UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    FORM 10-K

(Mark One)

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

                   For the fiscal year ended December 31, 1997

                                       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 333-9943

                         CNL AMERICAN REALTY FUND, INC.
             (Exact name of registrant as specified in its charter)

                    Maryland                             59-3396369
         (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) 422-1574

               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:

                                      None
                                (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 shares of common stock (the
"Shares") on Form S-11 under the  Securities  Act of 1933, as amended.  Since no
established  market for such Shares  exists,  there is no market  value for such
Shares. Each Share was originally sold at $10 per Share.

         The number of shares of common  stock  outstanding  as of February  18,
1998, was 1,491,067.


<PAGE>



                      DOCUMENTS INCORPORATED BY REFERENCE:

         Registrant  incorporates  by  reference  portions  of the CNL  American
Realty Fund,  Inc.  Definitive  Proxy  Statement for the 1998 Annual  Meeting of
Stockholders  (Items  10,  11, 12 and 13 of Part III) to be filed no later  than
April 30, 1998.


<PAGE>



                                     PART I


Item 1.  Business

         CNL American Realty Fund,  Inc. (the "Company") is a corporation  which
was  organized  pursuant to the laws of the state of Maryland on June 12,  1996,
and which operates for federal  income tax purposes as a real estate  investment
trust (a "REIT").  Beginning  in July 1997,  the Company  offered for sale up to
$165,000,000 of shares of common stock (the "Shares")  (16,500,000 shares at $10
per  share)  pursuant  to a  registration  statement  on  Form  S-11  under  the
Securities  Act of 1933, as amended,  effective July 9, 1997. As of December 31,
1997, the Company had received subscription  proceeds of $11,325,402  (1,132,540
Shares)  from  the  offering,   including   $1,056  (106  Shares)   through  the
distribution   reinvestment  plan  provided  under  the  Company's  registration
statement.  The  offering of the Shares of the Company  will  terminate no later
than July 9,  1998,  unless the  Company  elects to extend it to a date no later
than July 9, 1999, in states that permit such extension.

         The Company was  organized  to acquire  properties  (the  "Properties")
located across the United States to be leased on a long term, "triple-net" basis
to operators of selected  national and regional limited  service,  extended stay
and full service hotel chains (the "Hotel  Chains") and to operators of national
and regional  fast-food,  family-style and casual dining  restaurant chains (the
"Restaurant  Chains")  . The  Company is not  obligated  to invest in both hotel
Properties and restaurant Properties. Under the Company's triple-net leases, the
lessee  will  be  responsible   for  property  costs   associated  with  ongoing
operations,  including  repairs,  maintenance,  property taxes,  insurance,  and
utilities.  The Company  may also  provide  mortgage  financing  (the  "Mortgage
Loans") in the  aggregate  principal  amount of  approximately  5% to 10% of the
gross offering  proceeds.  The Company expects that the general economic effects
of the Mortgage Loans will be similar to those of its leases with full repayment
in 15 to 20 years.  The Company also intends to offer furniture,  fixtures,  and
equipment  financing  (the  "Secured  Equipment  Leases") to  operators of Hotel
Chains and Restaurant  Chains.  Secured Equipment Leases will be funded from the
proceeds of financing to be obtained by the Company.  The aggregate  outstanding
principal  amount of  Secured  Equipment  Leases  will not  exceed  10% of gross
proceeds from the offering. The number of Properties to be acquired and Mortgage
Loans to be entered  into will depend upon the amount of net  offering  proceeds
available to the Company.  As of December 31, 1997,  net proceeds to the Company
from its  offering  of Shares and  capital  contributions  from CNL Real  Estate
Advisors,  Inc.  (the  "Advisor"),   after  deduction  of  selling  commissions,
marketing   support   and  due   diligence   expense   reimbursement   fees  and
organizational and offering expenses totalled $9,220,841.

         The Company's primary investment  objectives are to preserve,  protect,
and enhance the Company's  assets while (i) making  distributions  commencing in
the initial year of Company operations;  (ii) obtaining fixed income through the
receipt of base rent, and increasing  the Company's  income (and  distributions)
and providing  protection against inflation through automatic  increases in base
rent and/or receipt of percentage  rent, and obtaining  fixed income through the
receipt of payments  from Mortgage  Loans and Secured  Equipment  Leases;  (iii)
qualifying  and remaining  qualified as a REIT for federal  income tax purposes;
and  (iv)  providing  stockholders  of  the  Company  with  liquidity  of  their
investment within five to ten years after  commencement of the offering,  either
in whole or in part, through (a) listing of the shares on a national  securities
exchange or over-the-counter market (the "Listing"),  or (b) the commencement of
orderly sales of the Company's  assets and  distribution of the proceeds thereof
(outside the ordinary  course of business and consistent  with its objectives of
qualifying  as a  REIT).  There  can  be  no  assurance  that  these  investment
objectives  will be met. In  addition,  if the Shares are not listed by December
31, 2007, as to which there can be no  assurance,  the Company will commence the
orderly sale of its assets and the  distribution  of the proceeds.  Listing does
not assure liquidity.

         For the first five to ten years after the commencement of the offering,
the Company intends,  to the extent  consistent with the Company's  objective of
qualifying as a REIT, to reinvest in additional Properties or Mortgage Loans any
proceeds of the sale of a Property or Mortgage  Loan that are not required to be
distributed to  stockholders  in order to preserve the Company's REIT status for
federal income tax purposes.  Similarly,  and to the extent consistent with REIT
qualification,  the Company  plans to use the  proceeds of the sale of a Secured
Equipment Lease to fund additional  Secured  Equipment  Leases, or to reduce its
outstanding  indebtedness  on the Loan.  At or prior to the end of such ten-year
period,  the  Company  intends  to  provide  stockholders  of the  Company  with
liquidity of

                                        1

<PAGE>



their investment,  either in whole or in part,  through Listing of the Shares of
the Company  (although  liquidity  cannot be assured  thereby) or by  commencing
orderly sales of the Company's assets. If Listing occurs, the Company intends to
reinvest in additional  Properties,  Mortgage Loans and Secured Equipment Leases
any net sales proceeds not required to be distributed to  stockholders  in order
to  preserve  the  Company's  status  as  a  REIT.  The  Company's  Articles  of
Incorporation provide,  however, that if Listing does not occur within ten years
after the  commencement of the offering,  the Company  thereafter will undertake
the orderly  liquidation of the Company and the sale of the Company's assets and
will distribute any net sales proceeds to stockholders. In addition, the Company
will not sell any assets if such sale would not be consistent with the Company's
objective of qualifying as a REIT.

         In deciding the precise timing and terms of Property sales, the Advisor
will consider  factors such as national and local market  conditions,  potential
capital  appreciation,  cash flows, and federal income tax  considerations.  The
terms of certain leases,  however, may require the Company to sell a Property at
an earlier time if the tenant  exercises its option to purchase a Property after
a specified  portion of the lease term has  elapsed.  The  Company  will have 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  tenants.  In  connection  with  sales of  Properties  by the
Company,  purchase money obligations may be taken by the Company as part payment
of the sales price.  The terms of payment will be affected by custom in the area
in which the  Property is located and  prevailing  economic  conditions.  When a
purchase  money  obligation  is  accepted  in lieu of cash  upon  the  sale of a
Property,  the Company will  continue to have a mortgage on the Property and the
proceeds  of the sale will be  realized  over a period of years  rather  than at
closing of the sale.

         The Company does not anticipate  selling the Secured  Equipment  Leases
prior to  expiration  of the lease  term,  except in the event that the  Company
undertakes orderly liquidation of its assets. In addition,  the Company does not
anticipate  selling any Mortgage Loans prior to the expiration of the loan term,
except in the event (i) the Company owns the Property (land only) underlying the
building  improvements  which  secure  the  Mortgage  Loan  and the  sale of the
Property occurs, or (ii) the Company undertakes an orderly sale of its assets.

