majority of
the net sales proceeds to Warren Joint Venture.  The Partnership has an
approximate 64 percent interest in the profits and losses of Warren Joint
Venture and the remaining interest in this joint venture is held by an affiliate
of the General Partners.

                                       11
<PAGE>

     None of the Properties owned by the Partnership, or the joint ventures or
tenancy in common arrangement 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.  At December 31, 1998, the Partnership had
$1,170,686 invested in such short-term investments as compared to $1,614,759 at
December 31, 1997.  The decrease in cash and cash equivalents during 1998, is
primarily due to the receipt of $626,907 in net sales proceeds from the sale of
the Property in Whitehall, Michigan in July 1997, which were being held at
December 31, 1997, which were reinvested in a Property in Overland Park, Kansas,
as tenants-in-common with affiliates of the General Partners, in January 1998.
This decrease is partially offset by an increase in cash and cash equivalents
due to the receipt of $145,221 in net sales proceeds from the sale of the
Property in Liverpool, New York in February 1998. As of December 31, 1998, the
average interest rate earned on the rental income deposited in demand deposit
accounts at commercial banks was approximately two percent annually.  The funds
remaining at December 31, 1998, after payment of distributions and other
liabilities, will be used to invest in an additional Property as described above
and to meet the Partnership's working capital and other needs.

Short-Term Liquidity

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

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

     Due to low operating expenses and ongoing cash flow, the General Partners
do not believe that working capital reserves are necessary at this time.  In
addition, because the 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 cumulative excess operating reserves for the
years ended December 31, 1998 and 1996, the Partnership declared distributions
to the Limited Partners of $3,220,000, $3,150,000, and $3,220,000 for the years
ended December 31, 1998, 1997, and 1996, respectively.  This represents
distributions of $46, $45, and $46 per Unit for  the years ended December 31,
1998, 1997, and 1996, respectively.  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 of the General Partners incurred on
behalf of the Partnership $103,157, $82,503, and $96,112, respectively, for
certain operating expenses.  As of December 31, 1998 and 1997, the Partnership
owed $19,403 and $32,019, respectively, to affiliates for such amounts and
accounting and administrative services.  Other liabilities of the Partnership,
including distributions payable, decreased to $896,414 at December 31, 1998,
from $1,022,326 at December 31, 1997.  The decrease in other liabilities is
partially attributable to the payment

                                       12
<PAGE>

during 1998 of renovation costs accrued at December 31, 1997 for the Property in
Greensburg, Indiana, in connection with the new lease entered into in July 1997,
as described above. In addition, the decrease in other liabilities at December
31, 1998 was due to a decrease in accrued and escrowed real estate taxes payable
as a result of the Partnership accruing real estate taxes relating to its
Property in Melbourne, Florida at December 31, 1997, after the tenant vacated
the Property in October 1997. This Property was sold in 1998 and no accrual was
made at December 31, 1998. Other liabilities also decreased due to a decrease in
rents paid in advance at December 31, 1998. The decrease in other liabilities is
partially offset by an increase in distributions payable as a result of the
Partnership accruing a special distribution payable to the Limited Partners of
$70,000 at December 31, 1998. The General Partners believe that the Partnership
has sufficient cash on hand to meet its current working capital needs.

Long-Term Liquidity

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

Results of Operations

     During 1996, the Partnership and its consolidated joint venture, Caro Joint
Venture owned and leased 38 wholly owned Properties (including one Property in
Dallas, Texas, which was sold in December 1996), during 1997, the Partnership
owned and leased 40 wholly owned Properties (including three Properties which
were sold in 1997) and during 1998, the Partnership owned and leased 36 wholly
owned Properties (including four Properties which were sold in 1998).  In
addition, during 1996, the Partnership was a co-venturer in three separate joint
ventures that each owned and leased one Property, during 1997, the Partnership
was a co-venturer in three separate joint ventures that owned and leased a total
of five Properties (including one Property in Show Low, Arizona, which was sold
in January 1997) and during 1998, the Partnership was a co-venturer in five
separate joint ventures that owned and leased a total of six Properties.  During
1996, the Partnership owned and leased two Properties with affiliates as
tenants-in-common, during 1997, the Partnership owned and leased four Properties
with affiliates as tenants-in-common (including one Property in Yuma, Arizona,
which was sold in October, 1997) and during 1998, the Partnership owned and
leased five Properties with affiliates as tenants-in-common. As of December 31,
1998, the Partnership owned, either directly, as tenants-in-common with
affiliates, or through joint venture arrangements, 42 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 $37,900 to $222,800.  Generally, the leases provide for
percentage rent based on sales in excess of a specified amount.  In addition,
some of the leases provide that, commencing in the fourth to sixth lease year,
the percentage rent will be an amount equal to the greater of the percentage
rent calculated under the lease formula or a specified percentage (ranging from
one to five percent) of the purchase price or gross sales. For further
description of the Partnership's leases and Properties, see Item 1. Busines -
Leases and Item 2. Properties, respectively.

     During the years ended December 31, 1998, 1997, and 1996, the Partnership
and its consolidated joint venture, Caro Joint Venture, earned $2,823,377,
$2,897,402, and $3,333,665, respectively, in rental income from operating leases
(net of adjustments to accrued rental income) and earned income from direct
financing leases.  Rental and earned income decreased by approximately $185,200
during 1998 due to the sales of four Properties during 1998. The decrease in
rental and earned income during 1998 and 1997, each as compared to the previous
year, was partially attributable to a decrease of approximately $226,600 and
$159,400, during 1998 and 1997, respectively, as a result of the sales of four
Properties during 1997.  The decrease in rental and earned income during 1997,
as compared to 1996, was partially attributable to a decrease of $103,100 in
rental and earned income from the sale of the Property in Dallas, Texas in
December 1996.  The decrease in rental income during 1998 and 1997 was partially
offset by an increase of approximately $19,600 and $109,400, respectively, due
to the reinvestment of the net sales proceeds from the 1996 sale of the Property
in Dallas, Texas, in a Property in Marietta, Georgia, in February 1997.  The
decrease in rental and earned income during 1998 and 1997 was partially offset
by an increase of approximately $293,800 and $1,600, respectively, in rental and
earned income due to the fact that the Partnership reinvested the net sales
proceeds from the 1997 sales of two Properties in two IHOP Properties in Elgin,
Illinois and Manassas, Virginia in December 1997.

