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

(Mark One)

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

                  For the fiscal year ended December 31, 1998
                                            -----------------

                                      OR

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

          For the transition period from ____________ to ____________

                        Commission file number  0-28380

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

             Maryland                         59-3239115
   (State or other jurisdiction of  (I.R.S. Employer Identification No.)
    incorporation or organization)

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

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

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

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

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

                    Common Stock, $0.01 par value per share
                               (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 has made three offerings of shares of common stock
(the "Shares") on Form S-11 under the Securities Act of 1933, as amended.  The
number of Shares held by non-affiliates as of March 19, 1999 was 74,656,927.
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 March 19, 1999 was
74,676,927.

                     DOCUMENTS INCORPORATED BY REFERENCE:

     Registrant incorporates by reference portions of the CNL American
Properties Fund, Inc. Definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later than
April 30, 1999.
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     The Form 10-K of CNL American Properties Fund, Inc. for the year ended
December 31, 1998 is being amended to revise the disclosure under Item 1.
Business, Item 2. Properties, Item 6. Selected Financial Data, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Item 7A. Quantitative and Qualitative Disclosures About Market Risk
(incorporating by reference disclosure contained in Item 7.) and Item 8.
Financial Statements and Supplementary Data.

                                    PART I

Item 1.  Business

     CNL American Properties Fund, Inc. is a Maryland corporation that was
organized on May 2, 1994.  CNL APF GP Corp. and CNL APF LP Corp., organized in
Delaware in May 1998, are wholly owned subsidiaries of CNL American Properties
Fund, Inc.  CNL APF Partners, LP is a Delaware limited partnership formed in May
1998.  CNL APF GP Corp. and CNL APF LP Corp. are the general and limited
partners, respectively, of CNL APF Partners, LP. The term "Company" includes,
unless the text otherwise requires, CNL American Properties Fund, Inc., CNL APF
GP Corp., CNL APF LP Corp., CNL APF Partners, LP and CNL/Corral South Joint
Venture.  In April 1995, the Company commenced a public offering for the sale of
up to 16,500,000 shares ($165,000,000) of common stock (the "Shares") (the
"Initial Offering").  Following the completion of its Initial Offering in
February 1997, the Company commenced an offering of up to 27,500,000 Shares (the
"1997 Offering").  Following the completion of the 1997 Offering in March 1998,
the Company commenced an offering of up to 34,500,000 Shares ("the 1998
Offering").  The Company's 1998 Offering became fully subscribed in December
1998 and proceeds from the last subscriptions were received in January 1999.  As
of December 31, 1998, the Company had received aggregate subscription proceeds
from its Initial Offering, 1997 Offering and 1998 Offering of $747,253,675
(74,725,368 Shares), including $5,572,261 (557,226 Shares) issued through the
reinvestment plan.

     The Company had adopted a reinvestment plan pursuant to which stockholders
could elect to have the full amount of their cash distributions from the Company
reinvested in additional Shares of common stock of the Company. In October 1998,
the Board of Directors elected to terminate the Company's reinvestment plan.  In
October 1998, the Board of Directors also elected to implement the Company's
redemption plan.  Under the redemption plan, the Company elected to redeem
Shares, subject to certain conditions and limitations.  During the year ended
December 31, 1998, 69,514 Shares were redeemed at $9.20 per Share ($639,528) and
retired from Shares outstanding of common stock.

     On March 11, 1999, the Company entered into several agreements to acquire
certain affiliates of CNL Group, Inc. (the "Acquisitions").  The Acquisitions
consist of:

     Acquisition of Advisor and the CNL Restaurant Financial Services Group.
Pursuant to an Agreement and Plan of Merger with CNL Fund Advisors, Inc. (the
"Advisor"), the Company will become internally advised and acquire complete
acquisition and development and in-house management functions by acquiring the
Advisor. Because the Company has had no employees since its inception, the
Advisor has provided these functions on behalf of the Company and has been
responsible for the day-to-day operations of the Company, including raising
capital, investment analysis, acquisitions, due diligence, asset management and
accounting services.

     Additionally, pursuant to an Agreement and Plan of Merger with CNL
Financial Corp. and CNL Financial Services, Inc. (together, the "CNL Restaurant
Financial Services Group" and together with the Advisor, the "CNL Restaurant
Businesses"), the Company will increase its financing capabilities and expand
its mortgage loan portfolio.  The CNL Restaurant Financial Services Group makes
and services mortgage loans to operators of national and regional restaurant
chains and securitizes a portion of those loans.  As consideration for the
acquisition of the CNL Restaurant Businesses, the Company has agreed to issue
12.3 million Shares.

     Acquisition of CNL Income Funds.  In order to increase the size of its
restaurant property portfolio, the Company also entered into an Agreement and
Plan of Merger with each of the 18 CNL Income Funds, which are Florida limited
partnerships, engaged in the purchase and triple-net leasing of restaurant
properties (the "Funds"). As consideration for the acquisition of the Funds (and
assuming all of the Funds are acquired), the Company has agreed to issue 61
million Shares.  The general partners of each of the Funds plan to hold a
special meeting of the partners during the third quarter of 1999 for each Fund,
at which it will request approval of the acquisition of the Fund by the Company.
Limited partners holding in excess of 50% of each Fund's outstanding limited
partnership interests must approve the Fund's acquisition prior to consummation
of the transaction.

     The Company was formed primarily to acquire restaurant properties (the
"Properties") located across the United States, directly or indirectly through
joint venture or co-tenancy arrangements, to be leased on a long-term
(generally, 15 to 20 years, plus renewal options for an additional 10 to 20
years), "triple-net" basis, which means that the tenant will be responsible for
repairs, maintenance, property taxes, utilities and insurance.  As of March 11,
1999, the Company owned a portfolio of 469 Properties located across the United
States which are leased to operators

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of certain national and regional fast-food, family-style and casual dining
restaurant chains (the "Restaurant Chains"). The Company structures the leases
of its Properties to provide for payment of base annual rent with (i) automatic
increases in base rent and/or (ii) percentage rent based on gross sales above a
certain level. The Company also offers financing for the purchase of buildings,
generally by tenants that lease the underlying land from the Company (the
"Mortgage Loans"). Mortgage Loans are expected to constitute from 5% to 10% of
the Company's total investments. The Company will re-evaluate this policy in
connection with the consummation of the Acquisitions, as described above.
Management believes that the economic effects of the Mortgage Loans for the
purchase of buildings are similar to those of its leases (generally with full
repayment in 15 to 20 years). In addition, the Company offers furniture,
fixtures and equipment (the "Equipment") financing to operators of Restaurant
Chains pursuant to which the Company provides, through direct financing leases
and loans, the Equipment (collectively, the "Secured Equipment Leases"). The
Company has represented that at the end of each quarter, the value of the
Equipment together with any personal property owned by the Company, in the
aggregate, will represent less than 25% of the Company's total assets. In 1996,
the Company obtained a $15,000,000 line of credit and subsequently amended such
line of credit to $35,000,000, which the Company can use to fund Secured
Equipment Leases, to purchase Properties and to provide Mortgage Loans. The
Company anticipates renegotiating and increasing its line of credit in the first
quarter of 1999.

     As of December 31, 1998, net proceeds to the Company from its Initial
Offering, 1997 Offering, 1998 Offering and capital contributions from the
Company's Advisor, after deduction of organizational and offering expenses,
totaled $670,336,817.  The Company acquired its first Property on June 30, 1995,
and as of December 31, 1998, approximately $549,917,000 of net offering proceeds
had been used to invest, or committed for investment, in (i) 409 Properties
(including 40 Properties on which a restaurant was being constructed or
renovated), (ii) mortgage financing of approximately $19,489,000, (iii)
investments in franchise loan certificates of approximately $16,100,000 and (iv)
acquisition fees to the Advisor totalling $33,595,134 and certain acquisition
expenses.  In addition, as of December 31, 1998, the Company had entered into 39
Secured Equipment Leases and entered into ten promissory notes totalling
approximately $19,113,000 with borrowers for equipment financing.  As of March
11, 1999, the Company had invested or committed for investment the majority of
the net offering proceeds received from the Initial Offering, 1997 Offering and
1998 Offering.  As of March 11, 1999, the Company had acquired 60 additional
Properties (33 of which were under construction), as described below in Item 2.
Properties.  As of March 11, 1999, the Company had entered into ten additional
Secured Equipment Leases, entered into five additional promissory notes
totalling approximately $721,000 with borrowers for equipment financing and
entered into one additional promissory note for approximately $783,000 with a
borrower for a Mortgage Loan.  The Company currently is negotiating to acquire
additional Properties, but as of March 11, 1999, had not acquired any such
Properties.  The Company will use proceeds available from the line of credit and
the remaining net offering proceeds to acquire additional Properties.

     Currently, the Company's primary investment objectives are (i) to preserve,
protect, and enhance the Company's assets, (ii) making quarterly distributions,
(iii) obtaining fixed income through the receipt of base rent, as well as
increase the Company's income (and distributions) and provide protection against
inflation through automatic increases in base rent and receipt of percentage
rent, and to obtain fixed income through the receipt of payments from Mortgage
Loans and Secured Equipment Leases, (iv) continuing to qualify as a REIT for
federal income tax purposes and (v) providing stockholders of the Company with
liquidity of their investment (although liquidity cannot be assured thereby)
through listing the Shares of the Company on the New York Stock Exchange or
other national exchange or over-the-counter market ("Listing").

     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 a 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 line of credit.  The Company intends
to provide stockholders of the Company with liquidity of their investment,
either in whole or in part, through Listing of the Shares of the Company
(although liquidity cannot be assured thereby) no later than in the fourth
quarter of 1999.  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.  If Listing does not occur by December 31, 2005, the
Company 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,
subject to the approval of the Board of Directors, 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

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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.  The Company will
re-evaluate this policy in connection with the consummation of the Acquisitions,
as described above.

Leases

     As of December 31, 1998, the Company had acquired, either directly or
through a joint venture arrangement, 409 Properties, which are subject to long-
term, triple-net leases.  Although there are variations in the specific terms of
the leases, the following is a summarized description of the general structure
of the Company's leases.  The leases of the Properties owned by the Company and
the joint ventures in which the Company is a co-venturer, generally provide for
initial terms ranging from 15 to 20 years and expire between 2006 and 2018.  The
leases are on a triple-net basis, with the lessee responsible for all repairs
and maintenance, property taxes, insurance and utilities.  The leases of the
Properties provide for minimum base annual rental payments (payable in monthly
installments) ranging from approximately $52,000 to $468,000.  In addition,
certain leases provide for percentage rent based on sales in excess of a
specified amount.  In addition, the majority of the leases provide that,
commencing in specified lease years (generally the sixth lease year), the annual
base rent required under the terms of the lease will increase.

     Generally, the leases of the Properties provide for two to five five-year
or ten-year renewal options subject to the same terms and conditions as the
initial lease.  Lessees of 325 of the Company's 409 Properties also have been
granted options to purchase the Property at the Property's then fair market
value after a specified portion of the lease term has elapsed.  Fair market
value will be determined through an appraisal by an independent appraisal firm.
The option purchase price may equal the Company's original cost to purchase the
Property (including acquisition costs), plus a specified percentage from the
date of the lease or a specified percentage of the Company's purchase price, if
that amount is greater than the Property's fair market value at the time the
purchase option is exercised.

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

     In connection with the acquisition of five Properties acquired during 1998
that are building only, the Company has entered into tri-party agreements with
the tenants and the owners of the land.  The tri-party agreements provide that
the tenant is responsible for all obligations under the ground lease and provide
certain rights to the Company to help protect its interest in the buildings in
the event of a default by the tenant under the terms of the ground lease.  In
connection with the purchase of one of the Properties that is building only, the
Company has entered into an assignment of an interest in the ground lease with
the landlord of the land.  The assignment provides that the ground lessee is
responsible for all obligations under the ground lease and provides certain
rights to the Company relating to the maintenance of its interest in the
building in the event of a default by the lessee under the terms of the ground
lease.

     During the period January 1, 1999 through March 11, 1999, the Company
acquired 60 additional Properties (33 of which are under construction).  The
leases for these Properties are substantially the same as those described above.

Major Tenants

     During 1998, one of the Company's lessees, Foodmaker, Inc. (which operates
and franchises Jack in the Box restaurants), contributed more than ten percent
of the Company's total rental, earned income and interest income relating to its
Properties, Mortgage Loans, Secured Equipment Leases and Certificates.
Foodmaker, Inc.  is the lessee under leases relating to 50 restaurants.  In
addition, two Restaurant Chains, Golden Corral Family Steakhouse and Jack in the
Box, each accounted for more than ten percent of the Company's total rental,
earned income and interest income relating to Properties, Mortgage Loans,
Secured Equipment Leases and Certificates during 1998.  Because the Company has
not completed its investment in Properties, Mortgage Loans and  Secured
Equipment Leases, it is not possible to determine which lessees, borrowers or
Restaurant Chains will contribute more than ten

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percent of the Company's rental, earned income and interest income during 1999
and subsequent years. In the event that certain lessees, borrowers or Restaurant
Chains contribute more than ten percent of the Company's rental, earned income
and interest income in future years, any failure of such lessees, borrowers or
Restaurant Chains could materially affect the Company's income. As of December
31, 1998, no single lessee or borrower, or group of affiliated lessees or
borrowers leased Properties or was the borrower under Mortgage Loans or Secured
Equipment Leases with an aggregate carrying value in excess of 20 percent of
total assets of the Company.

Mortgage Loans and Mortgage Loan Securitizations

     During 1998, the Company provided mortgage financing of approximately
$2,902,000 evidenced by four mortgage notes which are collateralized by building
improvements on four Properties.  The Mortgage Loans bear interest at rates
ranging from 9.5% to 11 percent per annum and are being collected in monthly
installments with maturity dates ranging from 2000 to 2014.

     During 1998, the Company invested approximately $16,100,000 of the offering
proceeds in franchise loan certificates (the "Certificates") in a mortgage loan
securitization sponsored by an affiliate of the Company's Advisor. A
securitization is a process of taking what historically has been a non-liquid
asset class and transforming the asset into an underlying liquid security.  A
mortgage loan securitization takes a non-liquid financial asset (a group of
mortgage loans) and aggregates these loans together into a pool and creates a
security backed by these loans, which is issued to investors.  We believe this
investment represents an opportunity for the Company to achieve investment
returns similar to those generated by its triple-net leased restaurant
Properties.  In addition, the Company has pre-existing, triple-net leasing
arrangements with the majority of the borrowers underlying the pool of loans.
Prior to acquiring the Certificates, the Company engaged a nationally recognized
investment banking firm to evaluate its investment in the Certificates and the
firm provided a valuation letter to the Company that the purchase price paid by
the Company was consistent with the estimated value of the cash flow expected to
be generated from the Certificates.  The Company invested in securities rated BB
and B as well as a non-rated class.