Leases

         As of  December  31,  1997,  the  Company  had  not  entered  into  any
commitment for an acquisition of a Property. However, the leases are expected to
be triple-net leases, which means that the tenants generally will be required to
pay all repairs,  maintenance,  property taxes,  utilities,  and insurance.  The
tenants  also will be  required to pay for  special  assessments,  sales and use
taxes, and the cost of any renovations  permitted under the leases.  The Company
will own the Properties  either directly or indirectly  through a joint venture,
partnership, or a subsidiary. Some hotel Property leases may obligate the tenant
to fund, in addition to its lease payment, a capital  expenditures  reserve fund
up to a  pre-determined  amount.  Money in that fund may be used by the  tenant,
with the approval of the Company, to pay for capital  expenditures.  The Company
may be  responsible  for  capital  expenditures  in excess of the amounts in the
reserve fund, and the tenant generally would be responsible for replenishing the
reserve fund and to pay a specified return on the amount of capital expenditures
paid for by the Company in excess of amounts in the reserve fund.

         The initial terms of the leases are presently  anticipated  to be 10 to
20 years with up to four, five-year renewal options.  During the initial term of
each lease,  the tenant will pay the  Company,  as lessor,  minimum  annual rent
equal to a specified percentage of the Company's cost of purchasing the Property
payable in monthly installments.  If the Company is acquiring a Property that is
to be constructed or renovated pursuant to the development  agreement,  the cost
of  purchasing  the  Property  will  include  the  purchase  price of the  land,
including all fees,  costs,  and expenses paid by the Company in connection with
its purchase of the land,  and all fees,  costs,  and expenses  disbursed by the
Company for  construction of building  improvements.  The minimum rental payment
under the renewal  option  generally will be greater than that due for the final
lease year of the initial term of the lease.  In addition to the minimum  annual
rent, the lease will generally provide for percentage rent based on a percentage
of the gross sales above a specified amount to be paid by the tenant.

         Certain  lessees may have the right to purchase the  Property  seven to
twenty years after  commencement  of the lease at a purchase  price equal to the
greater of (i) the appraised value of the Property,  or (ii) a specified amount,
generally  equal  to  the  Company's  purchase  price  of the  Property,  plus a
pre-determined  percentage  of the  Company's  purchase  price.  The leases also
generally  provide  that,  in the event the  Company  wishes to sell a  Property
subject

                                        2

<PAGE>



to that  lease to a third  party,  it must  offer the  lessee  first  refusal to
purchase the Property on the same terms and conditions,  and for the same price,
as any offer which the Company has received for the sale of the Property.

Certain Management Services

         Pursuant to an advisory  agreement (the "Advisory  Agreement") with the
Company,  the Advisor provides management services relating to the Company,  the
Properties,  the Mortgage Loans and the Secured  Equipment Lease Program.  Under
this  agreement,  the  Advisor  is  responsible  for  assisting  the  Company in
negotiating  leases,  Mortgage Loans,  the line of credit (the "Line of Credit")
and Secured  Equipment  Leases,  collecting  rental,  Mortgage  Loan and Secured
Equipment Lease  payments,  inspecting the Properties and the tenants' books and
records,  and  responding  to tenants  inquiries  and notices.  The Advisor also
provides  information  to the  Company  about  the  status  of the  leases,  the
Properties,  the Mortgage  Loans,  the Line of Credit and the Secured  Equipment
Leases.  In  exchange  for these  services,  the  Advisor is entitled to receive
certain  fees  from the  Company.  For  supervision  of the  Properties  and the
Mortgage Loans,  the Advisor receives the asset management fee, which is payable
monthly in an amount equal to one-twelfth  of .60% of the total amount  invested
in the Properties as of the end of the preceding month, exclusive of acquisition
fees and acquisition  expenses (the "Real Estate Asset Value") plus  one-twelfth
of .60% of the outstanding principal amount of any Mortgage Loans, as of the end
of the preceding month. For negotiating Secured Equipment Leases and supervising
the Secured  Equipment  Lease program,  the Advisor will receive,  upon entering
into each lease, a secured  equipment  lease  servicing fee,  payable out of the
proceeds  of the  Line of  Credit,  equal  to 2% of the  purchase  price  of the
equipment subject to each Secured Equipment Lease (the "Secured  Equipment Lease
Servicing  Fee").  For identifying the Properties,  structuring the terms of the
acquisition  and  leases  of the  Properties  and  structuring  the terms of the
Mortgage Loans,  the Advisor will receive a fee equal to 4.5% of gross proceeds,
loan proceeds from permanent  financing (the "Permanent  Financing") and amounts
outstanding on the Line of Credit, if any, at the time of Listing, but excluding
that  portion  of the  Permanent  Financing  used to finance  Secured  Equipment
Leases.

         The Advisory Agreement  continues until July 9, 1998, and thereafter my
be  extended  annually  upon  mutual  consent  of the  Advisor  and the Board of
Directors of the Company unless terminated at an earlier date upon 60 days prior
written notice by each party.

Borrowing

         The Company plans to obtain a revolving  Line of Credit in an amount up
to $45,000,000, and may, in addition, also obtain Permanent Financing to acquire
assets and to pay certain  fees during the offering  period.  The Line of Credit
may be repaid with offering  proceeds,  working capital or Permanent  Financing.
Although the Board of Directors  anticipates  that the Line of Credit will be in
the  amount  of  $45,000,000  and that the  aggregate  amount  of any  Permanent
Financing will not exceed 30% of the Company's total assets,  the maximum amount
the Company may borrow,  absent a  satisfactory  showing  that a higher level of
borrowing  is  appropriate  as  approved  by the  majority  of  the  independent
directors,  is 300% of the  Company's  Net Assets (as  defined in the  Company's
Prospectus).  Any excess in borrowing over such 300% level shall occur only with
approval by a majority of the  independent  directors  and will be disclosed and
explained to stockholders in the first quarterly  report of the Company prepared
after such approval occurs.  The Company has engaged in preliminary  discussions
with a potential  lender,  but has not yet received a commitment for the Line of
Credit or any  Permanent  Financing  and there is no assurance  that the Company
will obtain the Line of Credit or any Permanent Financing on satisfactory terms.

Competition

         The  hotel and  restaurant  businesses  are  characterized  by  intense
competition.  The operators of the hotels and  restaurants  to be located on the
Company's Properties are expected to compete with independently owned hotels and
restaurants,  hotels and restaurants which are part of local or regional chains,
and hotels and restaurants in other well-known national chains,  including those
offering different types of food and accommodations.

         Many successful fast-food,  family-style, and casual dining restaurants
are located in "eating islands",  which are areas to which people tend to return
frequently and within which they can diversify  their eating habits,  because in
many cases local  competition  may enhance the  restaurant's  success instead of
detracting  from it.  Fast-food,  family-style,  and casual  dining  restaurants
frequently experience better operating results when there are other

                                        3

<PAGE>



restaurants in the same area.  Similarly,  many successful  hotel "pockets" have
developed in areas of  concentrated  lodging  demand,  such as  airports,  urban
office parks and resort areas where this gathering  promotes  credibility to the
market  as  a  lodging   destination  and  accords  the  individual   properties
efficiencies such as area transportation,  visibility and the promotion of other
support amenities.

         The Company will be in competition with other persons and entities both
to locate  suitable  Properties  to  acquire  and to locate  purchasers  for its
Properties.  The Company also will compete with other financing  sources such as
banks,  mortgage lenders, and sale/leaseback  companies for suitable Properties,
tenants and equipment tenants.

Employees

         Reference is made to Item 10.  Directors and Executive  Officers of the
Registrant for a listing of the Company's Executive Officers. The Company has no
other employees.


Item 2.  Properties

         Even though the Company can acquire hotel or restaurant Properties,  it
is not  obligated to acquire both hotel and  restaurant  Properties.  Generally,
Properties to be acquired by the Company will consist of both land and building,
although in a number of cases the Company  may acquire the land  underlying  the
building  with the building  owned by the tenant or a third party,  and also may
acquire  the  building  only with the land owned by a third  party.  The Company
expects that any Properties  purchased by the Company will conform  generally to
the following specifications of size, cost, and type of land and buildings.