     In addition, the decrease in rental and earned income for 1998, as compared
to 1997, was partially offset by the fact that during 1998, the Partnership's
consolidated joint venture collected and recognized as income past due rental
amounts of approximately $36,000 for which the Partnership had previously
established an allowance for doubtful accounts.  The decrease in rental income
during 1998 as compared to 1997, was partially offset by, and the decrease in
rental income during 1997, as compared to 1996, was attributable to, the fact
that during 1997 the

                                       13
<PAGE>

Partnership's consolidated joint venture established an allowance for doubtful
accounts for rental amounts unpaid by the tenant of the Property in Caro,
Michigan totalling approximately $84,500 due to financial difficulties the
tenant was experiencing. No such allowance was established during 1998 or 1996.

     In addition, the decrease in rental and earned income during 1998 as
compared to 1997, was partially offset by, and the decrease during 1997, as
compared to 1996, was partially attributable to, the Partnership increasing its
allowance for doubtful accounts during 1997 by approximately $40,500 for rental
amounts relating to the Hardee's Property located in Greensburg, Indiana, due to
financial difficulties the tenant was experiencing.  No such allowance was
recorded in 1998.  Rental and earned income also decreased by approximately
$43,700 during 1997 due to the fact that the Partnership terminated the lease
with the former tenant of the Property in Greensburg, Indiana, in June 1997, as
described above in "Capital Resources."  The General Partners have agreed that
they will cease collection efforts on past due rental amounts once the former
tenant of this Property pays all amounts due under the promissory note for past
due real estate taxes described above in "Capital Resources."  The decrease in
rental and earned income in 1998 and 1997, each as compared to the previous
year, was slightly offset by an increase of $18,400 and $14,200, respectively,
in rental income from the new tenant of this Property who began operating the
Property in 1997 after it was renovated into an Arby's Property.

     In addition, the decrease in rental and earned income during 1998, as
compared to 1997, was partially due to the fact that during June 1998, the
Partnership wrote off approximately $155,500 in accrued rental income relating
to the Property in Bellevue, Nebraska to adjust the carrying value of the asset
to the net proceeds received from the sale of this Property in June 1998.  In
addition, rental and earned income decreased during 1997, as a result of the
Partnership establishing an allowance for doubtful accounts during 1997
totalling approximately $107,100 for rental amounts relating to the Property
located in Melbourne, Florida, due to the fact that the tenant vacated the
Property in October 1997.  The Partnership will continue to pursue collection of
past due rental amounts relating to this Property and will recognize such
amounts as income if collected.  The Partnership sold this Property in February
1998, as described above in "Capital Resources."

     In addition, rental and earned income decreased by approximately $35,300
during 1997, as a result of the fact that in December 1996, the tenant ceased
operations and vacated the Property in Liverpool, New York.  The Partnership
sold this Property in February 1998, as described above in "Capital Resources."

     The decrease in rental and earned income during 1997, as compared to 1996,
was offset by the fact that the Partnership collected and recorded as income
approximately $18,600 and $5,300, respectively,  in rental payment deferrals for
the two Properties leased by the same tenant in Chester, Pennsylvania, and
Orlando, Florida.  Previously, the Partnership had established an allowance for
doubtful accounts for these amounts.  These amounts were collected in accordance
with the agreement entered into in March 1996, with the tenant to pay the
remaining balance of the rental payment deferral amounts as discussed above in
"Capital Resources."

     For the years ended December 31, 1998, 1997, and 1996, the Partnership also
earned $156,676, $147,437, and $110,073, respectively, in contingent rental
income.  The increase in contingent rental income during 1998 and 1997, each as
compared to the previous year, is primarily attributable to increases in gross
sales relating to certain Properties whose leases require the payment of
contingent rent.

     In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $323,105, $280,331, and $97,381, respectively, attributable
to net income earned by joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by joint ventures during 1998, as
compared to 1997, is primarily due to the fact that in 1998, the Partnership
reinvested the net sales proceeds it received from the 1997 and 1998 sales of
three Properties, in additional Properties in Overland Park, Kansas; Memphis,
Tennessee, and Fort Myers, Florida with affiliates of the general partners as
tenants-in-common. The increase in net income earned by joint ventures during
1998, as compared to 1997, was partially offset by, and the increase in 1997, as
compared to 1996, was primarily due to, the fact that in January 1997, Show Low
Joint Venture, in which the Partnership owns a 36 percent interest, recognized a
gain of approximately $360,000 for financial reporting purposes as a result of
the sale of its Property. Show Low Joint Venture reinvested the majority of the
net sales proceeds in a replacement Property in June 1997. In addition, in
October 1997, the Partnership and an affiliate, as tenants-in-common, sold the
Property in Yuma, Arizona, and recognized a gain of approximately $128,400 for
financial reporting purposes, as described above in "Capital Resources." The
Partnership owned a 51.67% interest in the Property in Yuma, Arizona, held as
tenants-in-common

                                       14
<PAGE>

with an affiliate. The Partnership reinvested its portion of the net sales
proceeds in a Property in Vancouver, Washington, in December 1997, as described
above in "Capital Resources."

     During the year ended December 31, 1998, four of the Partnership's lessees,
Golden Corral Corporation, Restaurant Management Services, Inc., Mid-America
Corporation, and IHOP Properties, 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 the
rental income from the Properties owned by five unconsolidated joint ventures in
which the Partnership is a co-venturer and five Properties owned with affiliates
as tenants-in-common).  As of December 31, 1998, Golden Corral Corporation and
IHOP Properties, Inc. were each the lessees under leases relating to five
restaurants, Restaurant Management Services, Inc. was the lessee under leases
relating to seven restaurants and Mid-America Corporation was the lessee under
leases relating to four restaurants.  It is anticipated that, based on the
minimum annual rental payments required by the leases, these four lessees each
will continue to contribute more than ten percent of the Partnership's total
rental income during 1999.  In addition, three Restaurant Chains, Golden Corral,
Burger King, and IHOP each accounted for more than ten percent of the
Partnership's total rental income during the year ended December 31, 1998,
(including the Partnership's consolidated joint venture and the Partnership's
share of the rental income from the Properties owned by five unconsolidated
joint ventures in which the Partnership is a co-venturer and five Properties
owned with affiliates as tenants-in-common).  In 1999, it is anticipated that
these 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.

     For the years ended 1998, 1997, and 1996, the Partnership also earned
$110,502, $119,961, and $49,056, respectively, in interest and other income.
The increase in interest and other income during the year ended December 31,
1997, as compared to the year ended December 31, 1996, was primarily
attributable to interest earned on the net sales proceeds received and held in
escrow relating to the sales of several Properties pending reinvestment of the
net sales proceeds in additional Properties.

