<PAGE>

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

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

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

                                      OR

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

         For the transition period from _________________ to ______________


                        Commission file number  0-23968

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

              Florida                                    59-3143094
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)


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

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

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

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

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

             Units of limited partnership interest ($10 per Unit)
                               (Title of class)

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

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

     Aggregate market value of the voting stock held by nonaffiliates of the
registrant:  The registrant registered an offering of 4,000,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended.  Since no established market for such Units exists, there is
no market value for such Units.  Each Unit was originally sold at $10 per Unit.

                     DOCUMENTS INCORPORATED BY REFERENCE:
                                     None
<PAGE>

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


                                    PART I

Item 1.  Business

     CNL Income Fund XIII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on September 25, 1992. The general partners of the Partnership are
Robert A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on March 31, 1993, the
Partnership offered for sale up to $40,000,000 of limited partnership interests
(the "Units") (4,000,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
March 17, 1993. The offering terminated on August 26, 1993, at which date the
maximum offering proceeds of $40,000,000 had been received from investors who
were admitted to the Partnership as limited partners (the "Limited Partners").

     The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$35,324,831, and were used to acquire 47 Properties, including ten Properties
consisting of only land, two Properties owned by joint ventures in which the
Partnership is a co-venturer, and one Property acquired as tenants-in-common
with affiliates of the General Partners, to pay acquisition fees to an affiliate
of the General Partners totalling $2,200,000, to pay miscellaneous acquisition
expenses and to establish a working capital reserve for Partnership purposes.
During the year ended December 31, 1996, the Partnership sold its Property in
Richmond, Virginia, consisting of land only. During the year ended December 31,
1997, the Partnership reinvested the net sales proceeds from the sale of the
Property in Richmond, Virginia, in a Burger King Property located in Akron,
Ohio, with an affiliate of the General Partners as tenants-in-common. In
addition, during the year ended December 31, 1997, the Partnership sold its
Property in Orlando, Florida, to a third party and reinvested the net sales
proceeds in a Chevy's Fresh Mex Property located in Miami, Florida, with an
affiliate of the General Partners as tenants-in-common. As a result of the above
transactions, as of December 31, 1998, the Partnership owned 47 Properties. The
47 Properties include eight Properties consisting of land only, interests in two
Properties owned by joint ventures in which the Partnership is a co-venturer and
three Properties owned with affiliates as tenants-in-common. The lessee of the
eight Properties consisting of land only, owns the buildings currently on the
land and has the right, if not in default under the lease, to remove the
buildings from the land at the end of the lease terms. The Partnership leases
the Properties on a triple-net basis with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities .

     On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains.  APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger.  At a special meeting of the partners that is expected to be held in
the fourth quarter of 1999, Limited Partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction.  If the Limited Partners at the
special meeting approve the Merger, APF will own the Properties and other assets
of the Partnership.

     In the event that the Limited Partners vote against the Merger, the
Partnership will hold its Properties until the General Partners determine that
the sale or other disposition of the Properties is advantageous in view of the
Partnership's investment objectives.  In deciding whether to sell Properties,
the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations.  Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion

                                       2
<PAGE>

of the lease term has elapsed. The Partnership has no obligation to sell all or
any portion of a Property at any particular time, except as may be required
under property purchase options granted to certain lessees.

Leases

     Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases.  The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer provide for initial
terms ranging from 6 to 20 years (the average being 19 years), and expire
between 2000 and 2018.  All leases are on a triple-net basis, with the lessees
responsible for all repairs and maintenance, property taxes,  insurance and
utilities.   The leases of the  Properties provide for  minimum  base annual
rental payments (payable in monthly installments) ranging from approximately
$27,400 to $191,900.  A majority of the leases provide for percentage rent,
based on sales in excess of a specified amount.  In addition, the majority of
the leases provide that, commencing in specified lease years, the annual base
rent required under the terms if the lease will increase.

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

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

     In June 1998, Long John Silver's, Inc., filed for bankruptcy and rejected
the leases relating to three of the eight Properties that it leased and ceased
making rental payments to the Partnership under such leases. In October 1998,
the Partnership entered into a new lease with a new tenant to operate one of the
rejected Properties as a Lion's Choice restaurant. The lease terms for this
Property are substantially the same as the Partnership's other leases as
described above.  In November 1998, the Partnership also entered into a new
lease with a new tenant for one of the rejected Properties.  The Partnership has
agreed to fund up to $600,000 to convert the Long John Silver's Property into a
Steak-N-Shake.  The Partnership anticipates entering into an agreement with an
affiliate of the General Partners to fund a portion of these conversion costs.
Rent is scheduled to commence during the second quarter of 1999.  The lease
terms for this Property are substantially the same as the Partnership's other
leases as described above.  The General Partners are currently seeking either a
new tenant or purchaser for the remaining Property.  The Partnership will not
recognize rental and earned income from the remaining vacant Property until a
new tenant for this Property is located or until the Property is sold and the
proceeds from such sale is reinvested in an additional Property.  As of March
11, 1999, the Partnership has been receiving rental payments on the five leases
that have not been rejected.  While Long John Silver's, Inc. has not rejected or
affirmed the remaining five leases, there can be no assurance that some or all
of the leases will not be rejected in the future.  The lost revenues resulting
from the vacant Property, as described above, and the possible rejection of the
remaining five leases could have an adverse effect on the results of operations
of the Partnership if the Partnership is unable to re-lease these Properties in
a timely manner.

Major Tenants

     During 1998, four lessees of the Partnership, Flagstar Enterprises, Inc.,
Long John Silver's, Inc., Golden Corral Corporation and Foodmaker, Inc., each
contributed more than ten percent of the Partnership's total rental income
(including the Partnership's share of rental income from two Properties owned by
joint ventures and three Properties owned with an affiliate as tenants-in-
common).  As of December 31, 1998, Flagstar Enterprises, Inc. was the lessee
under leases relating to 11 restaurants, Long John Silver's, Inc. was the lessee
under leases relating to five restaurants, (excluding three restaurants for
which Long John Silver's, Inc. rejected the leases as a result of filing for
bankruptcy, as described above), Golden Corral Corporation was the lessee under
leases relating to three restaurants and  Foodmaker, Inc. was the lessee under
leases relating to five restaurants.  It is anticipated that based on the
minimum rental payments required by the leases, Flagstar Enterprises, Inc.,
Golden Corral Corporation and Foodmaker, Inc. each will continue to

                                       3
<PAGE>

contribute more than ten percent of the Partnership's total rental income in
1999. In addition, five Restaurant Chains, Long John Silver's, Hardee's, Golden
Corral Family Steakhouse Restaurants ("Golden Corral"), Jack in the Box and
Burger King, each accounted for more than ten percent of the Partnership's total
rental income during 1998 (including the Partnership's share of rental income
from two Properties owned by joint ventures and three Properties owned with
affiliates as tenants-in-common). It is anticipated that Hardee's, Golden
Corral, Jack in the Box and Burger King each will continue to account for more
than ten percent of the Partnership's total rental income under the terms of the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner. No single tenant or group of affiliated tenants
lease Properties with an aggregate carrying value in excess of 20 percent of the
total assets of the Partnership.