Secured Equipment Leases

     In 1997, the Company entered into two promissory notes with a borrower for
equipment financing, totalling $13,225,000, which are collateralized by
restaurant equipment.  Payments of principal and interest were received by the
Company during 1998.  In December 1998, additional equipment financing was
provided to this borrower, resulting in two new promissory notes consolidating
the new amounts with the previous amounts loaned in 1997.  The two new
(consolidated) promissory notes total the original $13,225,000, bear interest at
a rate of ten percent per annum and will be collected in 84 equal monthly
installments of principal and interest beginning on February 1, 1999.  In 1998,
the Company entered into several promissory notes with borrowers for equipment
financing in the aggregate sum of $5,887,512, collateralized by restaurant
equipment.  These promissory notes bear interest ranging from ten percent to 11
percent per annum and are being collected in monthly installments with maturity
dates ranging from 1999 to 2006.

Joint Venture Arrangements

     In August 1995 and June 1998, the Company entered into joint venture
arrangements, CNL/Corral South Joint Venture and CNL/Lee Vista Joint Venture,
respectively, with unaffiliated entities for each to purchase and hold one
Property. The joint venture arrangements provide for the Company and its joint
venture partners to share in all costs and benefits associated with the joint
ventures in accordance with their respective percentage interests in the joint
ventures. The Company and its joint venture partners are also jointly and
severally liable for all debts, obligations and other liabilities of the joint
ventures.

     CNL/Corral South Joint Venture and CNL/Lee Vista Joint Venture have initial
terms of 15 years and 30 years, respectively, and after the expiration of the
initial terms, continue in existence from year to year unless terminated at the
option of either of the joint venturers or by an event of dissolution.  Events
of dissolution include the bankruptcy, insolvency or termination of any joint
venturer, sale of the property owned by a joint venture and mutual agreement of
the Company and its joint venture partners to dissolve the joint venture.

     The Company has management control of CNL/Corral South Joint Venture.  The
joint venture agreement restricts each venturer's ability to sell, transfer or
assign its joint venture interest without first offering it for sale to its
joint venture partner, either upon such terms and conditions as to which the
venturers may agree or, in the event the venturers cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture interest.

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     The Company shares management control with its joint venture partner for
CNL/Lee Vista Joint Venture.  The joint venture agreement restricts each
venturer's ability to sell, encumber or possess any venture property, or to
assign its interest or rights in venture property without the consent of its
joint venture partner.  The joint venture agreement also prohibits any partner
from confessing judgment against the joint venture, lending or borrowing money
or entering into any commitment on behalf of the joint venture, or participating
in any act which would make it impossible to carry on the ordinary business of
the joint venture.

     As of December 31, 1998, the Company owned an 85.47% interest in CNL/Corral
South Joint Venture.  Net cash flows from operations of the joint venture are
distributed to the Company and its joint venture partner in accordance with each
partners' respective interest.  Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the Company until it has received a return of its
capital contribution, plus a 20 percent return on its capital contributions,
then to the other joint venture partner to the extent of its positive capital
account balance plus 20 percent thereof; and thereafter, in proportion to each
joint venture partners' percentage interest in the joint venture.

     As of December 31, 1998, the Company owned a 55.38% interest in CNL/Lee
Vista Joint Venture.  Net cash flows from operations of the joint venture are
distributed to the Company and its joint venture partner in accordance with each
partners' respective interest.  Any liquidation proceeds, after paying joint
venture debts and liabilities, paying partners for loans made by them to the
joint venture and funding reserves for contingent liabilities, will be
distributed to each joint venture partner in proportion to their then respective
aggregate unreturned capital contributions.

Certain Management Services

     The Advisor provides management services relating to the Company, the
Properties, the Mortgage Loans and the Secured Equipment Lease program pursuant
to an advisory agreement (the "Advisory Agreement") between it and the Company.
Under this agreement, the Advisor is responsible for assisting the Company in
negotiating leases, Mortgage Loans, Secured Equipment Leases and the line of
credit, collecting rental, Mortgage Loan and Secured Equipment Lease payments,
inspecting the Properties and the tenants' books and records, and responding to
tenant inquiries and notices.  The Advisor also provides information to the
Company about the status of the leases, the Properties, the Mortgage Loans, the
Secured Equipment Leases and the line of credit.  In exchange for these
services, the Advisor is entitled to receive certain fees from the Company.  For
supervision of the Properties and Mortgage Loans, the Advisor receives a monthly
asset and mortgage management fee of one-twelfth of .60% of the Company's real
estate asset value and the outstanding principal balance of the Mortgage Loans
as of the end of the proceeding month.  The management fee, which will not
exceed fees which are competitive for similar services in the same geographic
area, may or may not be taken, in whole or in part as to any year, in the sole
discretion of the  Advisor.   For negotiating equipment financing and loans and
supervising the Secured Equipment Lease program, the Advisor is entitled to
receive a one-time Secured Equipment Lease servicing fee of two percent of the
purchase price of the equipment that is the subject of a lease or loan (the
"Secured Equipment Lease Servicing Fee").

     The Advisory Agreement continues until April 19, 1999, and thereafter may
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
notice by each party.

Borrowing

     The Company has a revolving $35,000,000 uncollateralized line of credit
(the "Line of Credit") with a bank that enables the Company to receive advances
under the Line of Credit to provide equipment financing, to purchase and develop
Properties and to fund Mortgage Loans.  The advances bear interest at a rate of
LIBOR plus 1.65% or the bank's prime rate, whichever the Company selects at the
time of borrowing.  Interest only is repayable monthly until July 31, 1999, at
which time all remaining interest and principal shall be due.  The Line of
Credit provides for two one-year renewal options.  Advances used to purchase and
develop Properties and to fund Mortgage Loans will be repaid using additional
offering proceeds or refinanced on a long-term basis.  The Company will not
encumber Properties in connection with the Line of Credit.  The Company
anticipates renegotiating and increasing its Line of Credit in the first quarter
of 1999.

     During the year ended December 31, 1998, the Company obtained advances
totalling $7,692,040 under the Line of Credit, the proceeds of which were used
to fund 12 Secured Equipment Leases (including four partially funded Secured
Equipment Leases as of December 31, 1998) and to provide equipment financing in
the form of promissory notes as described above in Item 1. Business -- Leases.
The Company expects to obtain additional advances under the Line of Credit to
fund any Secured Equipment Leases entered into in the future.  The Company
intends to limit the amount of Secured Equipment Leases it enters into to ten
percent of gross proceeds of its offerings.

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     The Company expects to use uninvested net offering proceeds and proceeds
from borrowing against its Line of Credit to purchase additional Properties, to
fund construction costs relating to the Properties under construction, to make
Mortgage Loans and to fund Secured Equipment Leases.

Competition

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

     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 restaurants
in the same area.

     The Company will compete 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 Properties, suitable tenants for its
Properties, borrowers for its Mortgage Loans and lessees and borrowers for its
Secured Equipment Leases.

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

     As of December 31, 1998, the Company owned, either directly or through a
joint venture arrangement, 409 Properties, located in 38 states.  Reference is
made to the Schedule of Real Estate and Accumulated Depreciation filed with this
report for a listing of the Properties and their respective costs, including
acquisition fees and certain acquisition expenses.

     As of December 31, 1998, the Company owned 381 of the 409 Properties in fee
simple and two properties through joint venture arrangements.  None of the
Properties is encumbered.

     As of December 31, 1998, 26 of the 409 Properties owned by the Company
consisted of building only.  The Company does not own the underlying land.  In
connection with the acquisition of each of these Properties, the Company entered
into either a tri-party agreement with the tenant and the owner of the land or
an assignment of interest in the ground lease with the landlord, as described in
Item 1.  Business - Leases.

     During the period January 1, 1999 through March 11, 1999, the Company
acquired 60 additional Properties (33 of which were under construction) for cash
at a total cost of approximately $54,283,000, excluding development costs,
acquisition fees and certain acquisition expenses.  Of the 60 Properties, 56 are
owned by the Company in fee simple and four Properties consist of building only.
None of the Properties is encumbered.  The leases of these Properties are
substantially the same as the leases described in Item 1.  Business - Leases.

     The Company currently is negotiating to acquire additional properties, but
as of March 11, 1999, had not acquired any such properties.

Description of Properties

     Land.  The Company's Property lot sizes range from approximately 11,500 to
190,000 square feet depending upon building size and local demographic factors.
Sites purchased by the Company are in locations zoned for commercial use which
have been reviewed for traffic patterns and volume.

                                       7
<PAGE>

     The following table lists the Properties owned by the Company as of
December 31, 1998 by state.  More detailed information regarding the location of
Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with the Company's Form 10-K for the year ended December 31,
1998.
<TABLE>
<CAPTION>
                                                                                             Total Number of
State                                                                                     Restaurant Properties
--------------------------------------------------------------------------------------  -------------------------
<S>                                                                                     <C>
Alabama...............................................................................               9
Arizona...............................................................................              15
California............................................................................              28
Colorado..............................................................................               9
Connecticut...........................................................................               1
Delaware..............................................................................               1
Florida...............................................................................              51
Georgia...............................................................................              18
Idaho.................................................................................               1
Illinois..............................................................................               7
Indiana...............................................................................               5
Iowa..................................................................................               4
Kansas................................................................................               3
Kentucky..............................................................................               5
Maryland..............................................................................               7
Michigan..............................................................................              11
Minnesota.............................................................................               4
Mississippi...........................................................................               2
Missouri..............................................................................              14
Nebraska..............................................................................               1
Nevada................................................................................               3
New Jersey............................................................................               7
New Mexico............................................................................               4
New York..............................................................................               1
North Carolina........................................................................              10
Ohio..................................................................................              43
Oklahoma..............................................................................               9
Oregon................................................................................               4
Pennsylvania..........................................................................               7
Rhode Island..........................................................................               1
South Carolina........................................................................               3
Tennessee.............................................................................              31
Texas.................................................................................              63
Utah..................................................................................               1
Virginia..............................................................................               9
Washington............................................................................               4
West Virginia.........................................................................              11
Wisconsin.............................................................................               2
                                                                                                   ---
                                                                                                   409
                                                                                                   ===
</TABLE>

     Buildings.  The buildings generally are rectangular and are constructed
from various combinations of stucco, steel, wood, brick and tile.  Building
sizes range from approximately 1,300 to 12,700 square feet.  Generally,
buildings on Properties owned by the Company are freestanding and are surrounded
by paved parking areas.  Buildings are suitable for conversion to various uses,
although modifications may be required prior to use for other than restaurant
operations.  As of December 31, 1998, 40 of the Company's Properties were under
construction or renovation.  As of December 31, 1998, the Company had no plans
for renovation of its other 369 Properties.  Depreciation expense is computed
for buildings and improvements using the straight line method using a
depreciable life of 39 years for federal income tax purposes.  As of December
31, 1998, the aggregate cost basis of the Properties owned by the Company
(including Properties owned through joint ventures) for federal income tax
purposes was $217,175,550.

                                       8
<PAGE>

     The following table lists the Properties owned by the Company as of
December 31, 1998 by Restaurant Chain.
<TABLE>
<CAPTION>
                                                              Total
                                                            Number of
                                                            Restaurant
Restaurant Chain                                            Properties
-------------------------------------------------------------------------
<S>                                                      <C>
Other..................................................         115
Golden Corral..........................................          38
Jack in the Box........................................          50
Bennigan's.............................................          21
IHOP...................................................          27
Steak & Ale............................................          20
Boston Market..........................................          29
Darryl's...............................................          15
Applebee's.............................................          12
Black-Eyed Pea.........................................          25
Pollo Tropical.........................................          11
Arby's.................................................          18
Chevy's Fresh Mex......................................           6
Ground Round...........................................          13
Burger King............................................           9
                                                                ---
    Total..............................................         409
                                                                ===
</TABLE>

     Management considers the Properties to be well-maintained and sufficient
for the Company's operations.

     Management believes that the Properties are adequately covered by
insurance.  In addition, the Company has obtained contingent liability and
property coverage.  This insurance policy is intended to reduce the Company's
exposure in the unlikely event a tenant's insurance policy lapses or is
insufficient to cover a claim relating to the Property.

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

     As of December 31, 1998, 1997, 1996, and 1995, the Properties were 99%,
100%, 100%, and 100% occupied, respectively.  The following is a schedule of the
average annual rent for each of the five years ended December 31:
<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                 -----------------------------------------------------------------------------------------------
                                       1998(4)               1997               1996              1995(2)            1994(3)
                                 --------------------  -----------------  ----------------  -------------------  ---------------
<S>                              <C>                   <C>                <C>               <C>                  <C>
Rental Income (1)..............        $33,150,022           $15,490,615        $4,357,298          $539,776           N/A
Properties.....................                408                   244                94                18           N/A
Average per Unit...............        $    81,250           $    63,486        $   46,354          $ 29,988           N/A
</TABLE>
-------------------------------
(1)  Rental income includes the Company's share of rental income from the
     properties owned through joint venture arrangements. Rental revenues have
     been adjusted, as applicable, for any amounts for which the Company has
     established an allowance for doubtful accounts. Rents have not been
     adjusted for properties under construction at December 31, 1998.
(2)  The Company began operations in June 1995.
(3)  Period is May 2, 1994 (date of inception) through December 31, 1994.
(4)  Excludes one Property that was vacant at December 31, and that did not
     generate rental revenues during the year ended December 31.

                                       9
<PAGE>

     The following table lists Properties owned by the Company as of December
31, 1998 by tenant and includes average age of buildings, annualized total
rental revenue and percent of total revenue. To calculate annualized total
rental revenue, the Company used, for each restaurant property owned and leased
at December 31, 1998, the monthly rental revenue for that property and
multiplied that number by 12 to present the annualized rental revenues for a 12
month period.  The Company has not included any contingent rental income in the
calculation of annualized total rental revenue.