     Operating expenses, including depreciation and amortization expense, were
$694,773, $840,365, and $683,163 for the years ended December 31, 1998, 1997,
and 1996, respectively.  The decrease in operating expenses during 1998, as
compared to 1997, and the increase in operating expenses during 1997, as
compared to 1996, is partially due to the fact that the Partnership recorded
approximately $122,400 in bad debt expense and approximately $19,400 in real
estate tax expense during 1997 for the Property located in Melbourne, Florida,
due to the fact that the tenant vacated the Property in October 1997.  The
Partnership sold this Property in February 1998, as described above in "Capital
Resources."  In addition, during 1997, the Partnership's consolidated joint
venture, Caro Joint Venture,  recorded bad debt expense and real estate tax
expense of approximately $26,200 relating to the Property located in Caro,
Michigan, representing past due rental and other amounts.  No such bad debt
expense and real estate tax expense were recorded during the year ended December
31, 1998 due to the fact that the tenant has been making rental payments in
accordance with the terms of its lease agreement.

     The decrease in operating expenses during 1998, as compared to 1997, was
partially attributable to, and the increase in operating expenses during 1997 as
compared to 1996, was partially offset by, the decrease in depreciation expense
which resulted from the sale of several Properties during 1998 and 1997 and the
sale of the Property in Dallas, Texas in December 1996.  The decrease in
depreciation expense was partially offset by an increase in depreciation expense
attributable to the purchase of the Property in Marietta, Georgia, in February
1997.

     The decrease in operating expenses for 1998, is partially offset by the
fact that the Partnership incurred $20,211 in transaction costs in 1998 related
to the General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed Merger with APF, as described below.  If
the Limited Partners reject the Merger, the Partnership will bear the portion of
the transaction costs based upon the percentage of "For" votes and the General
Partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.

     As a result of the sale of the Property in Deland, Florida, as described
above in "Capital Resources," the Partnership recognized a gain of $345,122
during the year ended December 31, 1998, for financial reporting purposes.  As a
result of the sales of the Properties in Naples, Florida; Plattsmouth, Nebraska
and Venice, Florida, as described

                                       15
<PAGE>

above in "Capital Resources," the Partnership recognized a gain of $626,804
during 1997 for financial reporting purposes. The gain for 1997 was partially
offset by a loss of $79,777 for financial reporting purposes, resulting from the
July 1997 sale of the Property in Whitehall, Michigan, as described above in
"Capital Resources." As a result of the sale of the Property in Dallas, Texas,
in December 1996, the Partnership recognized a loss for financial reporting
purposes of $1,706 for the year ended December 31, 1996, as discussed above in
"Capital Resources."

     During the years ended December 31, 1996 and 1997, the Partnership recorded
provisions for losses on land and building in the amounts of $77,023 and
$104,947, respectively, for financial reporting purposes for the Property in
Liverpool, New York.  This lease was terminated in December 1996.  The allowance
at December 31, 1997, represented the difference between the Property's carrying
value at December 31, 1997 and the net realizable value of the Property based on
the net sales proceeds received in February 1998 from the sale of the Property.
The allowance at December 31, 1996, represented the difference between the
Property's carrying value at December 31, 1996 and the estimated net realizable
value for this Property based on an anticipated sales price to a third party.
No such provision was recorded during the year ended December 31, 1998.

     During the year ended December 31, 1997, the Partnership established an
allowance for loss on land and an allowance for impairment in the carrying value
of the net investment in direct financing lease for its Property in Melbourne,
Florida, in the amount of $158,239.  The tenant of this Property vacated the
Property in October 1997 and ceased making rental payments.  The allowance
represented the difference between the Property's carrying value at December 31,
1997 and the net sales proceeds received in February 1998 from the sale of the
Property, as described above in "Capital Resources."  No such provision was
recorded during the year ended December 31, 1998 and 1996.

     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 volumes due to
inflation and real sales growth should result in an increase in rental income
over time.  Continued inflation also may cause capital appreciation of the
Partnership's Properties.  Inflation and changing prices, however, also may have
an adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.

Proposed Merger

     On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with APF, pursuant to which the Partnership would be merged with and into
a subsidiary of APF.  As consideration for the Merger, APF has agreed to issue
3,730,388 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 $36,721,726 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.

                                       16
<PAGE>

Information and Non-Information Technology Systems

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

The Y2K Team

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

Assessing Year 2000 Readiness

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

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

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

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

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

Achieving Year 2000 Compliance

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

                                       17
<PAGE>

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

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

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

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

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

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

Risk of Inability of Transfer Agent to Accurately Maintain Partnership Records

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

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

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

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

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

                                       18
<PAGE>

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

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

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

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

Item 8.  Financial Statements and Supplementary Data

                                       19
<PAGE>

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

                                   CONTENTS
                                   --------


<TABLE>
<CAPTION>
                                                                      Page
                                                                      ----
<S>                                                                   <C>
Report of Independent Accountants                                      21

Financial Statements:

  Balance Sheets                                                       22

  Statements of Income                                                 23

  Statements of Partners' Capital                                      24

  Statements of Cash Flows                                             25

  Notes to Financial Statements                                        27
</TABLE>

                                       20
<PAGE>

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



To the Partners
CNL Income Fund VI, 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 VI, Ltd. (a Florida limited partnership) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.  In addition, in our opinion, the financial
statement schedules listed in the index appearing  under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.  These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.  We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



/s/ PricewaterhouseCoopers LLP

Orlando, Florida
January 19, 1999, except for Note 12 for which the date is March 11, 1999.

                                       21
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                    1998                    1997
                                                              ---------------         ---------------
<S>                                                           <C>                     <C>
                      ASSETS
                      ------

Land and buildings on operating leases, less
   accumulated depreciation and allowance for loss
   on land and building                                           $18,559,844              $20,785,684
Net investment in direct financing leases, less
   allowance for impairment in carrying value                       3,929,152                4,708,841
Investment in joint ventures                                        5,021,121                1,130,139
Cash and cash equivalents                                           1,170,686                1,614,759
Restricted cash                                                            --                  709,227
Receivables, less allowance for doubtful accounts of
   $323,813 and $363,410                                              150,912                  157,989
Prepaid expenses                                                          949                    4,235
Lease costs, less accumulated amortization of
   $7,181 and $5,581                                                   10,519                   12,119
Accrued rental income, less allowance for doubtful
   accounts of $38,944 and $27,245                                    785,982                  843,345
Other assets                                                           26,731                   26,731
                                                              ---------------         ----------------

                                                                  $29,655,896              $29,993,069
                                                              ===============         ================

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

Accounts payable                                                  $     8,173              $    14,138
Accrued construction costs payable                                         --                  125,000
Accrued and escrowed real estate taxes payable                          2,500                   38,025
Due to related parties                                                 19,403                   32,019
Distributions payable                                                 857,500                  787,500
Rents paid in advance and deposits                                     28,241                   57,663
                                                              ---------------         ----------------
       Total liabilities                                              915,817                1,054,345

Minority interest                                                     144,949                  144,475

Partners' capital                                                  28,595,130               28,794,249
                                                              ---------------         ----------------

                                                                  $29,655,896              $29,993,069
                                                              ===============         ================
</TABLE>

                See accompanying notes to financial statements.