         Hotel  Properties.  The lot sizes will  generally  range up to 10 acres
depending on product,  market and design considerations,  and are available at a
broad range of pricing.  It is  anticipated  that hotel sites  purchased  by the
Company  will  generally be in primary or secondary  urban,  suburban,  airport,
highway or resort markets which have been evaluated for past and future expected
lodging demand trends.

         The hotel  buildings are predicted to be low to mid rise  construction.
The Company may acquire  limited  service,  extended  stay or full service hotel
Properties.  Limited service hotels generally  minimize non-guest room space and
offer limited food service such as complimentary  continental  breakfasts and do
not have restaurant or lounge facilities on site. Extended stay hotels generally
contain  guest  suites  with a kitchen  area and living area  separate  from the
bedroom.  Extended stay hotels vary with respect to providing on-site restaurant
facilities.  Full service hotels generally have conference or meeting facilities
and on-site food and beverage facilities.

         Restaurant  Properties.  Lot sizes will range between  25,000 to 60,000
square  feet  depending  upon  building  size  and  local  demographic  factors.
Restaurants located on land within shopping centers will be freestanding and may
be located on smaller parcels if insufficient common parking is available. Sites
purchased  by the Company will be in locations  zoned for  commercial  use which
have been reviewed for traffic  patterns and volume.  The  restaurant  buildings
generally will be  rectangular  and  constructed  from various  combinations  of
stucco,  steel,  wood, brick and tile.  Building sizes generally will range from
2,500 to 6,000 square feet, with the larger  restaurants  having greater seating
and equipment areas.

         Before or after  construction or renovation,  both hotel and restaurant
Properties to be acquired will be one of a Hotel Chain's or Restaurant  Chains's
approved designs. In general, the Properties will be freestanding and surrounded
by paved parking areas. Buildings will be suitable for a variety of uses, and in
the case of hotel Properties, the Properties may include equipment.

         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  under the  franchise  agreement  to reflect  the  current
commercial  image  of  its  Hotel  Chain  or  Restaurant  Chain.  These  capital
expenditures  generally will be paid by the lessee during the term of the lease.
Some hotel  Property  leases  may,  however,  obligate  the  lessee to fund,  in
addition  to its lease  payment,  a capital  expenditures  reserve  fund up to a
pre-determined amount. Money in that fund may be used by the lessee, with the

                                        4

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approval of the  Company,  to pay for capital  expenditures.  The Company may be
responsible  for  capital  expenditures  in excess of the amounts in the reserve
fund, and the lessee would be generally responsible for replenishing the reserve
fund and to pay a specified  return on the amount of capital  expenditures  paid
for by the Company in excess of amounts in the reserve fund.

         The Company  presently is negotiating  to acquire  Properties and as of
January 22, 1998, had not acquired any such Properties.


Item 3.  Legal Proceedings

         Neither the Company,  nor its Advisor or any affiliates of the Advisor,
nor any of their  respective  properties,  is a party to,  or  subject  to,  any
material pending legal proceedings.


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

         None.

                                        5

<PAGE>



                                     PART II


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

         As of January 22, 1998, there were 695 stockholders of record of common
stock.  There is no public  trading  market for the Shares,  and even though the
Company  intends  to list  the  Shares  on a  national  securities  exchange  or
over-the-counter  market  within ten years of  commencement  of the  offering of
Shares,  there is no assurance that one will develop and it is not known at this
time if a public market for the Shares will develop.  After the  termination  of
the offering and prior to such time, if any, as Listing occurs,  any stockholder
(other than the Advisor) may present all or any portion equal to at least 25% of
such  stockholder's  Shares to the Company for  redemption  at any time. At such
time, the Company may, at its option, subject to certain conditions, redeem such
Shares  presented for  redemption  for cash to the extent it has  sufficient net
proceeds  ("Reinvestment  Proceeds") from the sale of Shares under the Company's
distribution reinvestment plan (the "Reinvestment Plan").  Stockholders who wish
to have their  distributions  used to acquire  additional  Shares (to the extent
Shares  are  available  for  purchase),  may do so  pursuant  to  the  Company's
Reinvestment  Plan.  There  is no  assurance  that  there  will be  Reinvestment
Proceeds available for redemption and,  accordingly,  a stockholder's Shares may
not be redeemed.  Any Shares  acquired  pursuant to a redemption will be retired
and no longer  available for issuance by the Company.  The Board of Directors of
the Company,  in their  discretion,  may amend or suspend the redemption plan at
any time  they  determine  that  such  amendment  or  suspension  is in the best
interest of the Company.  The price to be paid for any Share  transferred  other
than pursuant to the redemption  plan is subject to negotiation by the purchaser
and the selling  stockholder.  For the year ended  December 31, 1997,  no Shares
were transferred, or retired pursuant to the redemption plan.

         As of December 31, 1997, the offering price per Share was $10.

         The  Company  expects  to  distribute  at least 95% of its real  estate
investment trust taxable income to the  stockholders  pursuant to the provisions
of the Articles of  Incorporation.  For the year ended  December  31, 1997,  the
Company  declared cash  distributions  of $29,776 to  stockholders.  For federal
income tax purposes, 100 percent of dividends paid in 1997 were considered to be
ordinary  income.  No amounts  distributed  to  stockholders  for the year ended
December 31, 1997,  were required to be or have been treated by the Company as a
return of capital for purposes of calculating the stockholders'  return on their
invested  capital.  As indicated in the chart below,  these  distributions  were
declared for each month  following the first  admission of  stockholders  to the
Company.

                                                               Distributions
                Record Date (1)        1997 Distribution          per Share
                  November 1              $10,758                  $0.025
                  December 1               19,018                   0.025
                  Total                   $29,776                  $0.050

(1)      For the period June 12, 1996 (date of  inception)  through  October 15,
         1997,  the  Company  did  not  make  any  cash  distributions   because
         operations had not commenced.

         In January 1998, the Company  declared  distributions  to  stockholders
totalling  $28,814  ($0.025 per Share)  payable in March 1998.  In addition,  in
January 1998, the Company  declared  distributions of $0.025 per share of common
stock to stockholders of record on February 1, 1998, also payable in March 1998.

         The Company  intends to continue  to declare  distributions  of cash to
stockholders  on a monthly  basis  during the  offering  period,  and  quarterly
thereafter.




                                        6

<PAGE>



Item 6.  Selected Financial Data
<TABLE>
<CAPTION>

                                                                            1997 (1)        1996 (2)
                                                                       -------------       ---------
<S> <C>
Year Ended December 31:
    Revenues                                                             $    46,071      $       -
    Net earnings                                                              22,852              -
    Cash distributions declared                                               29,776              -
    Funds from operations (3)                                                 22,852              -
    Earnings per Share                                                          0.03              -
    Cash distributions declared per Share                                       0.05              -
    Weighted average number of Shares outstanding (4)                        686,063              -

At December 31:
    Total assets                                                          $9,443,476         $598,190
    Total stockholders' equity                                             9,233,917          200,000
</TABLE>


(1)      No operations  commenced until the Company  received  minimum  offering
         proceeds and funds were released from escrow on October 15, 1997.

(2)      Selected financial data for 1996 represents the period June 12, 1996
         (date of inception) through December 31, 1996.

(3)      Funds from operations ("FFO"),  based on the revised definition adopted
         by the Board of  Governors  of  NAREIT  and as used  herein,  means net
         earnings  determined in accordance with generally  accepted  accounting
         principles ("GAAP"),  excluding gains or losses from debt restructuring
         and sales of  property,  plus  depreciation  and  amortization  of real
         estate assets and after adjustments for unconsolidated partnerships and
         joint  ventures.  FFO was developed by NAREIT as a relative  measure of
         performance  and liquidity of an equity REIT in order to recognize that
         income-producing  real estate  historically  has not depreciated on the
         basis determined under GAAP.  However,  FFO (i) does not represent cash
         generated from operating activities  determined in accordance with GAAP
         (which, unlike FFO, generally reflects all cash effects of transactions
         and other events that enter into the  determination  of net  earnings),
         (ii) is not necessarily  indicative of cash flow available to fund cash
         needs and (iii)  should  not be  considered  as an  alternative  to net
         earnings  determined  in  accordance  with GAAP as an indication of the
         Company's  operating  performance,  or  to  cash  flow  from  operating
         activities  determined in  accordance  with GAAP as a measure of either
         liquidity or the Company's ability to make distributions.  Accordingly,
         the Company believes that in order to facilitate a clear  understanding
         of the consolidated  historical  operating results of the Company,  FFO
         should be considered in conjunction with the Company's net earnings and
         cash flows as reported in the  accompanying  financial  statements  and
         notes thereto.