Joint Venture and Tenancy in Common Arrangements

     The Partnership has entered into two separate joint venture arrangements:
Attalla Joint Venture and Salem Joint Venture, with CNL Income Fund XIV, Ltd., a
limited partnership organized pursuant to the laws of the State of Florida and
an affiliate of the General Partners, for each joint venture to purchase and
hold one Property.  The joint venture arrangements provide for the Partnership
and its joint venture partner to share in all costs and benefits associated with
the joint ventures in accordance with their respective percentage interests in
the joint ventures.  The Partnership has a 50 percent interest in Attalla Joint
Venture and a 27.8% interest in Salem Joint Venture.  The Partnership and its
joint venture partner are also jointly and severally liable for all debts,
obligations and other liabilities of the joint ventures.

     Attalla Joint Venture and Salem Joint Venture have initial terms of 30
years and, after the expiration of the initial term, each joint venture
continues 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 the joint venture and mutual agreement
of the Partnership and its joint venture partners to dissolve the joint venture.

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

     Net cash flow from operations of Attalla Joint Venture and Salem Joint
Venture is distributed 50 percent and 27.8%, respectively, to the Partnership
and the balance is distributed to each other joint venture partner in accordance
with its percentage interest in the joint venture.  Any liquidation proceeds,
after paying joint venture debts and liabilities and funding reserves for
contingent liabilities, will be distributed first to the joint venture partners
with positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter in proportion to each joint venture
partner's percentage interest in the joint venture.

     In addition to the above joint venture agreements, the Partnership entered
into an agreement to hold an Arby's Property as tenants-in-common, with CNL
Income Fund II, Ltd., an affiliate of the General Partners.  The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co-tenant's percentage interest.
The Partnership owns a 66.13% interest in this Property.

     In addition, in 1997, the Partnership entered into an agreement to hold a
Burger King Property, as tenants-in-common, with CNL Income Fund XVII, Ltd., an
affiliate of the General Partners, and entered into another agreement to hold a
Chevy's Fresh Mex Property with CNL Income Fund III, Ltd., CNL Income Fund VII,
Ltd. and CNL Income Fund X, Ltd., which are affiliates of the General Partners.
The agreements provide for the Partnership and the affiliates to share in the
profits and losses of the Properties in proportion to each co-tenant's
percentage interest.  The Partnership owns a 63.09% and 47.83% interest in the
Burger King Property and the Chevy's Fresh Mex Property, respectively.

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

                                       4
<PAGE>

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

Certain Management Services

     CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership.  Under this agreement,
CNL Fund Advisors, Inc. is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices and providing
information to the Partnership about the status of the leases and the
Properties.  CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases.  For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee of one percent of the sum of gross rental
revenues from Properties wholly owned by the Partnership plus the Partnership's
allocable share of gross revenues of joint ventures in which the Partnership is
a co-venturer and the Properties held as tenants-in-common with an affiliate,
but not in excess of competitive fees for comparable services.

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

Employees

     The Partnership has no employees.  The officers of CNL Realty Corporation
and the officers and employees of CNL Fund Advisors, Inc. perform certain
services for the Partnership.  In addition, the General Partners have available
to them the resources and expertise of the officers and employees of CNL Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.


Item 2.  Properties

     As of December 31, 1998, the Partnership owned 47 Properties.  Of the 47
Properties, 42 are owned by the Partnership in fee simple, two are owned through
joint venture arrangements and three are owned through tenancy in common
arrangements.  See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements.  The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement.  Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.  This schedule was filed with the Partnership's Form 10-K for the year
ended December 31, 1998.

Description of Properties

     Land.  The Partnership's Property sites range from approximately 19,900 to
145,400 square feet depending upon building size and local demographic factors.
Sites purchased by the Partnership are in locations zoned for commercial use
which have been reviewed for traffic patterns and volume.

                                       5
<PAGE>

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

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

          Alabama                                       3
          Arkansas                                      1
          Arizona                                       2
          California                                    1
          Colorado                                      1
          Florida                                       10
          Georgia                                       1
          Indiana                                       1
          Kansas                                        1
          Louisiana                                     1
          Maryland                                      1
          North Carolina                                1
          Ohio                                          4
          Pennsylvania                                  3
          South Carolina                                2
          Tennessee                                     5
          Texas                                         9
                                                      ------
          TOTAL PROPERTIES:                             47
                                                      ======


     Buildings.  Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs.  However, the
buildings located on the nine Checkers Properties are owned by the tenant while
the land parcels are owned by the Partnership.  The buildings generally are
rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile.  The sizes of the building owned by the Partnership range
from approximately 1,900 to 11,500 square feet.  All buildings on Properties are
freestanding and surrounded by paved parking areas.  Buildings are suitable for
conversion to various uses, although modifications may be required prior to use
for other than restaurant operations. As of December 31, 1998, the Partnership
had entered into an agreement to pay up to $600,000 in renovation costs to
renovate a Property from a Long John Silver's restaurant into a Steak-N-Shake
Restaurant.  Depreciation expense is computed for buildings and improvements
using the straight line method using a depreciable life of 40 years for federal
income tax purposes.  As of December 31, 1998, the aggregate cost of the
Properties owned by the Partnership and joint ventures (including the Properties
owned through tenancy in common arrangements) for federal income tax purposes
was $32,712,921 and $4,767,863, respectively.


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


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

          Arby's                                        1
          Burger King                                   5
          Checkers                                      8
          Chevy's Fresh Mex                             1
          Denny's                                       3
          Golden Corral                                 3
          Hardee's                                      11
          Jack in the Box                               5
          Lion's Choice                                 1
          Long John Silver's                            7
          Quincy's                                      1
          Wendy's                                       1
                                                     -------
          TOTAL PROPERTIES:                             47
                                                     ========

                                       6
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     The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.