                                       22
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                          1998                      1997                    1996
                                                                       ----------                ----------              ----------
<S>                                                                    <C>                       <C>                     <C>
Revenues:
 Rental income from operating leases                                   $2,520,346                $2,465,817              $2,776,776
 Adjustments to accrued rental income                                    (167,227)                  (17,548)                   (537)
 Earned income from direct financing leases                               470,258                   449,133                 557,426
 Contingent rental income                                                 156,676                   147,437                 110,073
 Interest and other income                                                110,502                   119,961                  49,056
                                                                       ----------                ----------              ----------
                                                                        3,090,555                 3,164,800               3,492,794
                                                                       ----------                ----------              ----------
Expenses:
 General operating and administrative                                     160,358                   156,847                 159,388
 Professional services                                                     32,400                    25,861                  32,272
 Bad debt expense                                                          12,854                   131,184                      --
 Real estate taxes                                                             --                    43,676                      --
 State and other taxes                                                     10,392                     8,969                   7,930
 Depreciation and amortization                                            458,558                   473,828                 483,573
 Transaction costs                                                         20,211                        --                      --
                                                                       ----------                ----------              ----------
                                                                          694,773                   840,365                 683,163
                                                                       ----------                ----------              ----------
Income Before Minority Interest in Income of Consolidated
 Joint Venture, Equity in Earnings of Unconsolidated Joint
 Ventures, Gain (Loss) on Sale of Land and Buildings and
 Net Investment in Direct Financing Leases and Provision
 for Loss on Land and Building and Impairment in Carrying
 Value of Net Investment in Direct Financing Lease                      2,395,782                 2,324,435               2,809,631

Minority interest in Income of Consolidated Joint Venture                 (43,128)                   11,275                 (24,682)

Equity in Earnings of Unconsolidated Joint Ventures                       323,105                   280,331                  97,381

Gain (Loss) on Sale of Land and Buildings and Net Investment
 in Direct Financing Leases                                               345,122                   547,027                  (1,706)

Provision for Loss on Land and Buildings and Impairment in
 Carrying Value of Net Investment in Direct Financing
 Lease                                                                         --                  (263,186)                (77,023)
                                                                       ----------                ----------              ----------

Net Income                                                             $3,020,881                $2,899,882              $2,803,601
                                                                       ==========                ==========              ==========

Allocation of Net Income:
 General partners                                                      $   28,327                $   25,353              $   28,337
 Limited partners                                                       2,992,554                 2,874,529               2,775,264
                                                                       ----------                ----------              ----------

                                                                       $3,020,881                $2,899,882              $2,803,601
                                                                       ==========                ==========              ==========

Net Income Per Limited Partner Unit                                    $    42.75                $    41.06              $    39.65
                                                                       ==========                ==========              ==========

Weighted Average Number of Limited Partner Units
 Outstanding                                                               70,000                    70,000                  70,000
                                                                       ==========                ==========              ==========
</TABLE>

                See accompanying notes to financial statements.

                                       23
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

<TABLE>
<CAPTION>
                                       General Partners                                   Limited Partners
                                 -------------------------------------------------------------------------------------------
                                                 Accumulated                                      Accumulated    Syndication
                                 Contributions    Earnings      Contributions    Distributions     Earnings         Costs
                                 -------------  ------------    -------------    --------------   -----------    -----------
<S>                              <C>            <C>             <C>              <C>              <C>            <C>
Balance, December 31, 1995              $1,000      $174,673      $35,000,000      $(19,214,226)  $17,514,319    $(4,015,000)

 Distributions to limited
   partners ($46.00 per
   limited partner unit)                    --            --               --        (3,220,000)           --             --
 Net income                                 --        28,337               --                --     2,775,264             --
                                 -------------  ------------    -------------    --------------   -----------    -----------

Balance, December 31, 1996               1,000       203,010       35,000,000       (22,434,226)   20,289,583     (4,015,000)

 Distributions to limited
   partners ($45.00 per
   limited partner unit)                    --            --               --        (3,150,000)           --             --
 Net income                                 --        25,353               --                --     2,874,529             --
                                 -------------  ------------    -------------    --------------   -----------    -----------

Balance, December 31, 1997               1,000       228,363       35,000,000       (25,584,226)   23,164,112     (4,015,000)

 Distributions to limited
   partners ($46.00 per
   limited partner unit)                    --            --               --        (3,220,000)           --             --
 Net income                                 --        28,327               --                --     2,992,554             --
                                 -------------  ------------    -------------    --------------   -----------    -----------

Balance, December 31, 1998              $1,000      $256,690      $35,000,000      $(28,804,226)  $26,156,666    $(4,015,000)
                                 =============  ============    =============    ==============   ===========    ===========

<CAPTION>
                                     Total
                                 ------------
<S>                              <C>
Balance, December 31, 1995        $29,460,766

 Distributions to limited
   partners ($46.00 per
   limited partner unit)           (3,220,000)
 Net income                         2,803,601
                                 ------------

Balance, December 31, 1996         29,044,367

 Distributions to limited
   partners ($45.00 per
   limited partner unit)           (3,150,000)
 Net income                         2,899,882
                                 ------------

Balance, December 31, 1997         28,794,249

 Distributions to limited
   partners ($46.00 per
   limited partner unit)           (3,220,000)
 Net income                         3,020,881
                                 ------------

Balance, December 31, 1998        $28,595,130
                                 ============
</TABLE>

                See accompanying notes to financial statements.