<TABLE>
<CAPTION>
                                                                         Average
                                             Total Number of             Age of                Annualized              Percent of
                                               Restaurant               Buildings             Total Rental            Total Rental
Tenant                                        Properties(2)              (years)               Revenue(1)                Revenue
----------------------------------------  ------------------        --------------      -------------------        ----------------
<S>                                       <C>                         <C>                 <C>                        <C>
Other...................................         165                       7.2              $13,438,731                  28.4%
S&A Properties Corporation..............          38                      19.1                7,059,730                  14.9%
Foodmaker, Inc..........................          50                       2.0                5,446,013                  11.5%
Golden Corral Corporation...............          29                       2.0                4,205,641                   8.9%
IHOP Corp...............................          27                       2.2                3,554,019                   7.5%
Houlihan's Restaurants, Inc.............          20                      19.4                3,289,673                   7.0%
Pollo Operations Inc....................          13                       4.8                2,026,746                   4.3%
Woodland Group, Inc.....................          10                       4.4                1,607,332                   3.4%
Chevy's, Inc............................           6                       4.8                1,514,288                   3.2%
DenAmerica Corp.........................          20                       6.6                1,475,958                   3.1%
Boston Chicken, Inc.....................          11                       2.3                1,379,515                   2.9%
The Ground Round, Inc...................          12                      18.3                1,341,019                   2.8%
National Restaurant Enterprises.........           7                       2.6                1,009,799                   2.1%
                                                 ---
Total...................................         408                                        $47,348,464                   100%
                                                 ===                                        ===========                  ====
</TABLE>
_____________
(1)  The Company has straight-lined the contractual increases in rental income
     over the life of each of the leases in order to calculate rental revenue in
     accordance with generally accepted accounting principles.
(2)  Excludes one Property that was vacant at December 31, and that did not
     generate rental revenues during the year ended December 31.

                                      10
<PAGE>

     The following table shows the aggregate number of leases in the Company's
Property portfolio which expire each calendar year through the year 2014, as
well as the number of leases which expire after December 31, 2014.  The table
does not reflect the exercise of any of the renewal options provided to the
tenant under the terms of such leases.

<TABLE>
<CAPTION>
                                                                                                     Base Rent
                                                                                      ---------------------------------------
Year                                                                   Number              Amount(1)               Percent
------------------------------------------------------------------- -------------     -----------------        --------------
<S>                                                                  <C>               <C>                      <C>
2000...............................................................            -                     -                     -%
2001...............................................................            -                     -                     -%
2002...............................................................            1               122,539                   0.3%
2003...............................................................            -                     -                     -%
2004...............................................................            -                     -                     -%
2005...............................................................            -                     -                     -%
2006...............................................................            1                81,192                   0.2%
2007...............................................................            -                     -                     -%
2008...............................................................            2               164,825                   0.3%
2009...............................................................            1                86,174                   0.2%
2010...............................................................            9             1,033,591                   2.2%
2011...............................................................           23             2,908,830                   6.1%
2012...............................................................           34             4,731,493                   9.9%
2013...............................................................           25             2,913,398                   6.1%
2014...............................................................            9             1,228,010                   2.6%
Thereafter.........................................................          294            34,261,071                  72.1%
Totals(2)..........................................................          399           $47,531,123                 100.0%
                                                                   =============     =================        ==============
</TABLE>

(1)  The Company has straight-lined the contractual increases in rental income
     over the life of each of the leases in order to calculate rental revenue in
     accordance with generally accepted accounting principles.
(2)  The number of leases and base rent exclude leases of ten Properties with
     aggregate original base rental income of $1,061,825, including nine Boston
     Market Properties, for which the leases have been terminated. Base rent
     also excludes base rental income attributable to 40 Properties under
     construction at December 31, 1998.

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

     Foodmaker, Inc. leases 50 Jack in the Box Properties.  The initial term of
each lease is 18 years (expiring between 2011 and 2016) and the aggregate
minimum base annual rent is approximately $5,338,000.

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
                                         1998               1997               1996                1995                1994 (1)
                                    ---------------   ---------------   ----------------   ------------------   --------------------

Year ended December 31:
<S>                                 <C>                 <C>               <C>                <C>                  <C>
  Revenues                             $ 42,187,037      $ 19,457,933       $  6,206,684          $   659,131           $    --
  Net earnings                           32,152,408        15,564,456          4,745,962              368,779                --
  Cash distributions declared            39,449,149        16,854,297          5,436,072              638,618                --

  Earnings per Share (3)                       0.60              0.66               0.59                 0.19                --
  Cash distributions declared
     per Share                                 0.76              0.74               0.71                 0.31                --
  Weighted average number of
     Shares outstanding (2)              53,296,438        23,423,868          8,071,670            1,898,350                --
At December 31:
  Total assets                         $680,352,013      $339,077,762       $134,825,048          $33,603,084           $929,585
  Total stockholders' equity (3)        660,810,286       321,638,101        122,867,427           31,980,648            200,000
</TABLE>

(1)  Selected financial data for 1994 represents the period May 2, 1994 (date of
     inception) through December 31, 1994.
(2)  The weighted average number of Shares outstanding for 1995 is based upon
     the period the Company was operational.

                                      11
<PAGE>

(3)  For each of the periods presented, the Company was in the offering and
     acquisition stages; therefore, the information presented does not present a
     full period during which net offering proceeds have been fully invested.

                                    PART II

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

     CNL American Properties Fund, Inc. is a Maryland corporation that was
organized on May 2, 1994.  CNL APF GP Corp. and CNL APF LP Corp., organized in
Delaware in May 1998, are wholly owned subsidiaries of CNL American Properties
Fund, Inc.  CNL APF Partners, LP is a Delaware limited partnership formed in May
1998. CNL APF GP Corp. and CNL APF LP Corp. are the general and limited
partners, respectively, of CNL APF Partners, LP. The term "Company" includes,
unless the text otherwise requires, CNL American Properties Fund, Inc., CNL APF
GP Corp., CNL APF LP Corp., CNL APF Partners, LP and CNL/Corral South Joint
Venture.  The Company was formed primarily for the purpose of acquiring
properties, directly or indirectly through joint venture or co-tenancy
arrangements, restaurant properties (the "Properties") to be leased on a long-
term, triple-net basis to operators of selected national and regional fast-food,
family-style and casual dining restaurant chains.  The Company also provides
financing (the "Mortgage Loans") for the purchase of buildings, generally by
tenants that lease the underlying land from the Company.  In addition, the
Company offers furniture, fixtures and equipment financing through leases or
loans (the "Secured Equipment Leases") to operators of restaurant chains.

     The following information, including, without limitation, the Year 2000
compliance disclosure and the interest rate risk management disclosure, that are
not historical facts may be 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 real estate conditions, availability of capital from borrowings under
an increased line of credit, the ability of the Company to invest the proceeds
of its offerings of common stock, the ability of the Company to locate suitable
tenants for its properties and borrowers for its Mortgage Loans and the ability
of tenants and borrowers to make payments under their respective leases, Secured
Equipment Leases or Mortgage Loans.

     As of December 31, 1998, the Company had investments in 409 Properties in
38 states, including two Properties through two joint venture arrangements and
40 Properties which were under construction or renovation.

Liquidity and Capital Resources

     The Company was formed in May 1994, at which time the Company received
initial capital contributions of $200,000 for 20,000 shares of common stock from
CNL Fund Advisors, Inc. (the "Advisor").  In April 1995, the Company commenced a
public offering for the sale of up to 16,500,000 shares (the "Shares")
($165,000,000) of common stock (the "Initial Offering").  Following the
completion of its Initial Offering in February 1997, the Company commenced an
offering of up to 27,500,000 Shares of common stock (the "1997 Offering").
Following the completion of the 1997 Offering in March 1998, the Company
commenced an offering of up to 34,500,000 Shares (the "1998 Offering").   The
Company's 1998 Offering became fully subscribed in December 1998 and proceeds
from the last subscriptions were received in January 1999.  As of December 31,
1998, the Company had received aggregate subscription proceeds from its Initial
Offering, 1997 Offering and 1998 Offering of $747,253,675 (74,725,368 Shares),
including $5,572,261 (557,226 Shares) issued through the reinvestment plan.

     The Company had adopted a reinvestment plan pursuant to which stockholders
could elect to have the full amount of their cash distributions from the Company
reinvested in additional Shares of common stock of the Company.  In October
1998, the Board of Directors elected to terminate the Company's reinvestment
plan.  In October 1998, the Board of Directors also elected to implement the
Company's redemption plan. Under the redemption plan, the Company elected to
redeem Shares, subject to certain conditions and limitations.  During the year
ended December 31, 1998, 69,514 Shares were redeemed at $9.20 per Share
($639,528) and retired from Shares outstanding of common stock.

     As of December 31, 1998, net proceeds to the Company from its Initial
Offering, 1997 Offering, 1998 Offering and capital contributions from the
Advisor, after deduction of stock issuance costs, totalled $670,336,817.
Approximately $549,917,000 of such amount had been used to invest, or committed
for investment, in (i) 409 Properties (including 40 Properties on which a
restaurant was being constructed or renovated) as of December 31, 1998, (ii)
mortgage financing of approximately $19,489,000, (iii) investments in franchise
loan certificates of approximately $16,100,000 and (iv) acquisition fees to the
Advisor totalling $33,595,134 and certain acquisition expenses.  The Company
acquired 23 of the 409 Properties from affiliates for purchase prices totalling
approximately

                                      12
<PAGE>

$23,455,000. Each Property acquired from an affiliate was purchased at a cost no
greater than the lesser of the cost of the Property to the affiliate (including
carrying costs) or the Property's appraised value.

     In connection with the 40 Properties under construction at December 31,
1998, the Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings the
tenants have agreed to lease or equipment financing the Company has agreed to
provide.  The agreements provide a maximum amount of development costs
(including the purchase price of the land and closing costs) to be paid by the
Company.  The aggregate maximum development costs the Company has agreed to pay
are approximately $61,307,000, of which approximately $44,253,000 had been
incurred as of December 31, 1998.  The buildings currently under construction
are expected to be operational by June 1999.  In connection with the purchase of
each Property, the Company, as lessor, entered into a long-term lease agreement.

     As of March 11, 1999, the Company had received the final subscription
proceeds from the 1998 Offering, bringing total subscription proceeds received
to $747,464,410 (74,746,441 Shares), of which $639,528 (69,514 Shares) had been
retired pursuant to the Company's redemption plan, from its Initial Offering,
1997 Offering and 1998 Offering, including $5,572,261 (557,226 Shares) issued
pursuant to the Company's reinvestment plan. Approximately $613,401,000 of such
amount had been used to invest, or committed for investment in (i) 469
Properties as of March 11, 1999, (ii) mortgage financing of approximately
$20,272,000, (iii) investments in franchise loan certificates of approximately
$16,100,000 and (iv) acquisition fees to the Advisor totalling $33,604,618 and
certain acquisition expenses.

     The Company currently is negotiating to acquire additional Properties, but
as of March 11, 1999, had not acquired any such Properties.

     During 1998, the Company sold three Properties to tenants.  During 1997,
the Company sold five of its Properties and the equipment relating to two
Secured Equipment Leases to tenants.  The Company received net proceeds of
approximately $2,386,000 and $7,252,000 during 1998 and 1997, respectively,
which approximated the carrying value of the Properties and the equipment at the
time of the sales.  As a result, no gain or loss was recognized for financial
reporting purposes.  The Company used the net sales proceeds relating to the
sale of the equipment to repay amounts previously advanced under its line of
credit.  The Company reinvested the proceeds from the sale of Properties in
additional Properties.

     During 1998, the Company invested approximately $16,100,000 of the offering
proceeds in franchise loan certificates (the "Certificates") in a mortgage loan
securitization sponsored by an affiliate of the Company's Advisor. A
securitization is a process of taking what historically has been a non-liquid
asset class and transforming the asset into an underlying liquid security.  A
mortgage loan securitization takes a non-liquid financial asset (a group of
mortgage loans) and aggregates these loans together into a pool and creates a
security backed by these loans, which is issued to investors.  We believe this
investment represents an opportunity for the Company to achieve investment
returns similar to those generated by its triple-net leased restaurant
Properties.  In addition, the Company has pre-existing, triple-net leasing
arrangements with the majority of the borrowers underlying the pool of loans.
Prior to acquiring the Certificates, the Company engaged a nationally recognized
investment banking firm to evaluate its investment in the Certificates and the
firm provided a valuation letter to the Company that the purchase price paid by
the Company was consistent with the estimated value of the cash flow expected to
be generated from the Certificates.  The Company invested in securities rated BB
and B as well as a non-rated class.

     During 1998, 1997 and 1996, the Company entered into Mortgage Loans in the
principal sum of $2,901,742, $4,200,000 and $12,847,000, respectively,
collateralized by mortgages on the buildings on Properties.  The Mortgage Loans
bear interest at rates ranging from 9.50% to 11 percent per annum and are being
collected in monthly installments with maturity dates ranging from 2000 to 2017.

     In 1997, the Company entered into two promissory notes with a borrower for
equipment financing, totalling $13,225,000, which are collateralized by
restaurant equipment.  Payments of principal and interest were received by the
Company during 1998.  In December 1998, additional equipment financing was
provided to this borrower, resulting in two new promissory notes consolidating
the new amounts with the previous amounts loaned in 1997.  The two new
(consolidated) promissory notes total the original $13,225,000, bear interest at
a rate of ten percent per annum and will be collected in 84 equal monthly
installments of principal and interest beginning on February 1, 1999.  In 1998,
the Company entered into several promissory notes with borrowers for equipment
financing in the aggregate sum of $5,887,512, collateralized by restaurant
equipment.  These promissory notes bear interest ranging from ten percent to 11
percent per annum and are being collected in monthly installments with maturity
dates ranging from 1999 to 2006.

     In March 1996, the Company entered into a line of credit and security
agreement with a bank, the proceeds of which were to be used by the Company to
fund Secured Equipment Leases.  In August 1997, the Company's $15,000,000 line
of credit was amended and restated to enable the Company to receive advances on
a revolving $35,000,000 uncollateralized line of credit (the "Line of Credit")
to provide equipment financing, to purchase and

                                      13
<PAGE>

develop Properties and to fund Mortgage Loans. The advances bear interest at a
rate of LIBOR plus 1.65% or the bank's prime rate, whichever the Company selects
at the time of borrowing. Interest only is repayable monthly until July 31,
1999, at which time all remaining interest and principal shall be due. The Line
of Credit provides for two one-year renewal options. Advances used to purchase
and develop Properties and to fund Mortgage Loans will be repaid using
additional offering proceeds or refinanced on a long-term basis. The Company
will not encumber Properties in connection with the Line of Credit.