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


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


     At December 31, 1998, 1997, 1996, 1995, and 1994, the Properties were 98%,
100%, 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>
                                                          For the Year Ended December 31:
                                   1998                1997                1996                1995                1994
                               -----------        ------------         ------------         ----------          ----------
<S>                            <C>                 <C>                 <C>                 <C>                 <C>
Rental Revenues (1)            $3,482,136          $3,822,053          $3,778,319          $3,923,423          $3,610,912
Properties (2)                         47                  47                  46                  47                  46
Average Rent per Unit          $   74,088          $   81,320          $   82,137          $   83,477          $   78,498
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                                           Percentage of
                                               Number             Annual Rental             Gross Annual
              Expiration Year                  of Leases               Revenues              Rental Income
              ---------------               ------------         --------------            ---------------
              <S>                           <C>                  <C>                       <C>
               1999                              --                          --                        --
               2000                               1                $     34,800                      0.98%
               2001                              --                          --                        --
               2002                              --                          --                        --
               2003                               1                    34,26 10                      0.97%
               2004                              --                          --                        --
               2005                              --                          --                        --
               2006                              --                          --                        --
               2007                               1                       37,763                     1.06%
               2008                               2                      347,428                     9.70%
               Thereafter                        41                    3,095,998                    87.20%
                                            ------------         ------------------        ------------------
               Totals (1)                        46                $   3,550,249                   100.00%
                                            ============         ===================       ==================
</TABLE>

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

                                       7
<PAGE>

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


     Flagstar Enterprises, Inc. leases 11 Hardee's restaurants.  The initial
term of each lease is 20 years (expiring in 2013) and the average minimum base
annual rent is approximately $58,700 (ranging from approximately $48,800 to
$65,700).


     Long John Silver's, Inc. leases five Long John Silver's restaurants.  The
initial term for four of the leases is 20 years (expiring in 2013) and the
initial term of the fifth lease, which the Partnership assumed from an
unrelated, third party in connection with the acquisition of the related
Property, is six years (expiring in 2000). The average minimum base annual rent
is approximately $75,500 (ranging from approximately $34,800 to $103,300).


     Golden Corral Corporation leases three Golden Corral restaurants.  The
initial term of each lease is 15 years (expiring between 2008 and 2009) and the
average minimum base annual rent is approximately $177,900 (ranging from
approximately $168,600 to $186,200).


     Foodmaker, Inc. leases five Jack in the Box restaurants.  The initial term
of each lease is 18 ye ars (expiring between 2010 and 2011) and the average
minimum base annual rent is approximately $85,400 (ranging from approximately
$59,900 to $95,600).


Competition


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


                                    PART II

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


     The Partnership was organized on September 25, 1992, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains.
The leases are generally triple-net leases, with the lessee generally
responsible for all repairs and maintenance, property taxes, insurance and
utilities.  As of December 31, 1998, the Partnership owned 47 Properties, either
directly or through joint venture or tenancy in common arrangements.


Capital Resources


     The Partnership's primary source of capital is cash from operations (which
includes cash received from tenants, distributions from joint ventures and
interest received, less cash paid for expenses).  Cash from operations was
$3,277,301, $3,273,557 and $3,367,581 for the years ended December 31, 1998,
1997, and 1996, respectively.  The increase in cash from operations during 1998,
as compared to 1997, and the decrease in cash from operations during 1997 as
compared to 1996, is primarily a result of changes in income and expenses as
described in "Results of Operations" below and changes in the Partnership's
working capital during each of the respective years.


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

                                       8
<PAGE>

     In November 1996, the Partnership sold its Property in Richmond, Virginia,
to the tenant and received sales proceeds of $550,000, resulting in a gain of
$82,855 for financial reporting purposes.  This Property was originally acquired
by the Partnership in March 1994, and had a cost of approximately $415,400,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $134,600 in excess of its
original purchase price.  In January 1997, the Partnership reinvested the net
sales proceeds in a Property located in Akron, Ohio, with an affiliate of the
General Partners as tenants-in-common.  In connection therewith, the Partnership
and the affiliate entered into an agreement whereby each co-venturer will share
in the profits and losses of the Property in proportion to its applicable
percentage interest.  As of December 31, 1998, the Partnership owned a 63.09%
interest in this Property.  The sale of the Property in Richmond, Virginia, and
the reinvestment of the net sales proceeds in a Property in Akron, Ohio, were
structured to qualify as a like-kind exchange transaction in accordance with
Section 1031 of the Internal Revenue Code.  As a result, no gain was recognized
for federal income tax purposes.  Therefore, the Partnership was not required to
distribute any of the net sales proceeds from the sale of this Property to
Limited Partners for the purpose of paying federal and state income taxes.


     In October 1997, the Partnership sold its Property in Orlando, Florida, to
a third party, for $953,371 and received net sales proceeds of $932,849,
resulting in a loss of $48,538 for financial reporting purposes.  In December
1997, the Partnership reinvested the net sales proceeds in a Property located in
Miami, Florida, with affiliates of the General Partners as tenants-in-common.
In connection therewith, the Partnership and its affiliates entered into an
agreement whereby each co-venturer will share in the profits and losses of the
Property in proportion to its applicable percentage interest.  As of December
31, 1998, the Partnership owned a 47.83% interest in this Property.


     During the year ended December 31, 1997, the Partnership loaned $196,980 to
the former tenant of the Denny's Property in Orlando, Florida in order to
facilitate the sale of the Property.  Upon the sale of the Property in October
1997, the Partnership collected $127,843 of the amounts advanced and wrote off
the balance of $69,137.


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


     Currently, rental income from the Partnership Properties and net sales
proceeds from the sale of Properties, pending reinvestment in additional
Properties, are invested in money market accounts or other short-term highly
liquid investments such as demand deposit accounts at commercial banks, CDs and
money market accounts with less than a 30-day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to partners.  At December 31, 1998, the Partnership had $766,859
invested in such short-term investments as compared to $907,980 at December 31,
1997.  The decrease in cash and cash equivalents during the year ended December
31, 1998, is primarily the result of an increase in rents due at December 31,
1998.  As of December 31, 1998, the average interest rate earned on the rental
income deposited in demand deposit accounts at commercial banks was
approximately three percent annually.  The funds remaining at December 31, 1998,
will be used towards the payment of distributions and other liabilities.