(4)      The weighted average number of Shares outstanding is based upon the
         period the Company was operational.


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

         The Company is a Maryland  corporation  that was  organized on June 12,
1996, to acquire  Properties  located across the United States to be leased on a
long term,  "triple net" basis to  operators  of selected  national and regional
limited  service,  extended  stay and full service Hotel Chains and operators of
national and regional  fast-food,  family-  style and casual  dining  Restaurant
Chains.  The Company is not  obligated  to invest in both hotel  Properties  and
restaurant  Properties.  The  Company  may also  provide  Mortgage  Loans in the
aggregate  principal  amount of  approximately  5% to 10% of the gross  offering
proceeds.  The  Company  also  intends  to offer  Secured  Equipment  Leases  to
operators of Hotel Chains and Restaurant  Chains.  Secured Equipment Leases will
be funded from the  proceeds of  financing  to be obtained by the  Company.  The
aggregate  outstanding  principal  amount of Secured  Equipment  Leases will not
exceed 10% of gross proceeds from the offering.

                                        7

<PAGE>




         Pending  investment  in suitable  Properties  and Mortgage  Loans,  net
offering  proceeds are invested in  short-term,  highly  liquid U.S.  Government
securities or in other  short-term,  highly liquid  investments with appropriate
safety of principal.  Management anticipates that after the Company has invested
in assets,  Company revenues sufficient to pay operating expenses,  provide cash
distributions  to the  stockholders  and service debt,  will be derived from the
lease and mortgage payments paid to the Company by the tenants and borrowers.

         The Company's primary investment  objectives are to preserve,  protect,
and enhance the Company's  assets while (i) making  distributions  commencing in
the initial year of Company operations;  (ii) obtaining fixed income through the
receipt of base rent, and increasing  the Company's  income (and  distributions)
and providing  protection against inflation through automatic  increases in base
rent and/or receipt of percentage  rent, and obtaining  fixed income through the
receipt of payments  from Mortgage  Loans and Secured  Equipment  Leases;  (iii)
qualifying  and remaining  qualified as a REIT for federal  income tax purposes;
and  (iv)  providing  stockholders  of  the  Company  with  liquidity  of  their
investment within five to ten years after  commencement of the offering,  either
in whole or in part,  through (a) Listing of the Shares or (b) the  commencement
of orderly  sales of the  Company's  assets,  and  distribution  of the proceeds
thereof  (outside  the  ordinary  course of  business  and  consistent  with its
objective  of  qualifying  as a REIT).  There  can be no  assurance  that  these
investment  objectives will be met. In addition, if the Shares are not listed by
December  31,  2007,  as to which there can be no  assurance,  the Company  will
commence the orderly sale of its assets and the  distribution  of the  proceeds.
Listing does not assure liquidity.

         Pursuant  to  the  registration   statement  on  Form  S-11  under  the
Securities  Act of  1933,  as  amended,  effective  July 9,  1997,  the  Company
registered  for sale an  aggregate  of  $165,000,000  of Shares of common  stock
(16,500,000  Shares at $10 per Share),  with 1,500,000 of such Shares  available
only to  stockholders  who elect to  participate  in the Company's  Reinvestment
Plan. The offering of Shares of the Company will terminate no later than July 9,
1998,  unless  the  Company  elects to extend it to a date no later than July 9,
1999, in states that permit such extension.

Liquidity and Capital Resources

         During the period June 12, 1996 (date of  inception)  through  December
31, 1996, the Company  received  initial capital  contributions  of $200,000 for
20,000 shares of common stock from CNL Fund Advisors, Inc. In February 1997, CNL
Real Estate Advisors, Inc. purchased the Company's outstanding common stock from
CNL Fund Advisors, Inc. and became the sole stockholder of the Company.

         Effective July 1997, the Company commenced an offering of its Shares of
common  stock.  As of December  31,  1997,  the Company had  received  aggregate
subscription  proceeds  totalling   $11,325,402   (1,132,540  Shares)  from  the
offering, including $1,056 (106 Shares) through the Company's Reinvestment Plan.

         As of December 31, 1997,  net proceeds to the Company from its offering
of Shares and capital contributions from the Advisor, after deduction of selling
commissions,  marketing support and due diligence expense reimbursement fees and
organizational  and  offering  expenses  totalled  $9,220,841.  The Company used
$535,792  to  pay  for  acquisition  fees  and  acquisition  expenses,   leaving
$8,658,049 in net offering  proceeds  available for investment in Properties and
Mortgage  Loans.  As of January 22, 1998, the Company had received  subscription
proceeds  (excluding the capital  contributions from the Advisor) of $12,628,022
(1,262,802  Shares)  from its offering of Shares.  As of January 22,  1998,  net
proceeds to the Company  from its  offering of Shares and capital  contributions
from the Advisor, after deduction of selling commissions,  marketing support and
due  diligence  expense  reimbursement  fees  and  organizational  and  offering
expenses totalled $10,419,251.  The Company used $594,410 to pay for acquisition
fees and  acquisition  expense,  leaving  $9,824,841  in net  offering  proceeds
available for  investment in Properties  and Mortgage  Loans.  As of January 22,
1998,  the Company had not acquired any  Properties or entered into any Mortgage
Loans.

         The  Company  expects  to use net  offering  proceeds  from the sale of
Shares to purchase Properties and to invest in Mortgage Loans. In addition,  the
Company  intends to borrow  money to acquire  Properties,  to invest in Mortgage
Loans and Secured Equipment Leases, and to pay certain related fees. The Company
intends to encumber assets in connection with such borrowing.  The Company plans
to obtain a revolving Line of Credit in an amount up to $45,000,000. The Company
also  plans to obtain  Permanent  Financing.  Although  the  Board of  Directors
anticipates  that the Line of Credit  will be in the amount of  $45,000,000  and
that the aggregate amount of any Permanent Financing shall not exceed 30% of the
Company's  total  assets,  the maximum  amount the Company may borrow,  absent a
satisfactory showing that a higher level of borrowing is appropriate as approved
by a majority of the independent directors, is 300% of the Company's net assets,
defined for this purpose as the Company's total assets (other than intangibles),
calculated at cost, less total liabilities. The Line of Credit is expected to be
used to facilitate the acquisition of assets and will be repaid with proceeds of
the offering or from Permanent Financing.

                                        8

<PAGE>



The Company has engaged in discussions with a potential lender,  but has not yet
executed a  commitment  for the Line of Credit or any  Permanent  Financing  and
there is no  assurance  that the  Company  will obtain the Line of Credit or any
Permanent Financing on satisfactory terms.

         Properties  will be leased on a long-term,  triple-net  basis,  meaning
that tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected to
exceed the Company's  operating  expenses.  For these reasons,  no short-term or
long-term  liquidity  problems  associated  with  operating the  Properties  are
currently anticipated by management.

         Until Properties are acquired,  or Mortgage Loans are entered into, net
offering  proceeds  are held in  short-term,  highly  liquid  investments  which
management  believes to have  appropriate  safety of principal.  This investment
strategy  provides high  liquidity in order to  facilitate  the Company's use of
these  funds to  acquire  Properties  at such time as  Properties  suitable  for
acquisition  are located or to fund Mortgage  Loans.  At December 31, 1997,  the
Company had $8,869,838  invested in such  short-term  investments as compared to
$2,084 at December 31, 1996.  The increase in the amount  invested in short-term
investments  reflects  subscription  proceeds  derived  from the sale of  Shares
during the year ended  December 31, 1997.  These funds will be used primarily to
purchase and develop or renovate  Properties,  to make  Mortgage  Loans,  to pay
organizational   and  offering  expenses  and  acquisition   expenses,   to  pay
distributions  to   stockholders,   to  meet  other  Company  expenses  and,  in
management's discretion, to create cash reserves.