     During the years ended December 31, 1998, 1997 and 1996, the Company
obtained advances totalling $7,692,040, $19,721,804 and $3,666,896,
respectively, under the Line of Credit, the proceeds of which were used to fund
Secured Equipment Leases and to pay loan costs.  During the years ended December
31, 1998, 1997 and 1996, the Company repaid $8,039, $20,784,577 and $145,080,
respectively, of amounts advanced under the Line of Credit.  As of December 31,
1998 and 1997, $10,143,044 and $2,459,043, respectively, of principal was
outstanding relating to the Line of Credit.  As of December 31, 1998 and 1997,
the interest rates on amounts outstanding under the Line of Credit were 7.2743%
and 7.6187% (LIBOR plus 1.65%), respectively.  The weighted average interest
rates on the Line of Credit were 7.2256% and 7.7290% for the years ended
December 31, 1998 and 1997, respectively.  During 1998 and 1997, the Company
used uninvested net offering proceeds and proceeds relating to the 1997 sale of
the equipment described above, to repay amounts advanced under the Line of
Credit.  The Company expects to obtain additional advances under the Line of
Credit to fund future equipment financing requirements and to purchase
Properties and to invest in Mortgage Loans.

     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, 1998 and
1997, the Company had $125,207,377 and $49,595,001, respectively, invested in
such short-term investments (including certificates of deposit in the amount of
$2,007,540 and $2,008,224, respectively).  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, 1998.  These funds will be used
primarily to purchase and develop or renovate Properties (directly or indirectly
through joint venture arrangements), to make Mortgage Loans, to pay offering and
acquisition costs, to pay distributions to stockholders, to meet Company
expenses and, in management's discretion, to create cash reserves.

     During the years ended December 31, 1998, 1997 and 1996, affiliates of the
Company incurred on behalf of the Company $4,228,480, $2,351,244 and $804,617,
respectively, for certain organizational and offering expenses.  In addition,
during the years ended December 31, 1998, 1997 and 1996, affiliates of the
Company incurred on behalf of the Company $1,113,580, $514,908 and $206,103,
respectively, for certain acquisition expenses and $924,683, $368,516 and
$243,402, respectively, for certain operating expenses.  As of December 31,
1998, the Company owed the Advisor and its affiliates $1,308,464 for such
amounts, unpaid fees and accounting and administrative expenses.

     During the years ended December 31, 1998, 1997 and 1996, the Company
generated cash from operations (which includes cash received from tenants and
interest and other income received, less cash paid for operating expenses) of
$39,116,275, $17,076,214 and $5,482,540, respectively.  Based on cash from
operations, the Company declared distributions to the stockholders of
$39,449,149, $16,854,297 and $5,436,072 during 1998, 1997 and 1996,
respectively.  In addition, in January, February and March 1999, the Company
declared distributions to its stockholders totalling $4,744,904, $4,746,243 and
$4,746,243, respectively, payable in March 1999.  For the years ended December
31, 1998, 1997 and 1996, 84.87%, 93.33% and 90.25%, respectively, of the
distributions received by stockholders were considered to be ordinary income and
15.13%, 6.67% and 9.75%, respectively, were considered a return of capital for
federal income tax purposes.  However, no amounts distributed or to be
distributed to the stockholders as of March 11, 1999, 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.

      The Company's investment strategy of acquiring Properties for cash and
leasing them under triple net leases to operators who meet specified financial
standards is expected to minimize the Company's operating expenses.

     The Company expects to meet its short-term liquidity requirements, other
than for acquisition and development of Properties and investment in Mortgage
Loans and Secured Equipment Leases, through cash flow provided by operating
activities.  The Company believes that cash flow provided by the operating
activities will be sufficient to fund normal recurring operating expenses,
regular debt service requirements and distributions to stockholders.  To the
extent that the Company's cash flow provided by operating activities is not
sufficient to meet such short-term liquidity requirements, as a result, for
example, of unforeseen expenses due to tenants defaulting under the terms of
their lease agreements, the Company will use borrowings under its Line of
Credit.

                                      14
<PAGE>

     Due to the fact that the Company leases its Properties on a triple-net
basis, meaning that tenants are generally required to pay all repairs and
maintenance, property taxes, insurance and utilities, management does not
believe that working capital reserves are necessary at this time.

     The Company expects to use uninvested net offering proceeds and proceeds
from borrowing under its Line of Credit to purchase additional Properties, to
fund construction costs relating to the Properties under construction and to
make Mortgage Loans.  The Company expects to fund the Secured Equipment Leases
with proceeds from   borrowings.  The Company intends to limit equipment
financing to ten percent of the aggregate gross offering proceeds from its
offerings.  The Company anticipates renegotiating, extending the maturity of and
increasing its Line of Credit in the first quarter of 1999. Remaining uninvested
net proceeds from the Company's 1998 Offering combined with a larger, unsecured,
revolving line of credit are expected to provide adequate capital for
investments in Properties, Mortgage Loans and Secured Equipment Leases through
1999.

     The Company expects to meet its long-term liquidity requirements through
short or long-term, unsecured or secured debt financing or equity financing.  As
of December 31, 1998, the Company's had no long-term debt or other long-term
liquidity requirements.

Results of Operations

     As of December 31, 1998, the Company had purchased and entered into long-
term, triple-net leases for 409 Properties.  The leases provide for minimum
annual base rental payments and certain leases provide for percentage rent based
on sales in excess of a specified amount.  The majority of the leases also
provide that, commencing in generally the sixth lease year, the annual base rent
required under the terms of the leases will increase.  In connection therewith,
during the years ended December 31, 1998, 1997 and 1996, the Company earned a
total of $33,129,661, $15,490,615 and $4,357,298, respectively, in rental income
from operating leases, earned income from the direct financing leases and
contingent rental income.  The increase during 1998 and 1997, each as compared
to the previous year, was attributable to the Company investing in additional
Properties, Mortgage Loans and Secured Equipment Leases during 1998 and 1997.
Because the Company has not yet invested all of its net offering proceeds and
because it intends to make additional investments in Properties, Mortgage Loans
and Secured Equipment Leases, revenues for the years ended December 31, 1998,
1997 and 1996, represent only a portion of revenues which the Company is
expected to earn during future years in which the Company has completed
additional investments and the Company's Properties are operational (and other
investments in place) for the full period.

     During the years ended December 31, 1998, 1997 and 1996, the Company earned
$3,085,518, $2,010,500 and $1,069,349, respectively, in interest income from
Mortgage Loans and equipment financing.  The increase during the years ended
December 31, 1998 and 1997, each as compared to the previous year, is
attributable to investing in additional loans collateralized by Properties and
equipment during 1998 and 1997, as described above in "Liquidity and Capital
Resources."

     During 1998, one of the Company's lessees, Foodmaker, Inc., contributed
more than ten percent of the Company's total rental, earned income and interest
income relating to its Properties, Mortgage Loans, Secured Equipment Leases and
Certificates.  Foodmaker, Inc.  is the lessee under leases relating to 50
restaurants.   In addition, two restaurant chains, Golden Corral Family
Steakhouse and Jack in the Box, each accounted for more than ten percent of the
Company's total rental, earned income and interest income relating to
Properties, Mortgage Loans, Secured Equipment Leases and Certificates during
1998.  Because the Company has not completed its investment in Properties,
Secured Equipment Leases and Mortgage Loans as yet, it is not possible to
determine which lessees, borrowers or restaurant chains will contribute more
than ten percent of the Company's rental and interest income during 1999 and
subsequent years.  In the event that certain lessees, borrowers or restaurant
chains contribute more than ten percent of the Company's rental, earned income
and interest income in future years, any failure of such lessees, borrowers or
restaurant chains could materially affect the Company's income.

     In October 1998, Boston Chicken, Inc. and its affiliates, tenants of 27
Boston Market Properties, filed a voluntary petition for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code; two additional Boston Market
operators, tenants in three additional Boston Market Properties, also filed
voluntary petitions for bankruptcy protection.  As a result of these filings for
bankruptcy, these tenants have the legal right to reject or affirm one or more
leases with the Company.  To date the restaurants on 13 of these Properties have
been closed.  Of the 13 Properties with closed restaurants, 12 leases have been
rejected, accounting for approximately three percent of the Company's rental,
earned and interest income for the year ended December 31, 1998.  While the
tenants have not rejected or affirmed the remaining 18 leases, there can be no
assurance that some or all of these leases will not be rejected in the future.
The lost revenues resulting from the rejection of all 30 leases could have an
adverse effect on the results and operations of the Company if the Company is
unable to re-lease the Properties in a timely manner.  Currently, the Company is
actively marketing the 13 closed Properties to existing and prospective clients
and local and regional restaurant operators.

                                      15
<PAGE>

     During the years ended December 31, 1998, 1997 and 1996, the Company earned
$5,899,028, $1,931,331 and $773,404, respectively, in investment and interest
income from investments in the Certificates, money market accounts or other
short-term, highly liquid investments.  The increase in investment and interest
income is primarily attributable to the receipt of subscription proceeds from
the 1998 Offering that are being temporarily invested in money market accounts
or short-term, highly liquid investments pending investment in Properties and
Mortgage Loans.  The increase was also attributable to the investment in the
Certificates during 1998, as described above in "Liquidity and Capital
Resources."  As net offering proceeds are invested in Properties and used to
make Mortgage Loans, interest income from investments in money market accounts
or other short-term, highly liquid investments is expected to decrease.

     Operating expenses, including depreciation and amortization expense, were
$9,408,957, $3,862,024 and $1,430,795 for the years ended December 31, 1998,
1997 and 1996, respectively.  Total operating expenses increased during each of
the years ended December 31, 1998 and 1997, each as compared to the prior year,
primarily as a result of the Company having invested in additional Properties,
Mortgage Loans and Secured Equipment Leases during each year.  Operating
expenses for the year ended December 31, 1998, include a provision for
uncollectible mortgage notes of $636,614 relating to two promissory notes with a
borrower due to financial difficulties the borrower is experiencing. General and
administrative expenses as a percentage of total revenues is expected to
decrease as the Company acquires additional Properties, invests in additional
Mortgage Loans and Secured Equipment Leases and the Properties under
construction become operational.  However, asset and mortgage management fees
and depreciation and amortization expense are expected to increase as the
Company invests in additional Properties and Mortgage Loans.

     During the year ended December 31, 1998, the Company recorded provisions
for losses on land and buildings in the amount of $611,534 for financial
reporting purposes relating to two Shoney's Properties and two Boston Market
Properties.  The tenants of these Properties experienced financial difficulties
and ceased payment of rents under the terms of their lease agreements.  The
allowances represent the difference between the carrying value of the Properties
at December 31, 1998 and the estimated net realizable value for these
Properties.

     The Company has made an election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a REIT under the
Code beginning with its taxable year ended December 31, 1995.  As a REIT, for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders.  If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be eligible to make a new election until the fifth taxable year following the
year for which the revocation or termination is effective.  Such an event could
materially affect the Company's net income.  However, the Company believes that
it is organized and operates in such a manner as to qualify for treatment as a
REIT for the years ended December 31, 1998, 1997 and 1996.  In addition, the
Company intends to continue to operate the Company so as to remain qualified as
a REIT for federal income tax purposes.

     Generally, the Company's leases as of December 31, 1998, are triple-net
leases and contain provisions that management believes will mitigate the adverse
effect of inflation.  Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease.  Management expects that increases in restaurant sales volumes due to
inflation and real sales growth should result in an increase in rental income
over time.  Continued inflation also may cause capital appreciation of the
Company's Properties.  Inflation and changing prices, however, also may have an
adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.

     Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income."  This Statement
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 net earnings.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133").  FAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999 (January 1, 2000 for the Company).  FAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value.  Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction.  Management of the Company anticipates that, due to its
limited use of interest rate swaps, the adoption of FAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.

                                      16
<PAGE>

Proposed Mergers

     During 1998, the Company formed a special committee (the "Special
Committee") consisting of the Independent Directors for the purpose of
evaluating strategic alternatives designed to maximize stockholder value. The
Special Committee retained the investment banking firms of Merrill Lynch,
Pierce, Fenner & Smith, Incorporated and Solomon Smith Barney Holdings, Inc.
(the "Advising Firms") to advise the Special Committee regarding its strategic
alternatives.  In July 1998, the Advising Firms presented their findings and
supporting financial information to the Special Committee. Based on the reports
of the Advising Firms and its own analyses, the Special Committee unanimously
agreed to present the recommendations described below to the full Board of
Directors and the full Board of Directors unanimously adopted the
recommendations of the Special Committee at a meeting held in July 1998.

     In summary, the Special Committee concluded that the best means to maximize
stockholder value would be for the Company to (i) significantly increase the
size of the Company by acquiring from affiliates of the Company's Advisor
portfolios of Properties similar to those currently held by the Company, (ii)
become internally advised and acquire internal real estate development
capability by acquiring the Advisor, (iii) expand its mortgage lending
capabilities by acquiring two affiliates of the Advisor, thus allowing the
Company to offer a full range of financing options to restaurant operators and
(iv) list its common stock on a national stock exchange, assuming market
conditions are favorable.  The Special Committee further recommended that the
Company evaluate conducting a public offering of its common stock concurrently
with the listing of its Shares.

     The acquisitions of portfolios of restaurant Properties and certain related
restaurant businesses owned by affiliates are subject to certain conditions
including certain of the sellers obtaining approval of the acquisitions by the
limited partners. Accordingly, the acquisition of all of the entities is not
assured.

     In addition, in order to effect the acquisitions of portfolios of
Properties from affiliates of the Company's Advisor, the Company will need to
increase its authorized common stock, which requires the approval of the
Company's stockholders.  It is expected that the request for a vote on such
increase will be presented to the stockholders during 1999.  In connection with
such vote, complete information on the proposed transaction will be delivered to
the Company's stockholders.  Prior to seeking that vote, the Company will
furnish to the stockholders an opinion of a third party that the consideration
proposed to be paid by the Company for the acquisitions is fair to the Company
from a financial point of view.

     On March 11, 1999, the Company entered into agreements to acquire (i) the
Advisor, (ii) CNL Financial Corp. and CNL Financial Services, Inc., affiliates
of the Advisor that provide mortgage loans and perform securitization
transactions and (iii) 18 CNL Income Funds, limited partnerships affiliated with
the Advisor whose properties are substantially the same type as the Company's
(the "Income Funds").  In connection therewith, the Company has agreed to issue
7.6 million, 4.7 million and up to 61 million shares of common stock,
respectively.  The acquisition of each of the Income Funds is contingent upon
certain conditions, including approval by the Company's stockholders to increase
the number of authorized shares of common stock and approval by a majority of
the limited partners of each Income Fund, as described above.