                                       24
<PAGE>

                           CNL INCOME FUND VI, 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                             $ 3,092,644             $ 3,097,751              $ 3,363,188
     Distributions from unconsolidated joint
       ventures                                                 328,721                 144,016                  114,163
     Cash paid for expenses                                    (270,339)               (180,530)                (203,432)
     Interest received                                           92,634                  94,804                   36,843
                                                        ---------------         ---------------          ---------------
       Net cash provided by operating activities              3,243,660               3,156,041                3,310,762
                                                        ---------------         ---------------          ---------------

   Cash Flows from Investing Activities:
     Proceeds from sale of land and buildings                 2,832,253               4,003,985                  982,980
     Additions to land and buildings on operating
       leases                                                  (125,000)             (2,666,258)                      --
     Investment in direct financing leases                           --              (1,057,282)                      --
     Investment in joint ventures                            (3,896,598)               (521,867)                (146,090)
     Return of capital from joint ventures                          (84)                524,975                       --
     Collections on mortgage note receivable                         --                      --                    3,033
     Decrease (increase) in restricted cash                     697,650                 279,367                 (977,017)
     Payment of lease costs                                      (3,300)                 (3,300)                  (3,300)
                                                        ---------------         ---------------          ---------------
       Net cash provided by (used in) investing
         activities                                            (495,079)                559,620                 (140,394)
                                                        ---------------         ---------------          ---------------

   Cash Flows from Financing Activities:
     Distributions to limited partners                       (3,150,000)             (3,220,000)              (3,150,000)
     Distributions to holder of minority interest               (42,654)                 (8,832)                 (13,437)
                                                        ---------------         ---------------          ---------------
         Net cash used in financing activities               (3,192,654)             (3,228,832)              (3,163,437)
                                                        ---------------         ---------------          ---------------

Net Increase (Decrease) in Cash and Cash Equivalents           (444,073)                486,829                    6,931

Cash and Cash Equivalents at Beginning of Year                1,614,759               1,127,930                1,120,999
                                                        ---------------         ---------------          ---------------

Cash and Cash Equivalents at End of Year                    $ 1,170,686             $ 1,614,759              $ 1,127,930
                                                        ===============         ===============          ===============
</TABLE>

                See accompanying notes to financial statements.

                                       25
<PAGE>

                           CNL INCOME FUND VI, 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                                               $3,020,881              $2,899,882              $2,803,601
                                                      ----------------        ----------------       -----------------
   Adjustments to reconcile net income to
     net cash provided by operating
     activities:
       Bad debt expense                                         12,854                 131,184                      --
       Depreciation                                            456,958                 471,938                 481,683
       Amortization                                              1,600                   1,890                   1,890
       Minority interest in income of
         consolidated joint venture                             43,128                 (11,275)                 24,682
       Equity in earnings of unconsolidated
         joint ventures, net of distributions                    5,616                (136,315)                 16,782
       Loss (gain) on sale of land and building               (345,122)               (547,027)                  1,706
       Provision for loss on land and building
         and impairment in carrying value of
         net investment in direct financing
         lease                                                      --                 263,186                  77,023
       Decrease (increase) in receivables                        8,649                  17,113                 (90,360)
       Decrease (increase) in prepaid expenses                   3,286                  (3,072)                  4,087
       Decrease in net investment in direct
         financing leases                                       63,868                  67,389                  68,177
       Decrease (increase) in accrued rental
         income                                                 51,142                 (81,244)               (103,935)
       Increase (decrease)  in accounts payable
         and accrued expenses                                  (37,246)                 25,964                   2,529
       Increase (decrease) in due to related
         parties                                               (12,532)                 29,470                  (3,391)
       Increase (decrease) in rents paid in
         advance and deposits                                  (29,422)                 26,958                  26,288
                                                      ----------------        ----------------       -----------------
          Total adjustments                                    222,779                 256,159                 507,161
                                                      ----------------        ----------------       -----------------

Net Cash Provided by Operating Activities                   $3,243,660              $3,156,041              $3,310,762
                                                      ================        ================       =================

Supplemental Schedule of Non-Cash Investing and
 Financing Activities:

   Distributions declared and unpaid at
     December 31                                            $  857,500              $  787,500              $  857,500
                                                      ================        ================       =================
</TABLE>

                See accompanying notes to financial statements.

                                       26
<PAGE>

                           CNL INCOME FUND VI, 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 VI, 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.

                                       27
<PAGE>

                           CNL INCOME FUND VI, 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' best
     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 accrued
     rental income, and to decrease rental or other income or increase bad debt
     expense for the current period, although the Partnership continues to
     pursue collection of such amounts.  If amounts are subsequently determined
     to be uncollectible, the corresponding receivable and allowance for
     doubtful accounts are decreased accordingly.

     Investment in Joint Ventures - The Partnership accounts for its approximate
     ----------------------------
     66 percent interest in Caro Joint Venture, a Florida general
     partnership, using the consolidation method.  Minority interest represents
     the minority joint venture partner's proportionate share of equity in the
     Partnership's consolidated joint venture.  All significant intercompany
     accounts and transactions have been eliminated.

                                       28
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     The Partnership's investments in Auburn Joint Venture, Show Low Joint
     Venture, Asheville Joint Venture, Warren Joint Venture, and Melbourne Joint
     Venture and properties in Clinton, North Carolina, Vancouver, Washington;
     Overland Park, Kansas; Memphis, Tennessee and Fort Myers, Florida, each of
     which is held as tenants-in-common with affiliates, are accounted for using
     the equity method since the Partnership shares control with the affiliates.

     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.

     Lease Costs - Brokerage fees and lease incentive costs incurred in finding
     -----------
     new tenants and negotiating new leases for the Partnership's properties are
     amortized over the terms of the new leases using the straight-line method.

     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.

                                       29
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

     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.

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

2.   Leases:
     ------

     The Partnership leases its land and buildings primarily to operators of
     national and regional fast-food and family-style restaurants. The leases
     are accounted for under the provisions of Statement of Financial Accounting
     Standards No. 13, "Accounting for Leases." The leases generally are
     classified as operating leases; however, some leases have been classified
     as direct financing leases. For the leases classified as direct financing
     leases, the building portions of the property leases are accounted for as
     direct financing leases while the land portions of some of these leases are
     operating leases. Substantially all leases are for 10 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 as the initial
     lease. Most leases also allow the tenant to purchase the property at fair
     market value after a specified portion of the lease has elapsed.