         During the year ended  December  31,  1997 and the period June 12, 1996
(date of  inception)  through  December  31,  1996,  affiliates  of the  Company
incurred on behalf of the  Company  $638,274  and  $555,812,  respectively,  for
certain organizational and offering expenses. In addition, during the year ended
December 31, 1997,  affiliates of the Company  incurred on behalf of the Company
$26,149  for certain  acquisition  expenses  and  $11,003 for certain  operating
expenses.  As of  December  31,  1997 and 1996,  the  Company  owed the  Advisor
$193,254  and  $386,561,   respectively,  for  such  amounts,  unpaid  fees  and
accounting  and  administrative  expenses.  The  Advisor  has  agreed  to pay or
reimburse to the Company all  organizational  and offering expenses in excess of
three percent of gross offering proceeds.

         During the year ended  December 31, 1997,  the Company  generated  cash
from operations  (which includes  interest received less cash paid for operating
expenses)  of  $22,469.  Based on  current  and  anticipated  future  cash  from
operations the Company  declared  distributions  to its  stockholders of $29,776
during the period  October  15,  1997 (the date  operations  commenced)  through
December 31, 1997.  No  distributions  were paid or declared for the period June
12, 1996 (date of inception) through October 14, 1997 because operations had not
commenced.   On  January  1,  1998,  the  Company   declared   distributions  to
stockholders of record on January 1, 1998, totalling $28,814 ($0.025 per share),
payable in March 1998. On January 16, 1998, the Company  declared  distributions
of $0.025 per share of common  stock to  stockholders  of record on  February 1,
1998,  also payable in March 1998.  For the year ended  December  31, 1997,  100
percent of the  distributions  received by  stockholders  were  considered to be
ordinary income for federal income tax purposes. No amounts distributed or to be
distributed to the  stockholders  as of January 22, 1998, were required to be or
have  been  treated  by the  Company  as a return of  capital  for  purposes  of
calculating the stockholders' return on their invested capital.

         Due to anticipated low operating expenses, rental income expected to be
obtained  from  Properties  after they are  acquired,  the fact that the Line of
Credit and Permanent  Financing  have not been obtained and that the Company has
not entered into Mortgage Loans or Secured Equipment Leases, management does not
believe that working capital reserves will be necessary at this time. Management
has the right to cause the Company to maintain reserves if, in their discretion,
they determine such reserves are required to meet the Company's  working capital
needs.

         As  of  January  22,  1998,  the  Company  had  not  entered  into  any
arrangements creating a reasonable probability that a Property would be acquired
by the Company or that a particular  Mortgage  Loan or Secured  Equipment  Lease
would be funded.  The number of Properties to be acquired and Mortgage  Loans to
be invested in will depend  upon the amount of net  offering  proceeds  and loan
proceeds  available to the  Company.  The amount  invested in Secured  Equipment
Leases will not exceed 10% of the gross offering proceeds.

         Management  expects that the cash to be generated from  operations will
be adequate to pay operating expenses and to make distributions to stockholders.

                                        9

<PAGE>




Results of Operations

         No operations commenced until the Company received the minimum offering
proceeds  of  $2,500,000  on October 15,  1997.  The Company did not acquire any
Properties or enter into any Mortgage  Loans during the year ended  December 31,
1997.

         During the year ended  December 31, 1997, the Company earned $46,071 in
interest income from  investments in money market  accounts.  Interest income is
expected to increase as the Company invests  subscription  proceeds  received in
the future in highly liquid  investments  pending  investment in Properties  and
Mortgage Loans. However, as net offering proceeds are invested in Properties and
used to make Mortgage Loans, the percentage of the Company's total revenues from
interest  income from  investments in money market accounts or other short term,
highly liquid investments is expected to decrease.

         Operating expenses,  including  amortization  expense, were $23,219 for
the year ended December 31, 1997.  Operating  expenses,  including  amortization
expense,  represent  only a portion of operating  expenses  which the Company is
expected to incur during a full year in which the Company owns  Properties or in
which the Company is  operational.  The dollar  amount of operating  expenses is
expected to increase as the Company acquires  Properties and invests in Mortgage
Loans.

         The Company  anticipates that its leases will be triple-net  leases and
will contain  provisions  that  management  believes  will  mitigate the adverse
effect of inflation.  Such provisions will include clauses requiring the payment
of percentage  rent based on certain gross 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 gross 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  Company's
Properties.  Inflation and changing  prices,  however,  also may have an adverse
impact on the sales of the Properties and on potential  capital  appreciation of
the Properties.

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting Standards No. 129, "Disclosure of Information
about Capital  Structure".  The  Statement,  which is effective for fiscal years
ending after December 15, 1997, provides for disclosure of the Company's capital
structure as it relates to its  preferred  stock.  At this time,  the  Company's
Board of Directors has not  determined  the relative  rights,  preferences,  and
privileges  of each class or series of  preferred  stock  authorized.  Since the
Company has not issued preferred  shares,  the disclosures to this Statement are
not applicable.

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The
Statement,  which is effective  for fiscal years  beginning  after  December 15,
1997,  requires the  reporting  of net earnings and all other  changes to equity
during  the  period,  except  those  resulting  from  investments  by owners and
distributions to owners, in a separate  statement that begins with net earnings.
Currently,  the  Company's  only  component of  comprehensive  income is its net
earnings. The Company does not believe that adoption of this Statement will have
a material effect on the Company's financial position or results of operations.

         The  Advisor  of  the  Company  is in  the  process  of  assessing  and
addressing  the impact of the year 2000 on its computer  package  software.  The
hardware  and  built-in  software  are  believed  to  be  year  2000  compliant.
Accordingly, the Company does not expect this matter to materially impact how it
conducts business nor its future results of operations or financial position.

         This information contains forward-looking statements within the meaning
of Section 27A of the  Securities  Act of 1933 and Section 21E of the Securities
Exchange  Act of 1934.  Although  the  Company  believes  that the  expectations
reflected  in  such   forward-looking   statements  are  based  upon  reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference  include  the  following:  changes  in general  economic  conditions,
changes in local and national real estate conditions,  continued availability of
proceeds  from the  Company's  offering,  the ability of the Company to obtain a
Line of Credit or Permanent  Financing,  as  described  above,  on  satisfactory
terms, the ability of the Company to identify suitable investments,  the ability
of the Company to locate suitable tenants for its

                                       10

<PAGE>



Properties  and borrowers for its Mortgage Loans and Secured  Equipment  Leases,
and the  ability of such  tenants and  borrowers  to make  payments  under their
respective leases, Mortgage Loans or Secured Equipment Leases.

Item 8.   Financial Statements and Supplementary Data

                                       11

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.



                                    CONTENTS






                                                           Page

Report of Independent Accountants                          13

Financial Statements:

  Balance Sheets                                           14

  Statements of Earnings                                   15

  Statements of Stockholders' Equity                       16

  Statements of Cash Flows                                 17

  Notes to Financial Statements                            19

                                       12

<PAGE>








                        Report of Independent Accountants



To the Board of Directors
CNL American Realty Fund, Inc.


We have audited the financial  statements of CNL American  Realty Fund,  Inc. (a
Maryland  corporation)  listed in Item 14(a) of this Form 10-K.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of CNL American Realty Fund, Inc.
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the year ended December 31, 1997 and the period June 12, 1996 (date of
inception)  through  December 31, 1996, in conformity  with  generally  accepted
accounting principles.





/s/ Coopers & Lybrand, L.L.P.