Year 2000 Readiness Disclosure

Overview of Year 2000 Problem

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

Information and Non-Information Technology Systems

     Prior to the acquisition of the Advisor by the Company in September 1999,
the Company had no information and non-information technology systems.  Upon the
acquisition of the Advisor, the Company acquired the information and non-
information technology systems of the Advisor.  The information technology
system of the Company consists of a network of personal computers and servers
built using hardware and software from mainstream suppliers.  The non-
information technology systems of the Company are primarily facility related and
include building security systems, elevators, fire suppressions, HVAC,
electrical systems and other utilities.  The Company has no internally generated
programmed software coding to correct, because substantially all of the software
utilized by the Company is purchased or licensed from external providers.  The
maintenance of non-information technology systems at the Company's restaurant
properties is the responsibility of the tenants of such properties in accordance
with the terms of the Company's leases.

                                      17
<PAGE>

The Y2K Team

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

Assessing Year 2000 Readiness

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

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

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

          As of September 30, 1999, the Y2K Team had received responses from
approximately 62 percent of the third parties.  All of the responses were in
writing.  Of the third parties responding, all indicated that they are currently
year 2000 compliant or will be year 2000 compliant prior to the year 2000.
Although the Y2K Team continues to receive positive responses from the companies
with which the Company has third party relationships regarding their year 2000
compliance, the Company cannot be assured that the third parties have adequately
considered the impact of the year 2000.

          In addition, the Y2K Team has requested documentation from the
Company's tenants and borrowers.  As of September 30, 1999, the Y2K Team had
received responses from approximately 34 percent of the tenants and borrowers.
All of the responses were in writing.  Of the tenants and borrowers responding,
all indicated that they are currently year 2000 compliant or will be year 2000
compliant prior to the year 2000.  The Company cannot be assured that the
tenants and borrowers have adequately considered the impact of the year 2000.
The Company has also instituted a policy of requiring all new tenants and
borrowers to indicate that their systems are year 2000 compliant or are expected
to be year 2000 compliant prior to the year 2000.

Achieving Year 2000 Compliance

          The Y2K Team has identified and completed upgrades for its hardware
equipment that was not year 2000 compliant.  In addition, the Y2K Team has
identified and completed upgrades of the software applications that were not
year 2000 compliant, although the Company cannot be assured that the upgrade
solutions provided by the vendors have addressed all possible year 2000 issues.

          As of September 30, 1999, the cost to the Company for these upgrades
and other remedial measures was approximately $5,000.  The Y2K Team does not
expect that the Company will incur any additional costs in achieving year 2000
compliance.  The Company does not expect the aggregate cost of the year 2000
remedial measures to have a material impact on its results of operations.

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

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

          The Y2K Team believes that the reasonably likely worst case scenario
with regard to the information and non-information technology systems used by
the Company is the failure of one or more of these systems as a result of year
2000 problems.  Because the Company's major source of income is rental payments
under long-term triple-net leases and loan payments under mortgage loans and
secured equipment leases, any failure of information or non-information
technology systems used by the Company is not expected to have a material impact
on the results of operations of the Company.  Even if such systems failed, the
payments under the Company's leases, mortgage loans

                                      18
<PAGE>

and secured equipment leases would not be affected. In addition, the Y2K Team is
expected to correct any year 2000 problems within its control before the year
2000.

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

Risk of Inability of Transfer Agent to Accurately Maintain Company Records

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

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

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

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

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

Risks of Late Payment or Non-Payment by Tenants and Borrowers

          The Y2K Team believes that the reasonably likely worst case scenario
with regard to the tenants under the Company's leases and the borrowers under
the Company's mortgage loans and secured equipment leases is that some of the
tenants or borrowers may make payments late as the result of the failure of the
tenants or borrowers to achieve year 2000 compliance of their systems used in
the payment of rent, the failure of the tenants' or borrowers' financial
institutions to achieve year 2000 compliance, or the temporary disruption of the
tenants' or borrowers' businesses.  The Y2K Team is in the process of requesting
responses from the Company's tenants and borrowers indicating the extent to
which their systems are currently year 2000 compliant or are expected to be year
2000 compliant prior to the year 2000.  The Company cannot be assured that the
tenants and borrowers have addressed all possible year 2000 issues.  The late
payment by one or more tenants or borrowers would affect the results of
operations of the Company in the short-term.  The Company is not able to
estimate the impact of late payments on its results of operations.

          The Y2K Team is also aware of predictions that the year 2000 problem,
if uncorrected, may result in a global economic crisis.  The Y2K Team is not
able to determine if such predictions are true.  A widespread disruption of the
economy could affect the ability of the Company's tenants to make rental and
loan payments and, accordingly, could have a material impact on the results of
operations of the Company.

          Because rental and loan payments are under the control of the
Company's tenants and borrowers, the Y2K Team is not able to develop a
contingency plan to address these risks.   In the event of late payment or non-
payment of rental or loan payments, the Company will assess the remedies
available to it under its lease and loan agreements.

                                      19
<PAGE>

Interest Rate Risk

     The Company has provided fixed rate Mortgage Loans and equipment financing
to borrowers.  The Company has also invested in Certificates with fixed and
adjustable rates.  Management believes that the estimated fair value of the
Mortgage Loans, equipment financing and Certificates at December 31, 1998
approximated the outstanding principal amounts.  The Company is exposed to
equity loss in the event of changes in interest rates.  The following table
presents the expected cash flows of principal that are sensitive to these
changes.

<TABLE>
<CAPTION>
               Mortgage and equipment notes                 Certificates
                       Fixed Rates                Fixed Rates        Floating Rates
              ------------------------------    -------------------------------------
<S>           <C>                               <C>                     <C>
1999                    $ 3,923,380                $        0             $        0
2000                      5,913,062                         0                      0
2001                      2,226,757                         0                      0
2002                      2,463,159                         0                      0
2003                      2,798,068                         0                      0
Thereafter               20,411,249                 9,514,215              6,568,839
                        $37,735,675                $9,514,215             $6,568,839
                     =================          ================       ================
</TABLE>

     As of December 31, 1998, the Company had $10,143,044 outstanding under its
Line of Credit.  In connection with entering into this Line of Credit, the
Company entered into interest rate swap agreements with a commercial bank to
reduce the impact of changes in interest rates on its floating rate long-term
debt.  These agreements effectively change the Company's interest rate exposure
on notional amounts totalling approximately $2,110,000 of the outstanding
floating rate notes to fixed rates ranging from 8.75% to nine percent per annum.
The notional amounts of the interest rate swap agreements amortize over the
period of the agreements which approximate the term of the related notes.  As of
December 31, 1998, the notional balance was approximately $1,339,900.  The
Company is exposed to credit loss in the event of nonperformance by the other
party to the interest rate swap agreements; however, the Company does not
anticipate nonperformance by the counterparty.  Management does not believe the
impact of any payments of a termination penalty, in the event the Company
determines to terminate the swap agreements prior to the end of their respective
terms, would be material to the Company's financial position or results of
operations.

Item 7a.   Quantitative and Qualitative Disclosures About Market Risk

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

                                      20
<PAGE>

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



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


In our opinion, the consolidated financial statements listed in the index
appearing under item 14(a)(1) present fairly, in all material respects, the
financial position of CNL American Properties Fund, Inc. (a Maryland
corporation) and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.  In addition, in our opinion, the financial statement schedules
listed in the index appearing under item 14(a)(2) present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.  These financial statements
and financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.  We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.


/s/ PricewaterhouseCoopers LLP


Orlando, Florida
January 29, 1999, except for Note 17 for which the date is March 11, 1999

                                       21
<PAGE>

                      CNL AMERICAN PROPERTIES FUND, INC.
                               AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------

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

Land and buildings on operating leases, less accumulated
 depreciation and allowance for loss on land and buildings                 $393,339,334                  $205,338,186
Net investment in direct financing leases                                    91,675,650                    47,613,595
Investment in joint venture                                                     988,078                            --
Mortgage notes receivable                                                    19,631,693                    17,622,010
Equipment notes receivable                                                   19,377,380                    13,548,044
Other investments                                                            16,201,014                            --
Cash and cash equivalents                                                   123,199,837                    47,586,777
Certificates of deposit                                                       2,007,540                     2,008,224
Receivables, less allowance for doubtful accounts
 of $1,069,024 and $99,964, respectively                                        526,650                       635,796
Accrued rental income                                                         3,959,913                     1,772,261
Intangibles and other assets                                                  9,444,924                     2,952,869
                                                                     ------------------            ------------------

                                                                           $680,352,013                  $339,077,762
                                                                     ==================            ==================

LIABILITIES AND STOCKHOLDERS' EQUITY

Line of credit                                                             $ 10,143,044                  $  2,459,043
Accrued construction costs payable                                            4,170,410                    10,978,211
Accounts payable and accrued expenses                                         1,035,436                     1,060,497
Due to related parties                                                        1,308,464                     1,524,294
Rents paid in advance                                                           954,271                       517,428
Deferred rental income                                                        1,189,883                       557,576
Other payables                                                                  458,402                        56,878
   Total liabilities                                                         19,259,910                    17,153,927
                                                                     ------------------            ------------------

Minority interest                                                               281,817                       285,734
                                                                     ------------------            ------------------

Commitments (Note 16)

Stockholders' equity:
 Preferred stock, without par value.  Authorized
   and unissued 3,000,000 shares                                                     --                            --
 Excess shares, $0.01 par value per share.
   Authorized and unissued 78,000,000 shares                                         --                            --
 Common stock, $0.01 par value per share.  Authorized
   125,000,000 and 75,000,000 shares, respectively, issued
   74,745,368 and 36,192,971, respectively, outstanding
   74,675,854 and 36,192,971, respectively                                      746,759                       361,930
 Capital in excess of par value                                             669,610,058                   323,525,961
 Accumulated distributions in excess of net earnings                         (9,546,531)                   (2,249,790)
       Total stockholders' equity                                           660,810,286                   321,638,101
                                                                     ------------------            ------------------

                                                                           $680,352,013                  $339,077,762
                                                                     ==================            ==================
</TABLE>



         See accompanying notes to consolidated financial statements.

                                       22
<PAGE>

                      CNL AMERICAN PROPERTIES FUND, INC.
                               AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF EARNINGS
                      -----------------------------------


<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                          1998                          1997                       1996
                                                    --------------                 -------------              --------------
Revenues:
<S>                                                 <C>                          <C>                          <C>
 Rental income from operating leases                     $26,688,864                  $12,457,200                   $3,731,806
 Earned income from direct financing leases                6,440,797                    3,033,415                      625,492
 Interest income from mortgage and equipment
   notes receivable                                        3,085,518                    2,010,500                    1,069,349
 Investment and interest income                            5,899,028                    1,931,331                      773,404
 Other income                                                 72,830                       25,487                        6,633
                                                          42,187,037                   19,457,933                    6,206,684
                                                    ----------------           ------------------           ------------------
Expenses:
 General operating and administrative                      2,955,535                    1,010,725                      601,540
 Asset management fees to related party                    1,851,004                      804,879                      251,200
 State and other taxes                                       548,320                      251,358                       56,184
 Depreciation and amortization                             4,054,098                    1,795,062                      521,871
                                                           9,408,957                    3,862,024                    1,430,795
                                                    ----------------           ------------------           ------------------

Earnings Before Minority Interest in Income of
 Consolidated Joint Venture, Equity in Earnings
 of Unconsolidated Joint Venture and Provision
 for Loss on Land and Buildings                           32,778,080                   15,595,909                    4,775,889

Minority Interest in Income of
 Consolidated Joint Venture                                  (30,156)                     (31,453)                     (29,927)

Equity in Earnings of Unconsolidated
 Joint Venture                                                16,018                           --                           --

Provision for Loss on Land and Buildings                    (611,534)                          --                           --
                                                    ----------------           ------------------           ------------------

Net Earnings                                             $32,152,408                  $15,564,456                   $4,745,962
                                                    ================           ==================           ==================

Earnings Per Share of Common
 Stock (Basic and Diluted)                                     $0.60                        $0.66                        $0.59
                                                    ================           ==================           ==================

Weighted Average Number of Shares
 of Common Stock Outstanding                              53,296,438                   23,423,868                    8,071,670
                                                    ================           ==================           ==================
</TABLE>



         See accompanying notes to consolidated financial statements.

                                       23
<PAGE>

                      CNL AMERICAN PROPERTIES FUND, INC.
                               AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                -----------------------------------------------

                 Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                  Common Stock                              Accumulated
                                           ----------------------------    Capital in       distributions
                                             Number              Par        excess of       in excess of
                                           of shares            value       par value       net earnings               Total
                                           ----------          ---------   --------------   ----------------      ----------------
<S>                                     <C>                  <C>          <C>                <C>                 <C>
Balance at December 31, 1995                3,865,416           $ 38,654     $ 32,211,833      $   (269,839)         $ 31,980,648

Subscriptions received for common
   stock through public offering and
   distribution reinvestment plan          10,079,299            100,793      100,692,198                --           100,792,991

Stock issuance costs                               --                 --       (9,216,102)               --            (9,216,102)

Net earnings                                       --                 --               --         4,745,962             4,745,962

Distributions declared and
   paid ($0.71 per share)                          --                 --               --        (5,436,072)           (5,436,072)
                                        -------------      -------------  ---------------   ---------------      ----------------

Balance at December 31, 1996               13,944,715            139,447      123,687,929          (959,949)          122,867,427

Subscriptions received for common
   stock through public offerings and
   distribution reinvestment plan          22,248,256            222,483      222,260,077                --           222,482,560

Stock issuance costs                               --                 --      (22,422,045)               --           (22,422,045)

Net earnings                                       --                 --               --        15,564,456            15,564,456

Distributions declared and
   paid ($0.74 per share)                          --                 --               --       (16,854,297)          (16,854,297)
                                        -------------      -------------  ---------------   ---------------      ----------------

Balance at December 31, 1997               36,192,971            361,930      323,525,961        (2,249,790)          321,638,101

Subscriptions received for common
   stock through public offerings and
   distribution reinvestment plan          38,552,397            385,524      385,138,442                --           385,523,966

Retirement of common stock                    (69,514)              (695)        (638,833)               --              (639,528)

Stock issuance costs                               --                 --      (38,415,512)               --           (38,415,512)

Net earnings                                       --                 --               --        32,152,408            32,152,408

Distributions declared and
   paid ($0.76 per share)                          --                 --               --       (39,449,149)          (39,449,149)
                                        -------------      -------------  ---------------   ---------------      ----------------

Balance at December 31, 1998               74,675,854           $746,759     $669,610,058      $ (9,546,531)         $660,810,286
                                        =============      =============  ===============   ===============      ================
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