Short-Term Liquidity

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

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

                                       9
<PAGE>

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


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


     The Partnership generally distributes cash from operations remaining after
the payment of the operating expenses of the Partnership, to the extent that the
General Partners determine that such funds are available for distribution.
Based on current and future anticipated cash from operations, the Partnership
declared distributions to the Limited Partners of $3,400,008 for each of the
years ended December 31, 1998, 1997, and 1996. This represents distributions of
$0.85 per Unit for each of the years ended December 31, 1998, 1997 and 1996.  No
amounts distributed to the Limited Partners for the years ended December 31,
1998, 1997, and 1996, are required to be or have been treated by the Partnership
as a return of capital for purposes of calculating the Limited Partners' return
on their adjusted capital contributions.  The Partnership intends to continue to
make distributions of cash available for distribution to the Limited Partners on
a quarterly basis.


     During 1998, 1997, and 1996, affiliates of the General Partners incurred on
behalf of the Partnership $101,134, $87,870, and $97,819, respectively, for
certain operating expenses.  As of December 31, 1998 and 1997, the Partnership
owed $22,529 and $6,791, respectively, to related parties for such amounts,
accounting and administrative services and management fees.  As of March 11,
1999, the Partnership had reimbursed the affiliates all such amounts.  Other
liabilities, including distributions payable, increased to $915,561 at December
31, 1998, from $863,243 at December 31, 1997, primarily as the result of an
increase in rents paid in advance and deposits at December 31, 1998.  Total
liabilities for the year ended December 31, 1998, to the extent they exceed cash
and cash equivalents, will be paid from future cash from operations.  The
General Partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.


     In November 1998, the Partnership entered into a new lease for the Property
located in Tampa, Florida, with a new tenant to operate the Property as a Steak-
N-Shake restaurant.  In connection therewith, the Partnership has agreed to fund
up to $600,000 in conversion costs associated with this Property.  No amounts
were funded as of the year ended December 31, 1998.

Long-Term Liquidity

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


Results of Operations


     During 1996, the Partnership owned and leased 44 wholly owned Properties
(including one Property in Richmond, Virginia, which was sold in November 1996),
during 1997, the Partnership owned and leased 43 wholly owned Properties
(including one Property in Orlando, Florida, which was sold in October 1997),
and during 1998, the Partnership owned and leased 42 wholly owned Properties.
During 1998, 1997, and 1996, the Partnership was a co-venturer in two separate
joint ventures that each owned and leased one Property.  In addition, during
1996, the Partnership owned and leased one Property, and during 1997 and 1998,
owned and leased three Properties, with affiliates of the General Partners as
tenants-in-common. As of December 31, 1998, the Partnership owned, either
directly, as tenants-in-common with affiliates or through joint venture
arrangements, 47 Properties which are subject to long-term, triple-net leases.
The leases of the Properties provide for minimum base annual rental amounts
(payable in monthly installments) ranging from approximately $27,400 to
$191,900.  A majority of the leases provide for percentage rent based on sales
in excess of a specified amount.  In addition, the majority of the leases
provide that, commencing in specified lease years,  the annual base rent
required under the terms of the lease will increase.  For further description of
the Partnership's leases and Properties, see Item 1.  Business - Leases and Item
2.  Properties, respectively.

                                       10
<PAGE>

     During the years ended December 31, 1998, 1997, and 1996, the Partnership
earned $2,862,491, $3,347,609, and $3,376,286, respectively, in rental income
from operating leases (net of adjustments to accrued rental income) and earned
income from direct financing leases from Properties wholly owned by the
Partnership. Rental and earned income decreased by approximately $211,400 during
1998, as compared to 1997, primarily due to the fact that in June 1998, Long
John Silver's, Inc., filed for bankruptcy and rejected the leases relating to
three of the eight Properties it leased and ceased making rental payments on the
three rejected leases. The Partnership continued receiving rental payments
relating to the leases not rejected by the tenant. In conjunction with the three
rejected leases, during the year ended December 31, 1998, the Partnership wrote
off approximately $307,400 of accrued rental income (non-cash accounting
adjustment relating to the straight-lining of future scheduled rent increases
over the lease term in accordance with generally accepted accounting
principles). During 1998, the Partnership re-leased two of these Properties to
new tenants. Rental payments commenced in December 1998 for one lease and the
other lease has a scheduled rent commencement date of March 1999. The General
Partners are currently seeking either a new tenant or a purchaser for the
remaining property. The Partnership will not recognize rental and earned income
from the remaining Property until a new tenant is located or until the Property
is sold and the proceeds from such sale is reinvested in an additional Property.
While Long John Silver's, Inc. has not rejected or affirmed the remaining five
leases, there can be no assurance that some or all of the leases will not be
rejected in the future. The lost revenues resulting from the remaining vacant
Property and the possible rejection of the remaining five leases could have an
adverse effect on the results of operations of the Partnership if the
Partnership is unable to re-lease these Properties in a timely manner.


     The decrease in rental and earned income during 1997, as compared to 1996,
was partially attributable to a decrease of approximately $116,200 as a result
of the fact that in February 1997, the former tenant of the Denny's Property in
Orlando, Florida, ceased making rental payments as a result of the former tenant
vacating the Property.


     The decrease in rental and earned income during 1997, as compared to 1996,
was partially offset by the fact that the Partnership established an allowance
for doubtful accounts of approximately $15,300 and $85,400 during 1997 and 1996,
respectively, for past due rental amounts relating to the Denny's Property in
Orlando, Florida, due to financial difficulties the tenant was experiencing.
The decrease during 1997, as compared to 1996, was also offset by the fact that
during 1996, the Partnership established an allowance for doubtful accounts of
approximately $72,700 for accrued rental income amounts previously recorded (due
to the fact that future scheduled rent increases are recognized on a straight-
line basis over the term of the lease in accordance with generally accepted
accounting principles).  No such allowance was recorded during 1997.  The
Partnership sold this Property in October 1997, and reinvested the net sales
proceeds in a Property in Miami, Florida, as tenants-in-common, with affiliates
of the General Partners, as described above in "Capital Resources."

     In addition, the decrease in rental and earned income during 1997, as
compared to 1996, is partially attributable to a decrease of approximately
$46,200, due to the fact that the Partnership sold its Property in Richmond,
Virginia, in November 1996.  The Partnership reinvested the net sales proceeds
in a Property located in Akron, Ohio, as tenants-in-common, with an affiliate of
the General Partners, as described above in "Capital Resources."

     For the years ended December 31, 1998, 1997, and 1996, the Partnership also
earned $326,906, $287,751, and $299,495, respectively, in contingent rental
income.  The increase in contingent rental income during 1998, as compared to
1997, is primarily the result of the gross sales of four restaurant Properties
meeting the threshold during 1998, under the terms of their leases requiring
payment of contingent rental income.  The decrease in contingent rental income
during 1997, as compared to 1996, is primarily the result of the Partnership
adjusting estimated contingent rental amounts accrued at December 31, 1996, to
actual amounts during the year ended December 31, 1997.