Orlando, Florida
January 22, 1998

                                       13

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                                 BALANCE SHEETS


                                                         December 31,
               ASSETS                              1997               1996
                                               ------------       -----------

Cash and cash equivalents                      $8,869,838         $    2,084
Due from related party                              7,500                 -
Prepaid expenses                                   11,179                 -
Organization costs, less accumulated
  amortization of $833 in 1997                     19,167                 -
Deferred offering costs                                -             596,106
Other assets                                      535,792                 -
                                               ----------         ---------

                                               $9,443,476         $  598,190
                                               ==========         ==========

  LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses          $   16,305         $   11,629
Due to related parties                            193,254            386,561
                                               ----------         ----------
      Total liabilities                           209,559            398,190
                                               ----------         ----------


Stockholders' equity:
  Preferred stock, without par value.
    Authorized and unissued 3,000,000
    shares in 1997                                     -                  -
  Excess shares, $.01 par value per
    share.  Authorized and unissued
    63,000,000 shares in 1997                          -                  -
  Common stock, $.01 par value per
    share.  Authorized 60,000,000
    shares and 100,000 shares,
    respectively, issued and
    outstanding 1,152,540 and 20,000,
    respectively                                   11,525                200
  Capital in excess of par value                9,229,316            199,800
  Accumulated distributions in excess
    of net earnings                                (6,924 )               -
                                               ----------         ---------
      Total stockholders' equity                9,233,917            200,000
                                               ----------         ----------

                                               $9,443,476         $  598,190
                                               ==========         ==========




                 See accompanying notes to financial statements.

                                       14

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                             STATEMENTS OF EARNINGS



                                                           June 12, 1996
                                                             (Date of
                                                               Inception)
                                           Year Ended         through
                                          December 31,      December 31,
                                              1997              1996
                                          ------------     ------------

Interest income                           $   46,071        $       -
                                          ----------        ---------

Expenses:
  General operating and
    administrative                            22,386                -
  Amortization                                   833                -
                                          ----------        ---------
                                              23,219                -
                                          ----------        ---------

Net Earnings                              $   22,852        $       -
                                          ==========        =========

Earnings Per Share of Common
  Stock (Basic and Diluted)               $     0.03        $       -
                                          ==========        =========

Weighted Average Number of
  Shares of Common Stock
  Outstanding                                686,063                -
                                          ==========        =========







                 See accompanying notes to financial statements.

                                       15

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

                      Year Ended December 31, 1997 and the
                Period June 12, 1996 (Date of Inception) through
                                December 31, 1996

<TABLE>
<CAPTION>


                                                                                              Accumulated
                                                                                             distributions
                                                     Common stock                  Capital in             in excess
                                        Number           Par             excess of               of net
                                      of shares         value            par value              earnings               Total
<S> <C>
Balance at
  June 12, 1996                               -        $    -           $        -           $      -               $        -

Sale of common
  stock to related
  party                                   20,000           200              199,800                 -                   200,000
                                      ----------       -------          -----------          ---------              -----------

Balance at
  December 31, 1996                       20,000           200              199,800                 -                   200,000

Subscriptions
  received for
  common stock
  through public
  offering and
  distribution
  reinvestment plan                    1,132,540        11,325           11,314,077                 -                11,325,402

Stock issuance costs                          -             -            (2,284,561)                -                (2,284,561)

Net earnings                                  -             -                    -              22,852                   22,852

Distributions
  declared ($0.05
  per share)                                  -             -                    -             (29,776)                 (29,776)
                                      ----------       -------          -----------          ---------              -----------

Balance at
  December 31, 1997                    1,152,540       $11,525          $ 9,229,316          $  (6,924)             $ 9,233,917
                                      ==========       =======          ===========          =========              ===========

</TABLE>



                 See accompanying notes to financial statements.

                                       16

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                       June 12, 1996
                                                                         (Date of
                                                                           Inception)
                                                       Year Ended         through
                                                      December 31,      December 31,
                                                          1997              1996
                                                      ------------     ------------
<S> <C>
Increase (Decrease) in Cash and Cash
  Equivalents:

    Cash Flows From Operating Activities:
      Interest received                               $     46,071      $         -
      Cash paid for expenses                               (23,602)               -
                                                      ------------      -----------
          Net cash provided by operating
            activities                                      22,469                -
                                                      ------------      -----------

    Cash Flows From Investing Activities:
       Increase in other assets                           (463,470)               -
                                                      ------------      -----------
          Net cash used in investing
            activities                                    (463,470)               -
                                                      ------------      -----------

    Cash Flows From Financing Activities:
      Reimbursement of acquisition, organi-
        zation and stock issuance costs paid
        by related parties on behalf of the
        Company                                         (1,003,031)         (197,916)
      Sale of common stock to related party                     -            200,000
      Subscriptions received from stock-
        holders                                         11,327,900                -
      Distributions to stockholders                        (29,776)               -
      Payment of stock issuance costs                     (986,338)               -
                                                      ------------      -----------
          Net cash provided by financing
            activities                                   9,308,755             2,084
                                                      ------------      ------------

Net Increase in Cash and Cash Equivalents                8,867,754             2,084

Cash and Cash Equivalents at Beginning of
  Period                                                     2,084                -
                                                      ------------      -----------

Cash and Cash Equivalents at End of Period            $  8,869,838      $      2,084
                                                      ============      ============
</TABLE>




                 See accompanying notes to financial statements.

                                       17

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                      STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>

                                                                               June 12, 1996
                                                                                 (Date of
                                                                                   Inception)
                                                       Year Ended                 through
                                                      December 31,              December 31,
                                                          1997                      1996
                                                      ------------             -------------
<S> <C>
Reconciliation of Net Earnings to Net Cash
  Provided by Operating Activities:

    Net earnings                                      $     22,852              $         -
                                                      ------------              -----------
    Adjustments to reconcile net earnings
      to net cash provided by operating
      activities:
        Amortization                                           833                        -
        Increase in prepaid expenses                       (11,179)                       -
        Increase in accounts payable and
          accrued expenses                                   6,141                        -
        Increase in due to related parties,
          excluding reimbursement of acqui-
          sition, organization and stock
          issuance costs paid on behalf
          of the Company                                     3,822                        -
                                                      ------------              -----------
            Total adjustments                                 (383)                       -
                                                      ------------              -----------

Net Cash Provided by Operating Activities             $     22,469              $         -
                                                      ============              ===========


Supplemental Schedule of Non-Cash
  Investing and Financing Activities:

    Related parties paid certain  acquisition,
      organization  and stock issuance
      costs on behalf of the Company as follows:
        Acquisition costs                             $     26,149              $         -
        Organization costs                                      -                     20,000
        Deferred offering costs                                 -                    535,812
        Stock issuance costs                               638,274                        -
                                                      ------------              -----------

                                                      $    664,423              $    555,812
                                                      ============              ============

</TABLE>








                 See accompanying notes to financial statements.

                                       18

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                          NOTES TO FINANCIAL STATEMENTS

                   Year Ended December 31, 1997 and the Period
                    June 12, 1996 (Date of Inception) through
                                December 31, 1996


1.       Significant Accounting Policies:

         Organization  and Nature of Business - CNL American  Realty Fund,  Inc.
         (the "Company") was organized in Maryland on June 12, 1996 primarily to
         acquire properties  ("Properties")  located across the United States to
         be leased on a  long-term  triple-net  basis.  The  Company  intends to
         invest the proceeds from its public offering,  after deducting offering
         expenses, in hotel Properties to be leased to operators of national and
         regional limited  service,  extended stay and full service hotel chains
         (the  "Hotel  Chains")  and in  restaurant  Properties  to be leased to
         operators of selected national and regional fast-food, family-style and
         casual dining restaurant chains (the "Restaurant Chains").  The Company
         may also  provide  mortgage  financing  ( the  "Mortgage  Loans").  The
         Company  also  intends  to  offer  furniture,   fixture  and  equipment
         financing (the "Secured Equipment Leases") to operators of Hotel Chains
         and Restaurant Chains.

         The  Company  was a  development  stage  enterprise  from June 12, 1996
         through October 15, 1997.  Since  operations had not begun,  activities
         through October 15, 1997 were devoted to organization of the Company.

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

         Organization  Costs - Organization  costs are amortized over five years
         using the straight-line method.