                      CNL AMERICAN PROPERTIES FUND, INC.
                               AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                        1998               1997                  1996
                                                                   --------------     --------------        --------------
Increase (Decrease) in Cash and Cash Equivalents:

Cash Flows from Operating Activities:
<S>                                                               <C>                <C>                 <C>
   Cash received from tenants                                       $  34,275,767       $  15,440,803       $  4,543,506
   Distributions from unconsolidated joint venture                            578                  --                 --
   Cash paid for expenses                                              (4,326,169)         (1,903,876)          (928,001)
   Interest received                                                    9,166,099           3,539,287          1,867,035
       Net cash provided by operating activities                       39,116,275          17,076,214          5,482,540
                                                                -----------------    ----------------    ---------------

 Cash Flows from Investing Activities:
   Additions to land and buildings on operating leases               (200,101,667)       (143,542,667)       (36,104,148)
   Investment in direct financing leases                              (47,115,435)        (39,155,974)       (13,372,621)
   Proceeds from sale of buildings and
     equipment under direct financing leases                            2,385,941           7,251,510                 --
   Investment in joint venture                                           (974,696)                 --                 --
   Purchase of other investments                                      (16,083,055)                 --                 --
   Investment in certificates of deposit                                       --          (2,000,000)                --
   Investment in mortgage notes receivable                             (2,886,648)         (4,401,982)       (13,547,264)
   Collection on mortgage notes receivable                                291,990             250,732            133,850
   Investment in equipment notes receivable                            (7,837,750)        (12,521,401)                --
   Collection on equipment notes receivable                             1,263,633                  --                 --
   Increase in intangibles and other assets                            (6,281,069)                 --         (1,103,896)
       Net cash used in investing activities                         (277,338,756)       (194,119,782)       (63,994,079)
                                                                -----------------    ----------------    ---------------

 Cash Flows from Financing Activities:
   Reimbursement of acquisition and stock
     issuance costs paid by related parties on
     behalf of the Company                                             (4,574,925)         (2,857,352)          (939,798)
   Proceeds from borrowing on line of credit                            7,692,040          19,721,804          3,666,896
   Payment on line of credit                                               (8,039)        (20,784,577)          (145,080)
   Contribution from minority interest of
     consolidated joint venture                                                --                  --             97,419
   Subscriptions received from stockholders                           385,523,966         222,482,560        100,792,991
   Retirement of shares of common stock                                  (639,528)                 --                 --
   Distributions to minority interest                                     (34,073)            (34,020)           (39,121)
   Distributions to stockholders                                      (39,449,149)        (16,854,297)        (5,439,404)
   Payment of stock issuance costs                                    (34,579,650)        (19,542,862)        (8,486,188)
   Other                                                                  (95,101)             49,001            (54,533)
       Net cash provided by financing activities                      313,835,541         182,180,257         89,453,182
                                                                -----------------    ----------------    ---------------

Net Increase in Cash and Cash Equivalents                              75,613,060           5,136,689         30,941,643

Cash and Cash Equivalents at Beginning of Year                         47,586,777          42,450,088         11,508,445
                                                                -----------------    ----------------    ---------------

Cash and Cash Equivalents at End of Year                            $ 123,199,837       $  47,586,777       $ 42,450,088
                                                                =================    ================    ===============
</TABLE>



         See accompanying notes to consolidated financial statements.

                                       25
<PAGE>

                      CNL AMERICAN PROPERTIES FUND, INC.
                               AND SUBSIDIARIES

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


<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                  1998                       1997                     1996
                                                             --------------             -------------            --------------
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
<S>                                                         <C>                         <C>                       <C>
   Net earnings                                                 $32,152,408                 $15,564,456                $4,745,962
                                                            ===============           =================         =================
   Adjustments to reconcile net earnings to net cash
     provided by operating activities:
       Provision for uncollectible mortgage notes                   636,614                          --                        --
       Depreciation                                               4,042,290                   1,784,268                   511,078
       Amortization                                                  11,808                      10,794                    69,886
       Provision for loss on land and buildings                     611,534                          --                        --
       Equity in earnings of joint venture,
         net of distributions                                       (15,440)                         --                        --
       Decrease (increase) in receivables                           262,958                    (905,339)                 (160,984)
       Decrease in net investment in direct financing leases      1,971,634                   1,130,095                   259,740
       Increase in accrued rental income                         (2,187,652)                 (1,350,185)                 (382,934)
       Increase in intangibles and other assets                     (29,477)                     (6,869)                   (4,293)
       Increase (decrease) in accounts payable and
         accrued expenses                                           404,161                     153,223                    (2,896)
       Increase (decrease) in due to related parties,
         excluding reimbursement of acquisition,
         deferred offering and stock issuance costs
         paid on behalf of the Company                               31,255                      15,466                   (30,929)
       Increase in rents paid in advance                            436,843                     398,528                    93,549
       Increase in deferred rental income                           693,372                     221,727                   335,849
       Increase in other payables                                    63,811                      28,597                    18,585
       Increase in minority interest                                 30,156                      31,453                    29,927
          Total adjustments                                       6,963,867                   1,511,758                   736,578
                                                            ---------------           -----------------         -----------------

Net Cash Provided by Operating Activities                       $39,116,275                 $17,076,214                $5,482,540
                                                            ===============           =================         =================

Supplemental Schedule of Non-Cash Investing
 and Financing Activities:

   Related parties paid certain acquisition, deferred
     offering and stock issuance costs on behalf
     of the Company as follows:
       Acquisition costs                                        $ 1,113,580                 $   514,908                $  206,103
       Deferred offering costs                                           --                          --                   466,405
       Stock issuance costs                                       4,228,480                   2,351,244                   338,212
                                                            ---------------           -----------------         -----------------

                                                                $ 5,342,060                 $ 2,866,152                $1,010,720
                                                            ===============           =================         =================
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       26
<PAGE>

                      CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


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

     Organization and Nature of Business - CNL American Properties Fund, Inc.
     -----------------------------------
     was organized in Maryland on May 2, 1994.  CNL APF GP Corp. and CNL APF LP
     Corp., organized in Delaware in May 1998, are wholly owned subsidiaries of
     CNL American Properties Fund, Inc.  CNL APF Partners, LP is a Delaware
     limited partnership formed in May 1998.  CNL APF GP Corp. and CNL APF LP
     Corp. are the general and limited partners, respectively, of CNL APF
     Partners, LP. The term "Company" includes, unless the text otherwise
     requires, CNL American Properties Fund, Inc., CNL APF GP Corp., CNL APF LP
     Corp. and CNL APF Partners, LP.  The Company was formed primarily for the
     purpose of acquiring, directly or indirectly through joint venture or co-
     tenancy arrangements, restaurant properties (the "Properties") to be leased
     on a long-term, triple-net basis to operators of selected national and
     regional fast-food, family-style and casual dining restaurant chains.  The
     Company also provides financing (the "Mortgage Loans") for the purchase of
     buildings, generally by tenants that lease the underlying land from the
     Company.  In addition, the Company offers furniture, fixtures and equipment
     financing through leases or loans (the "Secured Equipment Leases") to
     operators of restaurant chains.

     Principles of Consolidation - The Company accounts for its 85.47% interest
     ---------------------------
     in CNL/Corral South Joint Venture using the consolidation method.  Minority
     interest represents the minority joint venture partner's proportionate
     share of the equity in the Company's consolidated joint venture.  The
     Company accounts for its 55.38% interest in CNL/Lee Vista Joint Venture
     using the equity method because it shares control with the other joint
     venture partner.  All significant intercompany balances and transactions
     have been eliminated.

     Real Estate and Lease Accounting - The Company records the acquisition of
     --------------------------------
     land, buildings and equipment at cost, including acquisition and closing
     costs.  In addition, interest costs incurred during construction are
     capitalized.  Land and buildings are generally leased to unrelated third
     parties on a triple-net basis, whereby the tenant is generally responsible
     for all operating expenses relating to the Property, including property
     taxes, insurance, maintenance and repairs.  In addition, the Company offers
     equipment financing through leases or loans.  The Property leases are
     accounted for using either the direct financing or the operating method.
     The Secured Equipment Leases are accounted for using the direct financing
     method.  Such methods are described below:

                                       27
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


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

          Direct financing method - The leases accounted for using the direct
          financing method are recorded at their net investment (which at the
          inception of the lease generally represents the cost of the asset)
          (Note 5). Unearned income is deferred and amortized to income over the
          lease terms so as to produce a constant periodic rate of return on the
          Company's net investment in the leases.

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

          Accrued rental income represents the aggregate amount of income
          recognized on a straight-line basis in excess of scheduled rental
          payments to date.  In contrast, deferred rental income represents the
          aggregate amount of scheduled rental payments to date (including
          rental payments due during construction and prior to the Property
          being placed in service) in excess of income recognized on a straight-
          line basis over the lease term commencing on the date the Property is
          placed in service.

     When the Properties or equipment are sold, the related cost and accumulated
     depreciation for operating leases and the net investment for direct
     financing leases, plus any accrued rental income or deferred rental income,
     will be removed from the accounts and any gains or losses from sales will
     be reflected in income.   Management reviews its Properties for impairment
     whenever events or changes in circumstances indicate that the carrying
     amount of the assets may not be recoverable through operations.  Management
     determines whether an impairment in value has occurred by comparing the
     estimated future undiscounted cash flows, including the residual value of
     the Property, with the carrying cost of the individual Property.  If an
     impairment is indicated, the assets are adjusted to their fair value.

                                       28
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


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

     Mortgage Loans - The Company accounts for loan origination fees and costs
     --------------
     incurred in connection with Mortgage Loans in accordance with Statement of
     Financial Accounting Standards No. 91, "Accounting for Nonrefundable Fees
     and Costs Associated with Originating or Acquiring Loans and Initial Direct
     Costs of Leases."  This statement requires the deferral of loan origination
     fees and the capitalization of direct loan costs.  The costs capitalized,
     net of the fees deferred, are amortized to interest income as an adjustment
     of yield over the life of the loans.  The unpaid principal and accrued
     interest on the Mortgage Loans, plus the unamortized balance of such fees
     and costs are included in mortgage notes receivable (see Note 7).
     Provisions for uncollectible mortgage notes are established whenever it
     appears that future collection of principal on specific mortgage notes
     appears doubtful.  The provision for uncollectible mortgage notes
     represents the difference between the carrying value at December 31 and the
     net realizable value management expects to receive relating to the mortgage
     note.

     Other Investments - The Company determines the appropriate classification
     -----------------
     of other investments at the time of purchase and reevaluates such
     designation at each balance sheet date.  Other investments have been
     classified as available for sale and are carried at fair value, with
     unrealized holding gains and losses, if any, reported as a separate
     component of stockholders' equity and in the statement of comprehensive
     earnings, as applicable.

     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, money market funds (some of which are backed by
     government securities) and certificates of deposit (with maturities of
     three months or less when purchased).  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, money market funds and certificates of deposit 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 and are included in intangibles and other assets.
     As of December 31, 1998 and 1997, accumulated amortization totalled $14,318
     and $10,318, respectively.

                                       29
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


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

     Loan Costs - Loan costs incurred in connection with the Company's
     ----------
     $35,000,000 line of credit have been capitalized and are being amortized
     over the term of the loan commitment using the effective interest method.
     Income or expense associated with interest rate swap agreements related to
     the line of credit is recognized on the accrual basis as earned or incurred
     through an adjustment to interest expense.  Loan costs are included in
     intangibles and other assets.  As of December 31, 1998 and 1997, the
     Company had aggregate gross loan costs of $100,634.  As of December 31,
     1998 and 1997, accumulated amortization totalled $88,000 and $61,783,
     respectively.

     Income Taxes - The Company has made 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, and related regulations.  The
     Company generally will not be subject to federal corporate income taxes on
     amounts distributed to stockholders, providing 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 accompanying consolidated financial statements.
     Notwithstanding the Company's qualification for taxation as a REIT, the
     Company is subject to certain state taxes on its income and property.

     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.

     Reclassification - Certain items in the prior years' financial statements
     ----------------
     have been reclassified to conform with the 1998 presentation.  These
     reclassifications had no effect on stockholders' equity or net earnings.

     New Accounting Standards - Effective January 1, 1998, the Company adopted
     ------------------------
     Statement of Financial Accounting Standards No. 130, "Reporting
     Comprehensive Income."  This Statement 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 net earnings.

                                       30
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


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

     In June 1998, the FASB issued Statement of Financial Accounting Standards
     No. 133, "Accounting for Derivative Instruments and Hedging Activities"
     ("FAS 133").  FAS 133 is effective for all fiscal quarters of all fiscal
     years beginning after June 15, 1999 (January 1, 2000 for the Company).  FAS
     133 requires that all derivative instruments be recorded on the balance
     sheet at their fair value.  Changes in the fair value of derivatives are
     recorded each period in current earnings or other comprehensive income,
     depending on whether a derivative is designated as part of a hedge
     transaction and, if it is, the type of hedge transaction.  Management of
     the Company anticipates that, due to its limited use of interest rate
     swaps, the adoption of FAS 133 will not have a significant effect on the
     Company's results of operations or its financial position.

2.  Public Offerings:
    ----------------

     The Company's public offering of 34,500,000 shares ($345,000,000) of common
     stock (the "1998 Offering") became fully subscribed in December 1998 and
     the last subscription was received in January 1999.  Prior to the 1998
     Offering, the Company received proceeds from its initial offering (the
     "Initial Offering"), of $150,591,765 (15,059,177 shares), including
     $591,765 (59,177 shares) issued pursuant to the Company's reinvestment
     plan, and received proceeds from its first follow-on offering (the "1997
     Offering") of $251,872,648 (25,187,265 shares), including $1,872,648
     (187,265 shares) issued pursuant to the Company's reinvestment plan.

3.  Leases:
    ------

     The Company leases its land, buildings and equipment to operators of
     national and regional fast-food, family-style and casual dining
     restaurants.  The leases are accounted for under the provisions of
     Statement of Financial Accounting Standards No. 13, "Accounting for
     Leases."  For Property leases classified as direct financing leases, the
     building portions of the majority of the leases are accounted for as direct
     financing leases while the land portions of these leases are generally
     accounted for as operating leases.  Substantially, all Property leases have
     initial terms of 15 to 20 years (expiring between 2006 and 2018) and
     provide for minimum rentals.  In addition, the majority of the Property
     leases provide for contingent rentals and/or scheduled rent increases over
     the terms of the leases.  Each tenant also pays all property taxes and
     assessments, fully maintains the interior and exterior of the building and
     carries insurance coverage for public liability, property damage, fire and
     extended coverage.  The lease options for the Property leases generally
     allow tenants to renew the leases  for  two to four successive five-year
     periods subject to the same terms and conditions

                                       31
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


3.  Leases - Continued:
    ------------------

     as the initial lease.  Most leases also allow the tenant to purchase the
     Property at the greater of the Company's purchase price plus a specified
     percentage of such purchase price or fair market value after a specified
     portion of the lease has elapsed.