     In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $243,492, $150,417, and $60,654, respectively, attributable
to net income earned by joint ventures in which the Partnership is a co-
venturer.  The increase in net income earned by these joint ventures during
1998, as compared to 1997, is primarily attributable to the fact that in
December 1997, the Partnership reinvested the net sales proceeds it received
from the sale, in October 1997, of the Property in Orlando, Florida, in a
Property located in Miami, Florida, with affiliates of the general partners as
tenants-in-common, as described above in "Capital Resources."  The increase
during 1997, as compared to 1996 is primarily attributable to the fact that in
January 1997, the Partnership reinvested the net sales proceeds from the sale of
the Property in Richmond, Virginia, in a Property in Akron, Ohio, with an
affiliate of the General Partners, as tenants-in-common as described above in
"Capital Resources."

                                       11
<PAGE>

     During the year ended December 31, 1998, four of the Partnership's lessees,
Flagstar Enterprises, Inc., Long John Silver's, Inc., Golden Corral Corporation,
and Foodmaker, Inc. each contributed more than ten percent of the Partnership's
total rental income (including the Partnership's share of rental income from two
Properties owned by joint ventures and three Properties owned with affiliates as
tenants-in-common).  As of December 31, 1998, Flagstar Corporation was the
lessee under leases relating to 11 restaurants, Long John Silver's, Inc. was the
lessee under leases relating to five restaurants, (excluding three restaurants
for which Long John Silver's, Inc. rejected the leases as a result of filing for
bankruptcy, as described above), Golden Corral Corporation was the lessee under
leases relating to three restaurants, and Foodmaker, Inc. was the lessee under
leases relating to five restaurants.  During 1998, Long John Silver's Inc. filed
for bankruptcy.  It is anticipated that based on the minimum rental payments
required by the leases, Flagstar Enterprises, Inc., Golden Corral Corporation
and Foodmaker, Inc. each will continue to contribute more than ten percent of
the Partnership's total rental income during 1999.  In addition, during the year
ended December 31, 1998, five Restaurant Chains, Long John Silver's, Hardee's,
Golden Corral, Jack in the Box, and Burger King, each accounted for more than
ten percent of the Partnership's total rental income (including the
Partnership's share of rental income from two Properties owned by joint ventures
and three Properties owned with affiliates as tenants-in-common).  It is
anticipated that Hardee's, Golden Corral, Jack in the Box and Burger King, each
will continue to account for more than ten percent of the total rental income
under the terms of its leases.  Any failure of these lessees or Restaurant
Chains could materially affect the Partnership's income if the Partnership is
not able to re-lease the Properties in a timely manner.


     Operating expenses, including depreciation and amortization expense, were
$688,470, $748,305, and $646,794 for the years ended December 31, 1998, 1997,
and 1996, respectively.  The decrease in operating expenses during 1998, as
compared to 1997, is partially attributable to, and the increase in operating
expenses during 1997, as compared to 1996, is primarily the result of, the fact
that during 1997, the Partnership recorded bad debt expense of approximately
$54,000 for rental amounts due from the former tenant of the Denny's Property in
Orlando, Florida, as a result of the fact that the former tenant ceased making
rental payments.  The Partnership ceased collection efforts on rental amounts
not collected from the tenant at the sale of the Property in October, 1997, as
described above in "Capital Resources."  In addition, during 1997 the
Partnership recorded bad debt expense of approximately $69,100 relating to the
advances made to the former tenant of the Denny's Property in Orlando, Florida,
that were not recovered from the former tenant, as described above in "Capital
Resources."

     The decrease in operating expenses during 1998, as compared to 1997, is
partially offset by an increase in insurance and real estate tax expenses as a
result of Long John Silver's, Inc. filing for bankruptcy and rejecting the
leases relating to three Properties in June 1998.  During 1998, the Partnership
entered into two leases, each with a new tenant for two of the three vacant
Properties, to operate the Properties as a Lions Choice restaurant and a Steak-
N-Shake restaurant, as described above.  In accordance with the lease agreement,
the new tenant of the Lions Choice Property is responsible for real estate
taxes, insurance and maintenance relating to this Property; therefore, the
General Partners do not anticipate the Partnership will incur these expenses for
this Property in the future.  The Partnership will continue to incur these
expenses relating to the Property that is expected to be converted into a Steak-
N-Shake Property until the conversion is completed, at which point the tenant
will be responsible for these expenses under the terms of the lease. In
addition, the Partnership will continue to incur these expenses, relating to the
one remaining vacant Property until a new tenant or purchaser is located.  The
Partnership is currently seeking either a new tenant or a purchaser for this
Property. In addition, the decrease in operating expenses during 1998, is
partially offset by an increase in depreciation expense due to the fact that
during 1998, the Partnership reclassified the three vacant Properties from net
investment in direct financing leases to land and building on operating leases.
The decrease in operating expenses during 1998 is also partially offset by the
fact that the Partnership has incurred $23,291 in transaction costs related to
the General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed Merger with APF, as described below.  If
the Limited Partners reject the Merger, the Partnership will bear the portion of
the transaction costs based upon the percentage of "For" votes and the General
Partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.


     During the year ended December 31, 1998, the Partnership recorded a
provision for loss on building in the amount of $297,885 for financial purposes
relating to one of the Properties for which Long John Silver's, Inc. rejected
the lease.  The allowance represents the difference between the Property's
carrying value at December 31, 1998 and the current estimate of net realizable
value at December 31, 1998 for the Property.  No such allowance was established
during the years ended December 31, 1997 and 1996.

                                       12
<PAGE>

     As a result of the sale of the Property in Orlando, Florida, as described
above in "Capital Resources," the Partnership recognized a loss for financial
reporting purposes of $48,538 for the year ended December 31, 1997.  In
addition, as a result of the sale of the Property in Richmond, Virginia, as
described above in "Capital Resources," the Partnership recognized a gain of
$82,855 for financial reporting purposes for the year ended December 31, 1996.
No Properties were sold during 1998.