                                       30
<PAGE>

                           CNL INCOME FUND VI, 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:
     --------------------------------------

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

<TABLE>
<CAPTION>
                                                      1998                   1997
                                                   -----------            -----------
          <S>                                      <C>                    <C>
          Land                                     $ 8,558,191            $10,046,309
          Buildings                                 13,587,739             14,344,114
                                                   -----------            -----------
                                                    22,145,930             24,390,423
          Less accumulated depreciation             (3,586,086)            (3,327,334)
                                                   -----------            -----------
                                                    18,559,844             21,063,089
          Less allowance for loss on
               land and building                            --               (277,405)
                                                   -----------            -----------
                                                   $18,559,844            $20,785,684
                                                   ===========            ===========
</TABLE>

     In February 1997, the Partnership reinvested the net sales proceeds from
     the sale of a property in Dallas, Texas, along with additional funds, in a
     Bertucci's property in Marietta, Georgia, for a total cost of approximately
     $1,112,600.

     In July 1997, the Partnership sold the property in Whitehall, Michigan, to
     a third party, for $665,000 and received net sales proceeds of $626,907,
     resulting in a loss of $79,777 for financial reporting purposes.

     In addition, in July 1997, the Partnership sold its property in Naples,
     Florida, to a third party, for $1,530,000 and received net sales proceeds
     of $1,477,780, resulting in a gain of $186,550 for financial reporting
     purposes.  This property was originally acquired by the Partnership in
     December 1989 and had a cost of approximately $1,083,900, excluding
     acquisition fees and miscellaneous acquisition expenses; therefore, the
     partnership sold the property for approximately $403,800 in excess of its
     original purchase price.  In December 1997, the Partnership reinvested the
     net sales proceeds in an IHOP property in Elgin, Illinois, for a total cost
     of approximately $1,484,100.

     In July 1997, the Partnership entered into a new lease for the property in
     Greensburg, Indiana, with a new tenant to operate the property as an Arby's
     restaurant.  In connection therewith, the Partnership incurred $125,000 in
     renovation costs, which were paid in 1998.

                                       31
<PAGE>

                           CNL INCOME FUND VI, 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:
     --------------------------------------------------

     In September 1997, the Partnership sold its property in Venice, Florida, to
     a third party, for $1,245,000 and received net sales proceeds of
     $1,201,648, resulting in a gain of $283,853 for financial reporting
     purposes.  This property was originally acquired by the Partnership in
     August 1989 and had a cost of approximately $1,032,400, excluding
     acquisition fees and miscellaneous acquisition expenses; therefore, the
     Partnership sold the property for approximately $174,300 in excess of its
     original purchase price.  In December 1997, the Partnership reinvested the
     net sales proceeds in an IHOP property in Manassas, Virginia, for a total
     cost of approximately $1,126,800.

     In 1997, the Partnership recorded a provision for loss on land and building
     in the amount of $104,947 for financial reporting purposes for the property
     in Liverpool, New York.  The terms of this lease were terminated in
     December 1996.  This allowance represented the difference between (i) the
     property's carrying value at December 31, 1997, and (ii) the net realizable
     value of the property based on the net sales proceeds of $145,221 received
     in February 1998 from the sale of the property.  Due to the fact that in
     1997 and prior years, the Partnership had recorded an allowance for loss
     totalling $181,970 for this property, no gain or loss was recognized for
     financial reporting purposes during 1998 relating to the sale of this
     Property in February 1998.

     During 1997, the Partnership established an allowance for loss on land in
     the amount of $95,435 for its property in Melbourne, Florida.  The tenant
     of this Property vacated the property in October 1997 and ceased making
     rental payments.  The allowance represents the difference between the
     property's carrying value for the land at December 31, 1997, and the net
     realizable value of the land based on the net sales proceeds of $552,910
     received in February 1998 from the sale of the property.  No gain or loss
     was recognized for financial reporting purposes relating to the sale of
     this property in February 1998.

     In January 1998, the Partnership sold its property in Deland, Florida, to
     the tenant for $1,250,000 and received net sales proceeds of $1,234,122,
     resulting in a gain of $345,122 for financial reporting purposes.  This
     property was originally acquired by the Partnership in October 1989 and had
     a cost of approximately $1,000,000, excluding acquisition fees and
     miscellaneous acquisition expenses; therefore, the Partnership sold the
     property for approximately $234,100 in excess of its original purchase
     price. In June 1998, the Partnership sold its property in Bellevue,
     Nebraska, and received sales proceeds of $900,000. Due to the fact that
     during 1998, the Partnership wrote off $155,528 in

                                       32
<PAGE>

                           CNL INCOME FUND VI, 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:
     --------------------------------------------------

     accrued rental income, representing the majority of the accrued rental
     income that the Partnership had recognized since the inception of the lease
     relating to the straight-lining of future scheduled rent increases in
     accordance with generally accepted accounting principles, no gain or loss
     was recorded for financial reporting purposes in June 1998 relating to this
     sale.  This property was originally acquired by the Partnership in December
     1989 and had a cost of approximately $899,500, excluding acquisition fees
     and miscellaneous acquisition expenses; therefore, the Partnership sold the
     property for approximately $500 in excess of its original purchase price.

     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 a loss of
     $51,142 (net of $155,528 in write-offs and $11,699 in reserves), and income
     of $81,244 (net of $17,548 in reserves) and $103,935 (net of $537 in
     reserves), respectively, of such rental income.

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

<TABLE>
          <S>                                     <C>
          1999                                    $ 2,329,253
          2000                                      2,402,277
          2001                                      2,451,812
          2002                                      2,466,895
          2003                                      2,458,306
          Thereafter                               11,370,855
                                                  -----------

                                                  $23,479,398
                                                  ===========
</TABLE>

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

                                       33
<PAGE>

                           CNL INCOME FUND VI, 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:
     -----------------------------------------

     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                                 $ 7,212,677         $ 9,313,752
          Estimated residual values                         1,440,446           1,655,911
          Less unearned income                             (4,723,971)         (6,198,018)
                                                          -----------         -----------
                                                            3,929,152           4,771,645
          Less allowance for impairment in
               carrying value                                      --             (62,804)
                                                          -----------         -----------
          Net investment in direct financing
               leases                                     $ 3,929,152         $ 4,708,841
                                                          ===========         ===========
</TABLE>

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

<TABLE>
          <S>                                                                 <C>
          1999                                                                $   486,632
          2000                                                                    488,772
          2001                                                                    501,492
          2002                                                                    501,492
          2003                                                                    501,492
          Thereafter                                                            4,732,797
                                                                              -----------
                                                                              $ 7,212,677
                                                                              ===========
</TABLE>

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

     In July 1997, the Partnership sold its property in Naples, Florida, for
     which the building portion had been classified as a direct financing lease.
     In connection therewith, the gross investment (minimum lease payments
     receivable and estimated residual values) and unearned income relating to
     this property were removed from the accounts and the gain from the sale
     relating to this property was reflected in income (Note 3).