                                       19

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                   Year Ended December 31, 1997 and the Period
                    June 12, 1996 (Date of Inception) through
                                December 31, 1996

1.       Significant Accounting Policies - Continued:

         Income Taxes - The Company intends to make an election to be taxed as a
         real estate investment trust ("REIT") under Sections 856 through 860 of
         the Internal  Revenue  Code of 1986,  as amended,  commencing  with its
         taxable  year ended  December 31, 1997.  If the Company  qualifies  for
         taxation  as a REIT,  the  Company  generally  will not be  subject  to
         federal  corporate  income taxes to the extent it distributes  its REIT
         taxable income to its stockholders,  so long as it distributes at least
         95  percent  of  its  REIT  taxable  income  and  meets  certain  other
         requirements  for qualifying as a REIT.  Accordingly,  no provision for
         federal income taxes has been made in the financial statements. Even if
         the Company  qualifies  for  taxation  as a REIT,  it may be subject to
         certain state and local taxes on its income and  property,  and federal
         income and excise taxes on its undistributed income.

         Earnings Per Share - Basic earnings per share are calculated based upon
         net earnings (income available to common  stockholders)  divided by the
         weighted  average number of shares of common stock  outstanding  during
         the reporting period.  The Company does not have any dilutive potential
         common shares.

         Use of  Estimates  -  Management  of the  Company  has made a number of
         estimates  and  assumptions  relating  to the  reporting  of assets and
         liabilities and the disclosure of contingent  assets and liabilities to
         prepare  these  financial   statements  in  conformity  with  generally
         accepted accounting principles.  Actual results could differ from those
         estimates.

         New Accounting  Standard - In February  1997, the Financial  Accounting
         Standards Board issued Statement of Financial  Accounting Standards No.
         129,   "Disclosure  of  Information  about  Capital   Structure".   The
         Statement,  which is effective  for fiscal years ending after  December
         15, 1997,  provides for disclosure of the Company's capital  structure.
         At this time, the Company's Board of Directors has not determined the

                                       20

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                   Year Ended December 31, 1997 and the Period
                    June 12, 1996 (Date of Inception) through
                                December 31, 1996


1.       Significant Accounting Policies - Continued:

         relative rights, preferences, and privileges of each class or series of
         preferred stock authorized.  Since the Company has not issued preferred
         shares, the disclosures to this Statement are not applicable.

         In June 1997, the Financial Accounting Standards Board issued Statement
         of Financial  Accounting  Standards No. 130,  "Reporting  Comprehensive
         Income".  The Statement,  which is effective for fiscal years beginning
         after December 15, 1997, requires the reporting of net earnings and all
         other changes to equity during the period,  except those resulting from
         investments  by owners  and  distributions  to  owners,  in a  separate
         statement  that  begins  with  net  earnings  or in  the  statement  of
         operations below net earnings.  Currently, the Company's only component
         of  comprehensive  income is its net  earnings.  The  Company  does not
         believe that adoption of this Statement will have a material  effect on
         the Company's financial position or results of operations.

2.       Public Offering:

         The Company has filed a currently effective  registration  statement on
         Form S-11 with the Securities and Exchange Commission.

         A maximum of 16,500,000 shares  ($165,000,000)  may be sold,  including
         1,500,000 shares  ($15,000,000) which is available only to stockholders
         who  elect to  participate  in the  Company's  reinvestment  plan.  The
         Company has adopted a reinvestment plan pursuant to which  stockholders
         may elect to have the full amount of their cash  distributions from the
         Company reinvested in additional shares of common stock of the Company.
         As of December 31, 1997, the Company had received subscription proceeds
         of  $11,325,402  (1,132,540  shares),  including  $1,056  (106  shares)
         through the reinvestment plan.

3.       Other Assets:

         Other assets at December 31, 1997,  consisted of  acquisition  fees and
         miscellaneous  acquisition  expenses  which will be allocated to future
         Properties.



                                       21

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                   Year Ended December 31, 1997 and the Period
                    June 12, 1996 (Date of Inception) through
                                December 31, 1996


4.       Stock Issuance Costs:

         The Company has  incurred  certain  expenses of its offering of shares,
         including  commissions,  marketing  support and due  diligence  expense
         reimbursement fees, filing fees, legal, accounting, printing and escrow
         fees, which have been deducted from the gross proceeds of the offering.
         Preliminary costs incurred prior to raising capital were advanced by an
         affiliate  of  the  Company,  CNL  Real  Estate  Advisors,   Inc.  (the
         "Advisor").  The  Advisor  has  agreed  to pay all  organizational  and
         offering expenses (excluding  commissions and marketing support and due
         diligence expense reimbursement fees) which exceed three percent of the
         gross  offering  proceeds  received  from  the  sale of  shares  of the
         Company.

         As of  December  31,  1997,  the  Company had  incurred  $2,304,561  in
         organizational  and offering costs,  including  $906,032 in commissions
         and marketing support and due diligence expense reimbursement fees (see
         Note 6). Of this amount  $2,284,561  has been treated as stock issuance
         costs and $20,000 has been  treated as  organization  costs.  The stock
         issuance costs have been charged to stockholders' equity subject to the
         three percent cap described above.

5.       Distributions:

         For the year ended December 31, 1997, 100 percent of the  distributions
         were  considered to be ordinary income for federal income tax purposes.
         No amounts  distributed to stockholders for the year ended December 31,
         1997,  are  required  to be or have been  treated  by the  Company as a
         return of capital for purposes of calculating the stockholders'  return
         on their invested capital.

6.       Related Party Transactions:

         Certain affiliates of the Company will receive fees and compensation in
         connection with the offering, and the acquisition, management, and sale
         of the assets of the Company.

         On  June  12,  1996  (date  of  inception),  CNL  Fund  Advisors,  Inc.
         contributed  $200,000  in cash  to the  Company  and  became  its  sole
         stockholder.  In February  1997,  the Advisor  purchased  the Company's
         outstanding  common stock from CNL Fund  Advisors,  Inc. and became the
         sole stockholder of the Company.

                                       22

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                   Year Ended December 31, 1997 and the Period
                    June 12, 1996 (Date of Inception) through
                                December 31, 1996


6.       Related Party Transactions - Continued:

         CNL Securities  Corp. is entitled to receive  commissions  amounting to
         7.5% of the total amount raised from the sale of shares for services in
         connection  with the offering of the shares,  a substantial  portion of
         which has been or will be paid as commissions to other  broker-dealers.
         During the year ended December 31, 1997, the Company incurred  $849,405
         of such fees of which  $792,832 were or will be paid by CNL  Securities
         Corp. as commissions to other broker-dealers.

         In addition,  CNL  Securities  Corp. is entitled to receive a marketing
         support and due diligence  expense  reimbursement  fee equal to 0.5% of
         the total amount raised from the sale of shares, a portion of which may
         be reallowed to other  broker-dealers.  During the year ended  December
         31,  1997,  the Company  incurred  $56,627 of such fee, the majority of
         which were  reallowed to other  broker-dealers  and from which all bona
         fide due diligence expenses were paid.

         CNL Securities  Corp. will also receive a soliciting  dealer  servicing
         fee payable  annually by the  Company  beginning  on December 31 of the
         year  following  the year in which the  offering  is  completed  in the
         amount of 0.20% of the stockholders'  investment in the Company.  As of
         December 31, 1997, no such fees had been incurred.

         The  Advisor is entitled to receive  acquisition  fees for  services in
         finding,  negotiating the leases of and acquiring  properties on behalf
         of the Company  equal to 4.5% of gross  proceeds,  loan  proceeds  from
         permanent  financing and amounts  outstanding on the line of credit, if
         any,  at the  time  of  Listing,  but  excluding  that  portion  of the
         permanent  financing used to finance Secured Equipment  Leases.  During
         the year ended December 31, 1997, the Company incurred $509,643 of such
         fees. Such fees are included in other assets at December 31, 1997.