     The Secured Equipment Leases recorded as direct financing leases as of
     December 31, 1998 provide for minimum rentals payable monthly and generally
     have lease terms ranging from four to seven years.  The Secured Equipment
     Leases generally include an option for the lessee to acquire the equipment
     at the end of the lease term for a nominal fee.

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

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

<TABLE>
<CAPTION>
                                                      1998                      1997
                                               ----------------          ----------------
<S>                                              <C>                       <C>
Land                                               $210,451,742              $106,616,360
Buildings                                           169,708,652                95,518,149
                                               ----------------          ----------------
                                                    380,160,394               202,134,509
Less accumulated depreciation                        (6,242,782)               (2,395,665)
                                               ----------------          ----------------
                                                    373,917,612               199,738,844
Construction in progress                             20,033,256                 5,599,342
                                               ----------------          ----------------
                                                    393,950,868               205,338,186
Less allowance for loss on
 land and buildings                                    (611,534)                       --
                                               ----------------          ----------------

                                                   $393,339,334              $205,338,186
                                               ================          ================
</TABLE>

     Some leases provide for scheduled rent increases throughout the lease term
     and/or rental payments during the construction of a Property prior to the
     date it is placed in service.  Such amounts are recognized on a straight-
     line basis over the terms of the leases commencing on the date the Property
     is placed in service.  For the years ended December 31, 1998, 1997 and
     1996, the Company recognized $2,734,767 (net of $351,177 in reserves and
     $666,596 in write-offs), $1,941,054 and $517,067, respectively, of such
     rental income.

                                       32
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


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

     During 1998, the Company sold three Properties to tenants.  During 1997,
     the Company sold five of its Properties and the equipment relating to two
     Secured Equipment Leases to tenants. The Company received net proceeds of
     approximately $2,386,000 and $7,252,000 during 1998 and 1997, respectively,
     which approximated the carrying value of the Properties and the net
     investment in the direct financing leases for the equipment at the time of
     the sales.  As a result, no gain or loss was recognized for financial
     reporting purposes. The Company used the net sales proceeds relating to the
     sale of the equipment to repay amounts previously advanced under its line
     of credit (see Note 10).  The Company reinvested the proceeds from the sale
     of Properties in additional Properties.

     During 1998, a tenant exercised its option under the terms of three lease
     agreements to exchange three existing Properties for three replacement
     Properties which were approved by the Company.  In connection therewith,
     the Company exchanged three Properties with three replacement Properties.
     Under the exchange agreements for each Property, each replacement Property
     will continue under the terms of the leases of the original Properties.
     All closing costs were paid by the tenant.  The Company accounted for these
     transactions as nonmonetary exchanges of similar productive assets and
     recorded the acquisitions of the replacement Properties at the net book
     value of the original Properties. No gain or loss was recognized due to
     these transactions being accounted for as nonmonetary exchanges of similar
     assets.

     At December 31, 1998, the Company recorded provisions for losses on land
     and buildings totalling $611,534 for financial reporting purposes relating
     to two Shoney's Properties and two Boston Market Properties.  The tenants
     of these Properties experienced financial difficulties and ceased payment
     of rents under the terms of their lease agreements.  The allowances
     represent the difference between the carrying value of the Properties at
     December 31, 1998 and the estimated net realizable value for these
     Properties.

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

<TABLE>
<S>                    <C>
1999                        $ 31,434,445
2000                          31,470,924
2001                          31,671,570
2002                          32,416,670
2003                          33,586,967
Thereafter                   461,430,511
                       -----------------

                            $622,011,087
                       =================
</TABLE>

                                       33
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996

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

     Since lease renewal periods are exercisable at the option of the tenant,
     the above table only presents future minimum lease payments due during the
     initial lease terms.  In addition, this table does not include any amounts
     for future contingent rentals which may be received on the leases based on
     a percentage of the tenant's gross sales.  These amounts also do not
     include minimum lease payments that will become due when Properties under
     development are completed (see Note 16).

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

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

<TABLE>
<CAPTION>
                                                              1998                     1997
                                                      -----------------         ----------------
<S>                                                     <C>                       <C>
Minimum lease payments
 receivable                                               $ 186,515,403             $ 98,121,853
Estimated residual values                                    17,680,858                6,889,570
Interest receivable from
 Secured Equipment Leases                                        81,690                   67,614
Less unearned income                                       (112,602,301)             (57,465,442)
                                                      -----------------         ----------------

Net investment in direct
 financing leases                                         $  91,675,650             $ 47,613,595
                                                      =================         ================
</TABLE>

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

<TABLE>
<S>                    <C>
1999                        $ 11,883,992
2000                          12,078,426
2001                          11,850,358
2002                          11,753,228
2003                          11,536,216
Thereafter                   127,413,183
                       -----------------
                            $186,515,403
                       =================
</TABLE>

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

                                       34
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


6.   Investment in Joint Venture:
     ---------------------------

     In June 1998, the Company entered into a joint venture arrangement, CNL/Lee
     Vista Joint Venture, with a third party to construct and hold one
     restaurant property.  As of December 31, 1998, the Company had contributed
     $868,953 to pay for construction relating to the Property owned by the
     joint venture.  The Company has agreed to contribute approximately $646,000
     to complete its funding to the joint venture. When funding is completed,
     the Company expects to have an approximate 68 percent interest in the
     profits and losses of the joint venture.  The Company accounts for its
     investment in this joint venture under the equity method because it shares
     control with the other joint venture partner.  As of December 31, 1998, the
     Company had a 55.38% interest in this joint venture.

     The following presents the condensed financial information for the joint
     venture at:

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                  1998                    1997
                                                          ------------------      ------------------
<S>                                                       <C>                     <C>
Land and building on operating
 lease, less accumulated
 depreciation                                                $2,207,874                 $   --
Other assets                                                     31,757                     --
Liabilities                                                     647,066                     --
Partners' capital                                             1,592,565                     --
Revenues                                                         36,767                     --
Net income                                                       28,682                     --
</TABLE>

     At December 31, 1998, the difference between the Company's carrying amount
     of its investment in joint venture and the underlying equity in the net
     assets of the joint venture was $104,698, less accumulated amortization of
     $1,013.  This amount is being amortized on a straight-line basis over 30
     years, the term of the joint venture agreement.

7.   Mortgage Notes Receivable:
     -------------------------

     During 1997, in connection with the acquisition of land for nine
     Properties, the Company entered into a Mortgage Loan in the principal sum
     of $4,200,000, collateralized by a mortgage on the buildings on the nine
     Properties and two additional buildings.  The Mortgage Loan bears interest
     at a rate of 10.5% per annum and is being collected in 240 equal monthly
     installments.

                                       35
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


7.   Mortgage Notes Receivable - Continued:
     -------------------------------------

     During 1998, the Company accepted four Mortgage Loans in the aggregate
     principal sum of $2,901,742, collateralized by mortgages on the buildings
     of four Properties. These Mortgage Loans bear interest at rates ranging
     from 9.5% to 11 percent per annum and are being collected in monthly
     installments with maturity dates ranging from 2000 to 2014.

     Mortgage notes receivable consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                               1998                      1997
                                                         --------------           ---------------
<S>                                                        <C>                      <C>
Outstanding principal                                       $19,272,171               $16,662,418
Accrued interest income                                          79,034                   118,887
Deferred financing income                                       (95,575)                  (85,448)
Unamortized loan costs                                        1,012,677                   926,153
Provision for uncollectible
 mortgage notes                                                (636,614)                       --
                                                         --------------           ---------------

                                                            $19,631,693               $17,622,010
                                                         ==============           ===============
</TABLE>

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

8.   Equipment Notes Receivable:
     --------------------------

     In October 1997, the Company entered into two promissory notes with a
     borrower for equipment financing totalling $13,225,000, which are
     collateralized by restaurant equipment.  Payments of principal and interest
     were collected during 1998.  In December 1998, additional equipment
     financing was provided to this borrower, resulting in two new promissory
     notes consolidating the new amounts with the previous amounts loaned in
     1997.  The two new (consolidated) promissory notes total the original
     $13,225,000, bear interest at a rate of ten percent per annum and will be
     collected in 84 equal monthly installments of principal and interest
     beginning on February 1, 1999.

     In 1998, the Company also entered into several promissory notes with
     several borrowers for equipment financing for a total of $5,887,512, which
     are collateralized by restaurant equipment.  The promissory notes bear
     interest at rates ranging from ten percent to 11 percent per annum and are
     being collected in monthly installments with maturity dates ranging from
     1999 to 2006.

                                       36
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


8.   Equipment Notes Receivable - Continued:
     --------------------------------------

     Equipment notes receivable consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                               1998                     1997
                                                         --------------           ---------------

<S>                                                        <C>                      <C>
Outstanding principal                                       $19,100,118               $13,225,000
Accrued interest income                                         119,113                   323,044
Deferred financing income                                        (4,344)                       --
Unamortized loan costs                                          162,493                        --
                                                         --------------           ---------------

                                                            $19,377,380               $13,548,044
                                                         ==============           ===============
</TABLE>

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

9.   Other Investments:
     -----------------

     In August 1998, the Company acquired an investment in the Class F, Class G
     and Class H Franchise Loan Certificates, Series 1998-1 (collectively, the
     "Certificates") from CNL Funding 98-1, LP, a mortgage loan securitization
     entity sponsored by CNL Financial Corp. ("CFC"), an affiliate of CNL Fund
     Advisors, Inc., the advisor to the Company (the "Advisor").  CFC originated
     and serviced mortgage loans on restaurant properties comparable to the
     triple-net leased properties currently owned by the Company.  After
     originating the mortgage loans, CFC contributed the loans to CNL Funding
     98-1, LP, the securitization entity which subsequently issued the
     Certificates representing beneficial ownership interests in the pool of
     mortgage loans.

     The Company paid an aggregate purchase price of approximately $16,100,000
     for the Certificates.  The Company classified the investments in these
     Certificates as available for sale for accounting purposes.  At December
     31, 1998, the estimated fair value of the Certificates approximated their
     carrying value; therefore, the Company did not record any unrealized gains
     or losses relating to its investment in Certificates.  The investment in
     Certificates balance at December 31, 1998 includes $117,959 of accrued
     interest.

     The Company acquired Class F-1, Class G-1 and Class H-1 Certificates with
     fixed pass through rates of 8.4% per annum and an effective yield of 11.6%
     per annum for the year ended December 31, 1998. Monthly payments of
     interest on these Certificates commenced in September 1998 and monthly
     payments of principal and interest are scheduled to be made during the
     period September 2012 through June 2017.

                                       37
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


9.   Other Investments - Continued:
     -----------------------------

     The Company also acquired Class F-2, Class G-2 and Class H-2 Certificates
     with adjustable pass through rates of LIBOR (defined as the per annum
     London Interbank Offered Rate for 30 day dollar deposits) plus 2.25% per
     annum (7.33% at December 31, 1998) and an effective yield of 11.3% per
     annum for the year ended December 31, 1998. Monthly payments of interest on
     these Certificates commenced in September 1998 and monthly payments of
     principal and interest are scheduled to be made during the period April
     2012 through March 2017.

10.  Line of Credit:
     --------------

     In March 1996, the Company entered into a $15,000,000 line of credit and
     security agreement with a bank, the proceeds of which were to be used by
     the Company to offer Secured Equipment Leases.  In August 1997, the
     Company's $15,000,000 line of credit was amended and restated to enable the
     Company to receive advances on a revolving $35,000,000 uncollateralized
     line of credit  (the "Line of Credit") to provide equipment financing, to
     purchase and develop Properties and to fund Mortgage Loans.  The advances
     bear interest at a rate of LIBOR plus 1.65% or the bank's prime rate,
     whichever the Company selects at the time of borrowing.  Interest only is
     repayable monthly until July 31, 1999, at which time all remaining interest
     and principal shall be due.  The Line of Credit provides for two one-year
     renewal options.

     As of December 31, 1998 and 1997, $10,143,044 and $2,459,043, respectively,
     of principal was outstanding relating to the Line of Credit.  As of
     December 31, 1998 and 1997, the interest rates on amounts outstanding under
     the Line of Credit were 7.2743% and 7.6187% (LIBOR plus 1.65%),
     respectively.  The weighted average interest rates on the Line of Credit
     were 7.2256% and 7.7290% for the years ended December 31, 1998 and 1997,
     respectively.  The Company believes, based on current terms, that the
     carrying value of its Line of Credit at December 31, 1998 and 1997
     approximated fair value. The terms of the Line of Credit include financial
     covenants which provide for the maintenance of certain financial ratios.
     The Company was in compliance with such covenants as of December 31, 1998.

     During 1996, the Company entered into interest rate swap agreements with a
     commercial bank to reduce the impact of changes in interest rates on its
     floating rate debt. The agreements effectively change the Company's
     interest rate exposure on notional amounts totalling approximately
     $2,110,000 of the outstanding floating rate notes to fixed rates ranging
     from 8.75% to nine percent per annum.  The notional amounts of the interest
     rate swap agreements amortize over the period of the agreements which
     approximate the term of the related

                                       38
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


10.  Line of Credit - Continued:
     --------------------------

     notes.  As of December 31, 1998, the notional balance was approximately
     $1,339,900 and the fair values of the interest rate swaps were a liability
     of approximately $43,600.  The Company is exposed to credit loss in the
     event of nonperformance by the other party to the interest rate swap
     agreements; however, the Company does not anticipate nonperformance by the
     counterparty.

     Interest costs (including amortization of loan costs) incurred for the
     years ended December 31, 1998, 1997 and 1996 were $402,292, $544,788 and
     $127,012, respectively, all of which were capitalized as part of the cost
     of buildings under construction.  For the years ended December 31, 1998,
     1997 and 1996, the Company paid interest of $338,569, $502,680 and $91,757,
     respectively.

11.  Redemption of Shares:
     --------------------

     In October 1998, the Board of Directors elected to implement the Company's
     redemption plan. Under the redemption plan, the Company elected to redeem
     shares, subject to certain conditions and limitations.  During the year
     ended December 31, 1998, 69,514 shares were redeemed at $9.20 per share
     ($639,528) and retired from shares outstanding of common stock.

12.  Stock Issuance Costs:
     --------------------

     The Company has incurred certain expenses in connection with the public
     offerings of its shares of common stock, 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 offerings.