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


Proposed Merger


     On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with APF, pursuant to which the Partnership would be merged with and into
a subsidiary of APF.  As consideration for the Merger, APF has agreed to issue
3,886 APF Shares.  In order to assist the General Partners in evaluating the
proposed merger consideration, the General Partners retained Valuation
Associates, a nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio.  Based on Valuation Associates'
appraisal, the fair value of the Partnership's property portfolio and other
assets was $38,283,180 as of December 31, 1998.  The APF Shares are expected to
be listed for trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at the
option of the former Limited Partners.  At a special meeting of the Limited
Partners that is expected to be held in the fourth quarter of 1999, Limited
Partners holding in excess of 50% of the Partnership's outstanding limited
partnership interests must approve the Merger prior to consummation of the
transaction.  If the Limited Partners at the special meeting approve the Merger,
APF will own the Properties and other assets of the Partnership.  The General
Partners intend to recommend that the Limited Partners of the Partnership
approve the Merger.  In connection with their recommendation, the General
Partners will solicit the consent of the Limited Partners at the special
meeting.

Year 2000 Readiness Disclosure

Overview of Year 2000 Problem

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

Information and Non-Information Technology Systems

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

                                       13
<PAGE>

The Y2K Team

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

Assessing Year 2000 Readiness

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

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

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

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

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

Achieving Year 2000 Compliance

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

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

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

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

     The General Partners believe that the reasonably likely worst case scenario
with regard to the information and non-information technology systems used by
the Partnership is the failure of one or more of these systems as a

                                       14
<PAGE>

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

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

Risk of Inability of Transfer Agent to Accurately Maintain Partnership Records

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

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

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

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

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

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

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

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

                                       15
<PAGE>

have a material impact on the results of operations of the Partnership.

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

Item 8.  Financial Statements and Supplementary Data

                                       16
<PAGE>

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

                                   CONTENTS
                                   --------

<TABLE>
<CAPTION>
                                                       Page
                                                       ----
<S>                                                    <C>

Report of Independent Accountants                        18

Financial Statements:

  Balance Sheets                                         19

  Statements of Income                                   20

  Statements of Partners' Capital                        21

  Statements of Cash Flows                               22

  Notes to Financial Statements                          24
</TABLE>

                                       17
<PAGE>

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

To the Partners
CNL Income Fund XIII, Ltd.

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


/s/ PricewaterhouseCoopers

Orlando, Florida
February 1, 1999, except for Note 11 for which the date is March 11, 1999

                                       18
<PAGE>

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

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

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

Land and buildings on operating leases, less
  accumulated depreciation and allowance
  for loss on building                                        $22,945,358          $22,788,618
Net investment in direct financing leases                       6,951,890            7,910,470
Investment in joint ventures                                    2,451,336            2,457,810
Cash and cash equivalents                                         766,859              907,980
Receivables, less allowance for doubtful
  accounts of $532 in 1998                                        121,119               23,946
Prepaid expenses                                                    8,453               10,368
Lease costs                                                        17,875                   --
Organization costs, less accumulated
  amortization of $10,000 and $9,422                                   --                  578
Accrued rental income                                           1,424,603            1,423,820
                                                              -----------         ------------

                                                              $34,687,493          $35,523,590
                                                              ===========         ============

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

Accounts payable                                              $     4,068          $     7,671
Accrued and escrowed real estate taxes
  payable                                                           6,923                   --
Distributions payable                                             850,002              850,002
Due to related parties                                             22,529                6,791
Rents paid in advance and deposits                                 54,568                5,570
                                                              -----------         ------------
     Total liabilities                                            938,090              870,034

Commitment (Note 10)

Partners' capital                                              33,749,403           34,653,556
                                                              -----------         ------------

                                                              $34,687,493          $35,523,590
                                                              ===========         ============
</TABLE>

                See accompanying notes to financial statements.

                                       19
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                            1998                  1997                 1996
                                                        -----------           -----------           -----------
<S>                                                     <C>                   <C>                   <C>
Revenues:
  Rental income from
    operating leases                                    $ 2,404,934           $ 2,371,062           $ 2,477,156
  Adjustments to accrued rental
    income                                                 (307,405)                   --                    --
  Earned income from direct
    financing leases                                        764,962               976,547               899,130
  Contingent rental income                                  326,906               287,751               299,495
  Interest and other income                                  49,321                46,693                59,319
                                                        -----------           -----------           -----------
                                                          3,238,718             3,682,053             3,735,100
                                                        -----------           -----------           -----------
Expenses:
  General operating and
    administrative                                          150,239               152,918               156,466
  Bad debt expense                                               --               123,071                    --
  Professional services                                      26,869                25,595                33,746
  Management fees to related party                           35,257                34,321                35,675
  Real estate taxes                                          13,989                    --                10,680
  State and other taxes                                      16,172                18,301                16,793
  Depreciation and amortization                             422,653               394,099               393,434
  Transaction costs                                          23,291                    --                    --
                                                        -----------           -----------           -----------
                                                            688,470               748,305               646,794
                                                        -----------           -----------           -----------
Income Before Equity in Earnings of
  Joint Ventures, Gain (Loss) on
  Sale of Land, Buildings and Investment in
  Direct Financing Lease, and Provision                   2,550,248             2,933,748             3,088,306
  for Loss on Building

Equity in Earnings of Joint Ventures                        243,492               150,417                60,654

Gain (Loss) on Sale of Land, Buildings and
  Investment in Direct Financing Lease                           --               (48,538)               82,855

Provision for Loss on Building                             (297,885)                   --                    --
                                                        -----------           -----------           -----------

Net Income                                              $ 2,495,855           $ 3,035,627           $ 3,231,815
                                                        ===========           ===========           ===========

Allocation of Net Income:
  General partners                                      $    26,667           $    30,690           $    31,490
  Limited partners                                        2,469,188             3,004,937             3,200,325
                                                        -----------           -----------           -----------
                                                        $ 2,495,855           $ 3,035,627           $ 3,231,815
                                                        ===========           ===========           ===========

Net Income Per Limited Partner Unit                     $      0.62           $      0.75           $      0.80
                                                        ===========           ===========           ===========

Weighted Average Number of
  Limited Partner Units Outstanding                       4,000,000             4,000,000             4,000,000
                                                        ===========           ===========           ===========
</TABLE>

                See accompanying notes to financial statements.