                                       34
<PAGE>

                           CNL INCOME FUND VI, 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 addition, in July 1997, the Partnership sold its property in
     Plattsmouth, Nebraska, to the tenant, for $700,000 and received net sales
     proceeds of $697,650, resulting in a gain of $156,401 for financial
     reporting purposes.  This property was originally acquired by the
     Partnership in January 1990 and had a cost of approximately $561,000,
     excluding acquisition fees and miscellaneous acquisition expenses;
     therefore, the Partnership sold the property for approximately $138,400 in
     excess of its original purchase price.

     At December 31, 1997, the Partnership had established an allowance for
     impairment in carrying value in the amount of $62,804 for its property in
     Melbourne, Florida.  The allowance represents the difference between (i)
     the carrying value of the net investment in the direct financing lease at
     December 31, 1997, and (ii) the net realizable value of the net investment
     in the direct financing lease based on the net sales proceeds received in
     February 1998 from the sale of the property (see Note 3).

     In June 1998, the Partnership sold its property in Bellevue, Nebraska, for
     which the building portion had been classified as a direct financing lease.
     In connection therewith, the gross investment (minimum lease payments
     receivable and estimated residual value) and unearned income relating to
     this property were removed from the accounts (see Note 3).

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

     The Partnership has a 3.9%, a 36 percent, a 14.46%, and an 18 percent
     interest in the profits and losses of Auburn Joint Venture, Show Low Joint
     Venture, Asheville Joint Venture, and a property in Clinton, North
     Carolina, held as tenants-in-common, respectively.  The remaining interests
     in these joint ventures and the property held as tenants in common are held
     by affiliates of the Partnership which have the same general partners.

     In January 1997, Show Low Joint Venture, in which the Partnership owns a 36
     percent interest, sold its property to the tenant for $970,000, resulting
     in a gain to the joint venture of approximately $360,000 for financial
     reporting purposes. The property was originally contributed to Show Low
     Joint Venture in July 1990 and had a cost of approximately $663,500,
     excluding acquisition fees and miscellaneous acquisition expenses;
     therefore, the joint venture sold the property for approximately $306,500
     in excess of its original purchase price. In June 1997, Show Low Joint
     Venture reinvested $782,413 of net sales proceeds in a property in
     Greensboro, North Carolina. During 1997, the Partnership received
     approximately $70,000 representing a return of capital, for its pro-rata
     share of the uninvested net sales proceeds.

                                       35
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------
                 Years Ended December 31, 1998, 1997, and 1996

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

     In October 1997, the Partnership and an affiliate, as tenants-in-common,
     sold the property in Yuma, Arizona, in which the Partnership owned a 51.67%
     interest, for a total sales price of $1,010,000 and received net sales
     proceeds of $982,025, resulting in a gain, to the tenancy-in-common, of
     approximately $128,400 for financial reporting purposes.  The property was
     originally acquired in July 1994 and had a total cost of approximately
     $861,700, excluding acquisition fees and miscellaneous acquisition
     expenses; therefore, the property was sold for approximately $120,300 in
     excess of its original purchase price.  The Partnership received
     approximately $455,000 representing a return of capital for its pro-rata
     share of the net sales proceeds.  In December 1997, the Partnership
     reinvested the amounts received as a return of capital from the sale of the
     Yuma, Arizona property, in a property in Vancouver, Washington, as tenants-
     in-common with affiliates of the general partners.  The Partnership
     accounts for its investment in the property in Vancouver, Washington, using
     the equity method since the Partnership shares control with affiliates, and
     amounts relating to its investment are included in investment in joint
     ventures.  As of December 31, 1998, the Partnership owned a 23.04% interest
     in the Vancouver, Washington, property owned with affiliates as tenants-in-
     common.

     In January 1998, the Partnership contributed approximately $558,800 and
     $694,800 to acquire a property in Overland Park, Kansas, and a property in
     Memphis, Tennessee, respectively, as tenants-in-common with affiliates of
     the general partners.  As of December 31, 1998, the Partnership had a
     34.74% and a 46.2% interest in the property in Overland Park, Kansas and
     Memphis, Tennessee, respectively.  In June 1998, the Partnership
     contributed approximately $1,249,300 to acquire a property in Fort Myers,
     Florida, as tenants-in-common with an affiliate of the general partners.
     As of December 31, 1998, the Partnership had an 85 percent interest in the
     property in Fort Myers, Florida.  The Partnership accounts for its
     investments in these properties using the equity method since the
     Partnership shares control with affiliates, and amounts relating to its
     investments are included in investment in joint ventures.

     In April 1998, the Partnership entered into a joint venture arrangement,
     Melbourne Joint Venture, with an affiliate of the general partners, to
     construct and hold one restaurant property. As of December 31, 1998, the
     Partnership had contributed approximately $494,900 to purchase land and pay
     construction costs relating to the property owned by the joint venture and
     has agreed to contribute an additional $31,300 to fund additional
     construction costs to the joint venture. At December 31, 1998, the
     Partnership had an approximate 50 percent interest in the profits and
     losses of the joint venture. The Partnership accounts for its investment in
     this joint venture under the equity method since the Partnership shares
     control with the affiliate.

                                       36
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


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

     In September 1998, the Partnership entered into a joint venture
     arrangement, Warren Joint Venture, with an affiliate of the general
     partners to hold one restaurant property.  As of December 31, 1998, the
     Partnership had contributed approximately $898,100 to the joint venture to
     acquire the restaurant property.  As of December 31, 1998, the Partnership
     owned a 64.29% interest in the profits and losses of the joint venture.
     The Partnership accounts for its investment in this joint venture under the
     equity method since the Partnership shares control with the affiliate.

     Auburn Joint Venture, Show Low Joint Venture, Asheville Joint Venture,
     Melbourne Joint Venture, Warren Joint Venture, and the Partnership and
     affiliates as tenants-in-common in five separate tenancy-in-common
     arrangements, each own and lease one property to an operator of national
     fast-food and family-style restaurants.  The following presents the
     combined, condensed financial information for the joint ventures and the
     properties held as tenants-in-common with affiliates at December 31:

<TABLE>
<CAPTION>
                                                           1998                1997
                                                       -----------          ----------
          <S>                                          <C>                  <C>
          Land and buildings on operating
               leases, less accumulated
               depreciation                            $ 9,030,392          $4,568,842
          Net investment in direct financing
               leases                                    3,331,869             911,559
          Cash                                              12,138               7,991
          Receivables                                       56,360              22,230
          Accrued rental income                            237,451             160,197
          Other assets                                       1,190                 414
          Liabilities                                      105,868               7,557
          Partners' capital                             12,563,532           5,663,676
          Revenues                                       1,098,957             471,627
          Gain on sale of land and building                     --             488,372
          Net income                                       959,057             889,883
</TABLE>

The Partnership recognized income totalling $323,105, $280,331, and $97,381 for
the years ended December 31, 1998, 1997, and 1996, respectively, from these
joint ventures.