                                       23

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                   Year Ended December 31, 1997 and the Period
                    June 12, 1996 (Date of Inception) through
                                December 31, 1996


6.       Related Party Transactions - Continued:

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

                                                         1997          1996
                                                      ----------    ----------

                  Due to CNL Securities Corp.:
                    Commissions                         $100,709      $     -
                    Marketing support and due
                      diligence expense reim-
                      bursement fee                        7,268            -
                                                        --------      -------
                                                         107,977            -
                                                        --------      -------

                  Due to CNL Real Estate Advisors,
                    Inc.:
                   Expenditures incurred for
                     organizational and offering
                            expenses on behalf of the
                            Company                       21,729       357,896
                   Accounting and administrative
                     services                             17,376        28,665
                   Acquisition fees                       46,172            -
                                                        --------      -------
                                                          85,277       386,561
                                                        --------      --------

                                                        $193,254      $386,561
                                                        ========      ========







                                       24

<PAGE>



                         CNL AMERICAN REALTY FUND, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                   Year Ended December 31, 1997 and the Period
                    June 12, 1996 (Date of Inception) through
                                December 31, 1996


6.       Related Party Transactions - Continued:

         The Advisor and its affiliates  provide  accounting and  administrative
         services  to  the  Company  (including  accounting  and  administrative
         services in  connection  with the  offering of shares) on a  day-to-day
         basis.  For the year ended  December  31,  1997 and the period June 12,
         1996 (date of  inception)  through  December  31,  1996,  the  expenses
         incurred for these services were classified as follows:

                                                               June 12, 1996
                                                                 (Date of
                                                                   Inception)
                                                 Year Ended       through
                                                December 31,    December 31,
                                                    1997            1996
                                                ------------   ------------

                  Deferred offering costs        $     -         $ 28,665
                  Stock issuance costs            185,335              -
                  General operating and
                    administrative expenses         6,889              -
                                                 --------        -------

                                                 $192,224        $ 28,665
                                                 ========        ========

7.       Subsequent Events:

         During the period January 1, 1998 through January 22, 1998, the Company
         received subscription proceeds of 130,262 shares ($1,302,620) of common
         stock.

         On January 1, 1998, the Company  declared  distributions  of $28,814 or
         $0.025  per  share  of  common   stock,   payable  in  March  1998,  to
         stockholders of record on January 1, 1998.

         On January 16, 1998, the Company  declared  distributions of $0.025 per
         share of common  stock to  stockholders  of record on February 1, 1998,
         also payable in March 1998.

                                       25

<PAGE>



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

         None.



                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

         The  information  required by this Item is incorporated by reference to
the  Company's  Definitive  Proxy  Statement to be filed with the  Commission no
later than April 30, 1998.

Item 11.  Executive Compensation

         The  information  required by this Item is incorporated by reference to
the  Company's  Definitive  Proxy  Statement to be filed with the  Commission no
later than April 30, 1998.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         The  information  required by this Item is incorporated by reference to
the  Company's  Definitive  Proxy  Statement to be filed with the  Commission no
later than April 30, 1998.

Item 13.  Certain Relationships and Related Transactions

         The  information  required by this Item is incorporated by reference to
the  Company's  Definitive  Proxy  Statement to be filed with the  Commission no
later than April 30, 1998.

                                     PART IV

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

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

         1.  Financial Statements

                  Report of Independent Accountants

                  Balance Sheets at December 31, 1997 and 1996

                  Statements  of Earnings for the year ended  December 31, 1997,
                  and the  period  June 12,  1996  (date of  inception)  through
                  December 31, 1996

                  Statements of Stockholders' Equity for the year ended December
                  31,  1997,  and the period June 12,  1996 (date of  inception)
                  through December 31, 1996

                  Statements of Cash Flows for the year ended December 31, 1997,
                  and the  period  June 12,  1996  (date of  inception)  through
                  December 31, 1996

                  Notes to Financial Statements




                                       26

<PAGE>




         3.  Exhibits

                  3.1      CNL American Realty Fund,  Inc.  Amended and Restated
                           Articles of Incorporation (Included as Exhibit 3.2 to
                           Registration  Statement No. 333-9943 on Form S-11 and
                           incorporated herein by reference.)

                  3.2      CNL American Realty Fund,  Inc.  Bylaws  (Included as
                           Exhibit 3.3 to Registration Statement No. 333-9943 on
                           Form S-11 and incorporated herein by reference.)

                  4.1      Reinvestment   Plan   (Included  as  Exhibit  4.4  to
                           Registration  Statement No. 333-9943 on Form S-11 and
                           incorporated herein by reference.)

                  10.1     Advisory Agreement, dated as of July 9, 1997, between
                           CNL American  Realty  Fund,  Inc. and CNL Real Estate
                           Advisors,   Inc.   (Included   as  Exhibit   10.9  to
                           Registration  Statement No. 333-9943 on Form S-11 and
                           incorporated herein by reference.)

                  10.2     Form of Indemnification Agreement dated as of July 9,
                           1997, between CNL American Realty Fund, Inc. and each
                           of James M. Seneff, Jr., Robert A. Bourne, G. Richard
                           Hostetter,  J.  Joseph  Kruse,  Richard  C.  Huseman,
                           Charles A. Muller, John T. Walker, Jeanne A. Wall and
                           Lynn E. Rose (Filed herewith.)

                  27       Financial Data Schedule (Filed herewith.)

         (b)      No reports on Form 8-K were filed during the period October 1,
                  1997 through December 31, 1997.

                                       27

<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 26 day of
February, 1998.

                         CNL AMERICAN REALTY FUND, INC.

                                       By:      ROBERT A. BOURNE
                                                President (Principal Financial
                                                and Accounting Officer)
                                                /s/ Robert A. Bourne
                                                -------------------------- 
                                                ROBERT A. BOURNE


<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>
/s/ James M. Seneff, Jr.                          Chairman of the Board and Chief              February 26, 1998
------------------------                          Executive Officer (Principal Executive
James M. Seneff, Jr.                              Officer)



/s/ Robert A. Bourne                              Director and President (Principal            February 26, 1998
------------------------                          Financial and Accounting Officer)
Robert A. Bourne



/s/ G. Richard Hostetter                          Independent Director                         February 26, 1998
------------------------
G. Richard Hostetter



/s/ J. Joseph Kruse                               Independent Director                         February 26, 1998
------------------------
J. Joseph Kruse



/s/ Richard C. Huseman                            Independent Director                         February 26, 1998
------------------------
Richard C. Huseman
</TABLE>


<PAGE>



                                    EXHIBITS


<PAGE>



                                  EXHIBIT INDEX


        Exhibit Number

        3.1       CNL American Realty Fund, Inc.  Amended and Restated  Articles
                  of  Incorporation  (Included  as Exhibit  3.2 to  Registration
                  Statement No. 333-9943 on Form S-11 and incorporated herein by
                  reference.)

        3.2       CNL American Realty Fund, Inc. Bylaws (Included as Exhibit 3.3
                  to  Registration  Statement  No.  333-9943  on Form  S-11  and
                  incorporated herein by reference.)

        4.1       Reinvestment  Plan  (Included  as Exhibit 4.4 to  Registration
                  Statement No. 333- 9943 on Form S-11 and  incorporated  herein
                  by reference.)

        10.1      Advisory  Agreement,  dated as of July 9,  1997,  between  CNL
                  American Realty Fund, Inc. and CNL Real Estate Advisors,  Inc.
                  (Included  as  Exhibit  10.9  to  Registration  Statement  No.
                  333-9943 on Form S-11 and incorporated herein by reference.)

        10.2      Form of  Indemnification  Agreement  dated as of July 9, 1997,
                  between CNL American  Realty  Fund,  Inc. and each of James M.
                  Seneff, Jr., Robert A. Bourne, G. Richard Hostetter, J. Joseph
                  Kruse, Richard C. Huseman,  Charles A. Muller, John T. Walker,
                  Jeanne A. Wall and Lynn E. Rose (Filed herewith.)

        27        Financial Data Schedule (Filed herewith.)


                                        i

<PAGE>


                                  EXHIBIT 10.2

                        Form of Indemnification Agreement