                                       20
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

<TABLE>
<CAPTION>
                                        General Partners                             Limited Partners
                                 --------------------------   ---------------------------------------------------------------------
                                                Accumulated                                 Accumulated   Syndication
                                 Contributions    Earnings    Contributions Distributions     Earnings       Costs        Total
                                 -------------  -----------   ------------- -------------   ------------  -----------  ------------
<S>                              <C>            <C>           <C>            <C>            <C>           <C>          <C>
Balance, December 31, 1995       $       1,000  $    74,027   $ 40,000,000  $  (7,528,384)  $  7,304,656  $(4,665,169) $ 35,186,130

   Distribution to limited
      partners ($0.85 per
      limited partner unit)                 --           --             --     (3,400,008)            --           --    (3,400,008)
   Net income                               --       31,490             --             --      3,200,325           --     3,231,815
                                 -------------  -----------   ------------  -------------   ------------  -----------  ------------

Balance, December 31, 1996               1,000      105,517     40,000,000    (10,928,392)    10,504,981   (4,665,169)   35,017,937

   Distribution to limited
      partners ($0.85 per
      limited partner unit)                 --           --             --     (3,400,008)            --           --    (3,400,008)
   Net income                               --       30,690             --             --      3,004,937           --     3,035,627
                                 -------------  -----------   ------------  -------------   ------------  -----------  ------------

Balance, December 31, 1997               1,000      136,207     40,000,000    (14,328,400)    13,509,918   (4,665,169)   34,653,556

   Distribution to limited
      partners ($0.85 per
      limited partner unit)                 --           --             --     (3,400,008)            --           --    (3,400,008)
   Net income                               --       26,667             --             --      2,469,188           --     2,495,855
                                 -------------  -----------   ------------  -------------   ------------  -----------  ------------

Balance, December 31, 1998       $       1,000  $   162,874   $ 40,000,000  $ (17,728,408)  $ 15,979,106  $(4,665,169) $ 33,749,403
                                 =============  ===========   ============  =============   ============  ===========  ============
</TABLE>

                See accompanying notes to financial statements.

                                       21
<PAGE>

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

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

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

    Cash Flows from Operating Activities:
       Cash received from tenants                     $ 3,235,985          $ 3,329,633        $ 3,476,985
       Distributions from joint ventures                  250,270              151,322             93,700
       Cash paid for expenses                            (245,273)            (236,793)          (251,454)
       Interest received                                   36,319               29,395             48,350
         Net cash provided by operating
            activities                                  3,277,301            3,273,557          3,367,581
                                                      -----------          -----------        -----------

    Cash Flows from Investing Activities:
       Proceeds from sale of land and building                 --              932,849            550,000
       Advances to tenant                                      --             (196,980)                --
       Repayment of advances                                   --              127,843                 --
       Investment in joint ventures                          (539)          (1,482,849)                --
       Payment of lease costs                             (17,875)                  --                 --
       Decrease (increase) in restricted cash                                  550,000           (550,000)
                                                      -----------          -----------        -----------
         Net cash used in investing activities            (18,414)             (69,137)                --
                                                      -----------          -----------        -----------

   Cash Flows from Financing Activities:
       Distributions to limited partners               (3,400,008)          (3,400,008)        (3,400,008)
                                                      -----------          -----------        -----------
         Net cash used in financing activities         (3,400,008)          (3,400,008)        (3,400,008)
                                                      -----------          -----------        -----------

Net Decrease in Cash and Cash Equivalents                (141,121)            (195,588)           (32,427)

Cash and Cash Equivalents at Beginning of Year            907,980            1,103,568          1,135,995
                                                      -----------          -----------        -----------

Cash and Cash Equivalents at End of Year              $   766,859          $   907,980        $ 1,103,568
                                                      ===========          ===========        ===========
</TABLE>

                See accompanying notes to financial statements.

                                       22
<PAGE>

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

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

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

    Net income                                                 $2,495,855        $3,035,627         $3,231,815
                                                               ----------        ----------         ----------
    Adjustments to reconcile net income to net
       cash provided by operating activities:
          Bad debt expense                                             --           123,071                 --
          Depreciation                                            421,840           391,434            391,434
          Amortization                                                637             2,665              2,000
          Equity in earnings of joint ventures,
             net of distributions                                   6,954               905             33,046
          Loss (gain) on sale of land and
             building                                                                48,538            (82,855)
          Provision for loss on building                          297,885                --                 --
          Decrease (increase) in receivables                      (97,173)           23,845            (28,034)
          Decrease in net investment in direct
             financing leases                                      82,115            84,646             80,214
          Increase (decrease) in prepaid
             expenses                                               1,915            (1,225)            (5,005)
          Increase in accrued rental income                          (783)         (378,850)          (313,540)
          Increase (decrease) in accounts
             payable and accrued expenses                           3,320           (12,761)            12,137
          Increase (decrease) in due to related
             parties                                               15,738             4,197             (4,773)
          Increase (decrease) in rents paid in
             advance and deposits                                  48,998           (48,535)            51,142
                                                               ----------        ----------         ----------
                Total adjustments                                 781,446           237,930            135,766
                                                               ----------        ----------         ----------

Net Cash Provided by Operating Activities                      $3,277,301        $3,273,557         $3,367,581
                                                               ==========        ==========         ==========

Supplemental Schedule of Non-Cash Investing and
  Financing Activities:

Distributions declared and unpaid at
  December 31                                                  $  850,002        $  850,002         $  850,002
                                                               ==========        ==========         ==========
</TABLE>

                See accompanying notes to financial statements.

                                       23
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

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

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

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

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

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

                                       24
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

          Accrued rental income represents the aggregate amount of income
          recognized on a straight-line basis in excess of scheduled rental
          payments to date. Whenever a tenant defaults under the terms of its
          lease, or events or changes in circumstance indicate that the tenant
          will not lease the property through the end of the lease term, the
          Partnership either reserves or writes-off the cumulative accrued
          rental income balance.

     When the properties are sold, the related cost and accumulated depreciation
     for operating leases and the net investment for direct financing leases,
     plus any accrued rental income, are removed from the accounts and gains or
     losses from sales are reflected in income. The general partners of the
     Partnership review properties for impairment whenever events or changes in
     circumstances indicate that the carrying amount of the assets may not be
     recoverable through operations. The general partners determine whether an
     impairment in value has occurred by comparing the estimated future
     undiscounted cash flows, including the residual value of the property, with
     the carrying cost of the individual property. If an impairment is
     indicated, the assets are adjusted to their fair value. Although the
     general partners have made their best estimate of these factors based on
     current conditions, it is reasonably possible that changes could occur in
     the near term which could adversely affect the general partners' estimate
     of net cash flows expected to be generated from its properties and the need
     for asset impairment write-downs.

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

     Investment in Joint Ventures - The Partnership accounts for its interest in
     ----------------------------
     Attalla Joint Venture and Salem Joint Venture, and a property in Arvada,
     Colorado, a property in Akron, Ohio, and a property in Miami, Florida, for
     which each property is held as tenants-in-common with affiliates, using the
     equity method since the Partnership shares control with affiliates which
     have the same general partners.