     During the years ended December 31, 1998, 1997 and 1996, the Company
     incurred $38,415,512, $22,422,045 and $9,216,102, respectively, in stock
     issuance costs, including $31,142,123,   $17,798,605 and $8,063,439,
     respectively, in commissions, marketing support and due diligence expense
     reimbursement fees and soliciting dealer servicing fees (see Note 14).

                                       39
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


13.  Distributions:
     -------------

     For the years ended December 31, 1998, 1997 and 1996, 84.87%, 93.33% and
     90.25%, respectively, of the distributions received by stockholders were
     considered to be ordinary income and 15.13%, 6.67% and 9.75%, respectively,
     were considered a return of capital for federal income tax purposes.  No
     amounts distributed to stockholders for the years ended December 31, 1998,
     1997 and 1996 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.

14.  Related Party Transactions:
     --------------------------

     Certain directors and officers of the Company hold similar positions with
     the Advisor and the managing dealer of the Company's common stock
     offerings, CNL Securities Corp.

     CNL Securities Corp. is entitled to receive selling commissions amounting
     to 7.5% of the total amount raised from the sale of shares for services in
     connection with the Company's offerings of shares, a substantial portion of
     which has been or will be paid as commissions to other broker-dealers.
     During the years ended December 31, 1998, 1997 and 1996, the Company
     incurred $28,914,297, $16,686,192 and $7,559,474, respectively, of such
     fees, of which approximately $26,033,000, $15,563,500 and $7,059,000,
     respectively, was 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 years ended December 31,
     1998, 1997 and 1996, the Company incurred $1,927,620, $1,112,413 and
     $503,965, respectively, of such fees, the majority of which was reallowed
     to other broker-dealers and from which all bona fide due diligence expenses
     were paid.

     CNL Securities Corp. is also entitled to receive, in connection with each
     common stock offering, a soliciting dealer servicing fee payable annually
     by the Company beginning on December 31 of the year following the year in
     which the offering terminates in the amount of 0.20% of the stockholders'
     investment in the Company.  CNL Securities Corp. in turn may reallow all or
     a portion of such fee to broker-dealers whose clients purchased shares in
     such offering and held shares on such date.  As of December 31, 1998, the
     Company had incurred $300,206 of such fees relating to the Initial Offering
     which terminated in February 1997.  No such fees were incurred during the
     years ended December 31, 1997 and 1996.

                                       40
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


14.  Related Party Transactions - Continued:
     --------------------------------------

     The Advisor is entitled to receive acquisition fees for services in
     identifying the Properties and structuring the terms of the acquisition and
     leases of the Properties and structuring the terms of the Mortgage Loans
     equal to 4.5% of the total amount raised from the sale of shares.  During
     the years ended December 31, 1998, 1997 and 1996, the Company incurred
     $17,317,297, $10,011,715 and $4,535,685, respectively, of such fees.  Such
     fees are included in land and buildings on operating leases, net investment
     in direct financing leases, mortgage notes receivable, investment in joint
     venture and other assets.

     In 1998, the Board of Directors approved an amendment to the advisory
     agreement between the Company and the Advisor providing for the payment of
     acquisition fees to the Advisor for acquisitions made by the Company after
     the completion of the 1998 Offering and the investment of all of the
     proceeds received by the Company from the 1998 Offering (the "Offering
     Completion Date").  After the Offering Completion Date, the Company intends
     to continue to expand its Property portfolio by acquiring additional
     Properties using funds from its Line of Credit.  To the extent the Company
     uses funds from its Line of Credit to acquire Properties after the Offering
     Completion Date, the Company will pay the Advisor an acquisition fee equal
     to 4.5% of the purchase price paid by the Company.  As of December 31,
     1998, the Company had not used funds from its Line of Credit to acquire
     Properties because it had net offering proceeds available for investment.

     In connection with the acquisition of Properties that are being or have
     been constructed or renovated by affiliates, subject to approval by the
     Company's Board of Directors, the Company may incur development or
     construction management fees, payable to affiliates of the Company.  Such
     fees are included in the purchase price of the Properties and are therefore
     included in the basis on which the Company charges rent on the Properties.
     During the years ended December 31, 1998, 1997 and 1996, the Company
     incurred $229,153, $387,728 and $166,695, respectively, of such amounts
     relating to six, six and four Properties, respectively.

     In connection with the acquisition of Properties that are being or have
     been renovated, subject to approval by the Company's Board of Directors,
     the Company may incur advisory fees payable to affiliates of the Company.
     Such fees are included in the purchase price of the Properties and are
     therefore included in the basis on which the Company charges rent on the
     Properties. During the year ended December 31, 1998, the Company incurred
     $67,389 of such fees relating to three Properties.  No such fees were
     incurred for the years ended December 31, 1997 and 1996.

                                       41
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


14.  Related Party Transactions - Continued:
     --------------------------------------

     For negotiating Secured Equipment Leases and supervising the Secured
     Equipment Lease program, the Advisor is entitled to receive a one-time
     Secured Equipment Lease servicing fee of two percent of the purchase price
     of the equipment that is the subject of a Secured Equipment Lease.  During
     the years ended December 31, 1998, 1997 and 1996, the Company incurred
     $54,998, $87,665 and $70,070, respectively, in Secured Equipment Lease
     servicing fees.

     The Company and the Advisor have entered into an advisory agreement
     pursuant to which the Advisor will receive a monthly asset management fee
     of one-twelfth of 0.60% of the Company's real estate asset value and the
     outstanding principal balance of the Mortgage Loans as of the end of the
     preceding month.  The management fee, which will not exceed fees  which
     are  competitive for similar services in the same geographic area, may or
     may not be taken, in whole or in part as to any year, in the sole
     discretion of the Advisor.  All or any portion of the management fee not
     taken as to any fiscal year shall be deferred without interest and may be
     taken in such other fiscal year as the Advisor shall determine.  During the
     years ended December 31, 1998, 1997 and 1996, the Company incurred
     $1,911,128, $881,668 and $278,902 respectively, of such fees, $60,124,
     $76,789 and $27,702, respectively, of which has been capitalized as part of
     the cost of buildings for Properties that have been or are being
     constructed.

     Prior to such time, if any, as shares of the Company's common stock are
     listed on a national securities exchange or over-the-counter market, the
     Advisor is entitled to receive a deferred, subordinated real estate
     disposition fee, payable upon the sale of one or more Properties based on
     the lesser of one-half of a competitive real estate commission or three
     percent of the sales price if the Advisor provides a substantial amount of
     services in connection with the sale.  However, if the sales proceeds are
     reinvested in a replacement property, no such real estate disposition fees
     will be incurred until such replacement property is sold and the net sales
     proceeds are distributed.  The real estate disposition fee is payable only
     after the stockholders receive distributions equal to the sum of an annual,
     aggregate, cumulative, noncompounded eight percent return on their invested
     capital ("Stockholders' 8% Return") plus their aggregate invested capital.
     As of December 31, 1998, no deferred, subordinated real estate disposition
     fees had been incurred.

     A subordinated share of net sales proceeds will be paid to the Advisor upon
     the sale of Company assets in an amount equal to ten percent of net sales
     proceeds.  However, if net sales proceeds are reinvested in replacement
     Properties or replacement Secured Equipment Leases, no such share of net
     sales proceeds will be paid to the Advisor until such replacement Property
     or Secured Equipment Lease is sold.  This amount will be payable only after
     the stockholders receive distributions equal to the sum of the
     stockholders' aggregate invested capital and the Stockholders' 8% Return.
     As of December 31, 1998, no such payments had been made to the Advisor.

                                       42
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


14.  Related Party Transactions - Continued:
     --------------------------------------

     The Advisor and its affiliates provide accounting and administrative
     services to the Company on a day-to-day basis as well as services in
     connection with the offering of shares.  For the years ended December 31,
     1998, 1997 and 1996, expenses incurred for these services were classified
     as follows:

<TABLE>
<CAPTION>
                                                     1998               1997               1996
                                               ---------------    ---------------    ---------------

<S>                                              <C>                <C>                <C>
Stock issuance costs                                $3,103,046         $1,676,226         $  769,225
General operating
  and administrative
  expenses                                           1,189,471            556,240            334,603
                                               ---------------    ---------------    ---------------

                                                    $4,292,517         $2,232,466         $1,103,828
                                               ===============    ===============    ===============
</TABLE>

     During the years ended December 31, 1998, 1997 and 1996, the Company
     acquired five, five and four Properties, respectively, for approximately
     $8,770,000, $5,450,000 and $2,610,000, respectively, from affiliates of the
     Company.  The affiliates had purchased and temporarily held title to these
     Properties in order to facilitate  the  acquisition of the Properties by
     the Company.  Each Property was acquired at a cost no greater than the
     lesser of the cost of the Property to the affiliate, including carrying
     costs, or the Property's appraised value.

                                       43
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


14.  Related Party Transactions - Continued:
     --------------------------------------

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

<TABLE>
<CAPTION>
                                                                1998                   1997
                                                          ---------------        ---------------
Due to the Advisor:
<S>                                                         <C>                    <C>
  Expenditures incurred
    on behalf of the Company
    and accounting and
    administrative services                                    $1,238,148             $  126,205
  Acquisition fees                                                 39,788                386,972
                                                                1,277,936                513,177
                                                          ---------------        ---------------

Due to CNL Securities Corp:
  Commissions                                                      30,528                940,520
  Marketing support and due
    diligence expense reim-
    bursement fees                                                     --                 63,097
                                                                   30,528              1,003,617
                                                          ---------------        ---------------

Due to other affiliates                                                --                  7,500
                                                          ---------------        ---------------

                                                               $1,308,464             $1,524,294
                                                          ===============        ===============
</TABLE>

15.    Concentration of Credit Risk:
       -----------------------------

     The following schedule presents rental, earned and interest income from
     individual lessees or borrowers, or affiliated groups of lessees or
     borrowers, each representing more than ten percent of the Company's total
     rental, earned income and interest income from its Properties, Mortgage
     Loans, Secured Equipment Leases and Certificates for each of the years
     ended December 31:

<TABLE>
<CAPTION>
                                                          1998               1997              1996
                                                    ---------------    --------------    ---------------

<S>                                                   <C>                <C>               <C>
Foodmaker, Inc.                                          $4,101,214        $1,980,338         $      N/A
Houlihan's Restaurants, Inc.                                    N/A         1,847,574                N/A
Golden Corral Corporation                                       N/A               N/A            577,003
Castle Hill Holdings V, L.L.C.,
 Castle Hill Holdings VI, L.L.C.
 and Castle Hill Holdings VII,
 L.L.C.                                                         N/A         2,636,004          1,699,986
</TABLE>

                                       44
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


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

     In addition, the following schedule presents total rental, earned income
     and interest income from individual restaurant chains, each representing
     more than ten percent of the Company's total rental, earned income and
     interest income from its Properties, Mortgage Loans, Secured Equipment
     Leases and Certificates for each of the years ended December 31:

<TABLE>
<CAPTION>
                                                          1998               1997              1996
                                                    ---------------    --------------    --------------

<S>                                                   <C>                <C>               <C>
Golden Corral Family Steakhouse
 Restaurants                                             $4,373,687        $2,531,941        $1,459,349
Jack in the Box                                           4,101,214         1,980,338               N/A
Pizza Hut                                                       N/A         2,636,004         1,699,986
Boston Market                                                   N/A         2,338,949           547,590
</TABLE>

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

     Although the Company's Properties are geographically diverse throughout the
     United States and the Company's lessees and borrowers operate a variety of
     restaurant concepts, failure of any one of these restaurant chains or any
     one of these lessees or borrowers that contributes more than ten percent of
     the Company's rental, earned and interest income could significantly impact
     the results of operations of the Company if the Company is not able to re-
     lease the Properties in a timely manner.

16.  Commitments:
     -----------

     The Company has entered into various development agreements with tenants
     which provide terms and specifications for the construction of buildings
     the tenants have agreed to lease or equipment financing the Company has
     agreed to provide. The agreements provide a maximum amount of development
     costs (including the purchase price of the land and closing costs) to be
     paid by the Company.  The aggregate maximum development costs the Company
     has agreed to pay are approximately $61,307,000, of which approximately
     $44,253,000 in land and other costs had been incurred as of December 31,
     1998.  The buildings currently under construction are expected to be
     operational by June 1999.  In connection with the purchase of each
     Property, the Company, as lessor, entered into a long-term lease agreement.
     The general terms of the lease agreements are substantially the same as
     those described in Note 3.

                                       45
<PAGE>

                       CNL AMERICAN PROPERTIES FUND, INC.
                                AND SUBSIDIARIES

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

                  Years Ended December 31, 1998, 1997 and 1996


17.  Subsequent Events:
     -----------------

     During the period January 1, 1999 through March 11, 1999, the Company
     received the last subscription proceeds for 21,073 shares ($210,735) of
     common stock relating to the 1998 Offering.

     On January 1, February 1 and March 1, 1999, the Company declared
     distributions of $4,744,904, $4,746,243 and $4,746,243, respectively, or
     $0.06354 per share of common stock, payable in March 1999, to stockholders
     of record on January 1, February1 and March 1, 1999, respectively.

     During the period January 1, 1999 through March 11, 1999, the Company
     acquired 60 Properties (33 on which restaurants are being constructed or
     renovated) for cash at a total cost of approximately $54,283,000.  The
     buildings under construction are expected to be operational by September
     1999.  In connection with the purchase of each Property, the Company as
     lessor, has entered into a long-term, triple-net lease agreement.

     On March 11, 1999, the Company entered into agreements to acquire (i) the
     Advisor, (ii) CNL Financial Corp. and CNL Financial Services, Inc.,
     affiliates of the Advisor that provide mortgage loans and perform
     securitization transactions and (iii) 18 CNL Income Funds, limited
     partnerships affiliated with the Advisor whose properties are substantially
     the same type as the Company's (the "Income Funds").  In connection
     therewith, the Company has agreed to issue 7.6 million, 4.7 million and up
     to 61 million shares of common stock, respectively.  The acquisition of
     each of the Income Funds is contingent upon certain conditions, including
     approval by the Company's stockholders to increase the number of authorized
     shares of common stock and approval by a majority of the limited partners
     of each Income Fund.

                                       46
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 21st day of
December, 1999.

  CNL AMERICAN PROPERTIES FUND, INC.

  By:  CURTIS B. McWILLIAMS
  Chief Executive Officer

  /s/ Curtis B. McWilliams
  ------------------------
  CURTIS B. McWILLIAMS

                                       47