                                       37
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


6.   Restricted Cash:
     ---------------

     As of December 31, 1997, net sales proceeds of $697,650 from the sale of
     the property in Plattsmouth, Nebraska, plus accrued interest of $11,577,
     were being held in an interest-bearing escrow account pending the release
     of funds by the escrow agent to acquire an additional property.  In January
     1998, the escrow agent released these funds to acquire the property in
     Memphis, Tennessee, with affiliates of the general partners, as tenants-in-
     common.

7.   Receivables:
     -----------

     In June 1997, the Partnership terminated the lease with the tenant of the
     property in Greensburg, Indiana.  In connection therewith,  the
     Partnership  accepted  a promissory note from this former tenant for
     $13,077 for amounts relating to past due real estate taxes the Partnership
     had incurred as a result of the former tenant's financial difficulties.
     The promissory note, which is uncollateralized, bears interest at a rate of
     ten percent per annum and is being collected in 36 monthly installments.
     Receivables at December 31, 1998 and 1997, included $9,561 and $13,631,
     respectively, of such amounts, including accrued interest of $554 in 1997.

8.   Allocations and Distributions:
     -----------------------------

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

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

                                       38
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


8.   Allocations and Distributions - Continued:
     -----------------------------------------

     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; and thereafter, 95 percent to the limited partners
     and five percent to the general partners.

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

     During the years ended December 31, 1998, 1997, and 1996 the Partnership
     declared distributions to the limited partners of $3,220,000, $3,150,000
     and $3,220,000, respectively. No distributions have been made to the
     general partners to date.

                                       39
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


9.   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                     $3,020,881        $2,899,882          $2,803,601

     Depreciation for tax reporting purposes in excess
          of depreciation for financial reporting purposes              (65,666)          (92,303)           (104,412)

     Allowance for loss on land and building                                 --           263,186              77,023

     Direct financing leases recorded as operating
          leases for tax reporting purposes                              63,868            67,392              68,177

     Gain and loss on sale of land and buildings for
          financial reporting purposes in excess of gain
          and loss on sale for tax reporting purposes                  (543,697)         (335,658)              1,706

     Equity in earnings of unconsolidated joint ventures
          for financial reporting purposes in excess of
          equity in earnings of  unconsolidated joint
          ventures for tax reporting purposes                           (14,400)         (147,256)                (49)

     Allowance for doubtful accounts                                    (39,597)          369,935             (78,517)

     Accrued rental income                                               51,142           (81,244)           (103,935)

     Rents paid in advance                                              (30,922)           26,458              26,288

     Capitalization of transaction costs for tax
          reporting purposes                                             20,211                --                  --

     Minority interest in timing
          differences of consolidated joint
          venture                                                        14,513           (30,778)              1,781
                                                                   ------------      ------------        ------------
     Net income for federal income tax
          purposes                                                   $2,476,333        $2,939,614          $2,691,663
                                                                   ============      ============        ============
</TABLE>

                                       40
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------
                 Years Ended December 31, 1998, 1997, and 1996

10.  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 a management fee of one percent of the sum of
     gross revenues from properties wholly owned by the Partnership and the
     Partnership's allocable share of gross revenues from joint ventures and the
     property held as tenants-in-common with an affiliate, but not in excess of
     competitive fees for comparable services.  These fees are 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 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.
     No deferred, subordinated real estate disposition fees have been incurred
     since inception.

     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 $107,969, $87,877 and $95,420
     for the years ended December 31, 1998, 1997, and 1996, respectively, for
     such services.

     The due to related parties at December 31, 1998 and 1997, totalled $19,403
     and $32,019, respectively.

                                       41
<PAGE>

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

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED
                   -----------------------------------------
                 Years Ended December 31, 1998, 1997, and 1996

11.  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 joint ventures and the
     properties held as tenants-in-common with affiliates), for each of the
     years ended December 31:

<TABLE>
<CAPTION>
                                                  1998              1997              1996
                                                --------          --------          --------
          <S>                                   <C>               <C>               <C>
          Golden Corral Corporation             $758,646          $751,866          $758,348
          IHOP Properties, Inc.                  454,889               N/A                --
          Mid-America Corporation                439,519           439,519           439,519
          Restaurant Management
               Services, Inc.                    438,257           478,750           511,040
</TABLE>

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

<TABLE>
<CAPTION>
                                                  1998              1997              1996
                                                --------          --------          --------
          <S>                                   <C>               <C>               <C>
          Golden Corral Family
                 Steakhouse Restaurants         $758,646          $751,866          $758,348
          IHOP Properties, Inc.                  454,889               N/A                --
          Burger King                            453,634           496,487           455,764
          Denny's                                    N/A           317,041               N/A
          Hardee's                                   N/A               N/A           410,951
</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.

                                       42
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996


12.  Subsequent Event:
     ----------------

     On March 11, 1999, the Partnership entered into an Agreement and Plan of
     Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which
     the Partnership would be merged with and into a subsidiary of APF (the
     "Merger").  As consideration for the Merger, APF has agreed to issue
     3,730,388 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 $36,721,726 as of December 31, 1998.  The
     APF Shares are expected to be listed for trading on the New York Stock
     Exchange concurrently with the consummation of the Merger, and, therefore,
     would be freely tradable at the option of the former limited partners.  At
     a special meeting of the partners, limited partners holding in excess of
     50% of the Partnership's outstanding limited partnership interests must
     approve the Merger prior to consummation of the transaction.  The general
     partners intend to recommend that the limited partners of the Partnership
     approve the Merger.  In connection with their recommendation, the general
     partners will solicit the consent of the limited partners at the special
     meeting.  If the limited partners reject the Merger, the Partnership will
     bear the portion of the transaction costs based upon the percentage of
     "For" votes and the general partners will bear the portion of such
     transaction costs based upon the percentage of "Against" votes and
     abstentions.

                                       43
<PAGE>

                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 28th day of
October, 1999.

                                    CNL INCOME FUND VI, 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.

                                       44
<PAGE>

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

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


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

                                       45