                                       25
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

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

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

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

     Lease Costs - Lease incentive costs and brokerage and legal fees associated
     -----------
     with negotiating new leases are amortized over the term of the new lease
     using the straight-line method.

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

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

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

                                       26
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

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

2.   Leases:
     ------

     The Partnership leases its land or land and buildings to operators of
     national and regional fast-food and family-style restaurants. The leases
     are accounted for under the provisions of Statement of Financial Accounting
     Standards No. 13, "Accounting for Leases." Some of the leases are
     classified as operating leases and some of the leases have been classified
     as direct financing leases. For the leases classified as direct financing
     leases, the building portions of the property leases are accounted for as
     direct financing leases while the land portions of the majority of these
     leases are operating leases. Substantially all leases are for 15 to 20
     years and provide for minimum and contingent rentals. In addition, the
     tenant pays all property taxes and assessments, fully maintains the
     interior and exterior of the building and carries insurance coverage for
     public liability, property damage, fire and extended coverage. The lease
     options generally allow tenants to renew the leases for two to five
     successive five-year periods subject to the same terms and conditions as
     the initial lease. Most leases also allow the tenant to purchase the
     property at fair market value after a specified portion of the lease has
     elapsed.

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

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

<TABLE>
<CAPTION>
                                                            1998                1997
          <S>                                            -----------        -----------
          Land                                           <C>                <C>
          Buildings                                      $12,742,897        $12,742,897
                                                          12,607,970         11,743,041
                                                         -----------        -----------
          Less accumulated depreciation                   25,350,867         24,485,938
                                                          (2,107,624)        (1,697,320)
                                                         -----------        -----------
          Less allowance for loss on building             23,243,243         22,788,618
                                                            (297,885)                --
                                                         -----------        -----------

                                                         $22,945,358        $22,788,618
                                                         ===========        ===========
</TABLE>

                                       27
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

     In October 1997, the Partnership sold its property in Orlando, Florida, to
     a third party for $953,371 and received net sales proceeds of $932,849,
     resulting in a loss of $48,538 for financial reporting purposes. In
     December 1997, the Partnership reinvested the net sales proceeds in a
     property located in Miami, Florida, as tenants-in-common, with affiliates
     of the general partners (see Note 5).

     At December 31, 1998, the Partnership established an allowance for loss on
     building of $297,885, relating to one property in Philadelphia,
     Pennsylvania. The tenant of this property filed for bankruptcy and ceased
     payment of rents under the terms of its lease agreement. The allowance
     represents the difference between the carrying value of the property at
     December 31, 1998, and the current estimate of net realizable value for
     this property.

     Generally, the leases provide for escalating guaranteed minimum rents
     throughout the lease term. Income from these scheduled rent increases is
     recognized on a straight-line basis over the terms of the leases. For the
     years ended December 31, 1998, 1997, and 1996, the Partnership recognized
     $783 (net of $307,405 in write-offs), $378,850, and $313,540, respectively,
     of such rental income.

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

<TABLE>
          <S>                                     <C>
          1999                                    $ 2,188,225
          2000                                      2,179,331
          2001                                      2,190,526
          2002                                      2,220,532
          2003                                      2,257,154
          Thereafter                               20,981,325
                                                  -----------

                                                  $32,017,093
                                                  ===========
</TABLE>

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

                                       28
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

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

<TABLE>
<CAPTION>
                                                                          1998            1997
                                                                      -----------     ------------
          <S>                                                         <C>             <C>
          Minimum lease payments
            receivable                                                $13,789,643     $ 15,747,868
          Estimated residual values                                     2,344,575        2,582,058
          Less unearned income                                         (9,182,328)     (10,419,456)
                                                                      -----------     ------------

          Net investment in direct financing
            leases                                                    $ 6,951,890     $  7,910,470
                                                                      ===========     ============
</TABLE>

     In October 1997, the Partnership sold its property in Orlando, Florida, for
     which the building portion had been classified as a direct financing lease.
     In connection therewith, the gross investment (minimum lease payment
     receivable and estimated residual value) and unearned income relating to
     this property were removed from the accounts and the loss from the sale
     relating to the land portion of the property and the net investment in
     direct financing lease was reflected in income (Note 3).

     In June 1998, three of the Partnership's leases with Long John Silver's,
     Inc., were rejected in connection with the tenant filing for bankruptcy. As
     a result, the Partnership reclassified these assets from net investment in
     direct financing leases to land and buildings on operating leases. In
     accordance with Statement of Financial Accounting Standards #13,
     "Accounting for Leases," the Partnership recorded the reclassified assets
     at the lower of original cost, present fair value, or present carrying
     value. No loss on termination of direct financing leases was recorded for
     financial reporting purposes.

                                       29
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

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

<TABLE>
          <S>                                     <C>
          1999                                    $   857,997
          2000                                        857,997
          2001                                        870,737
          2002                                        888,571
          2003                                        889,113
          Thereafter                                9,425,228
                                                  -----------

                                                  $13,789,643
                                                  ===========
</TABLE>

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

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

     The Partnership has a 50 percent and a 27.8% interest in the profits and
     losses of Attalla Joint Venture and Salem Joint Venture, respectively. The
     remaining interests in these joint ventures are held by affiliates of the
     Partnership which have the same general partners.

     The Partnership also owns a property in Arvada, Colorado, as tenants-in-
     common with an affiliate of the general partners. The Partnership accounts
     for its investment in this property using the equity method since the
     Partnership shares control with an affiliate. As of December 31, 1998, the
     Partnership owned a 66.13% interest in this property.

     In January 1997, the Partnership used the net sales proceeds from the 1996
     sale of the property in Richmond, Virginia, to acquire a property in Akron,
     Ohio, as tenants-in-common with an affiliate of the general partners. The
     Partnership accounts for its investment in this property using the equity
     method since the Partnership shares control with affiliates, and amounts
     relating to its investment are included in investment in joint ventures. As
     of December 31, 1998, the Partnership owned a 63.09% interest in this
     property.

                                       30
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

     In addition, in December 1997, the Partnership acquired a property in
     Miami, Florida, as tenants-in-common with affiliates of the general
     partners. The Partnership accounts for its investment in this property
     using the equity method since the Partnership shares control with
     affiliates, and amounts relating to its investment are included in
     investment in joint ventures. As of December 31, 1998, the Partnership
     owned a 47.83% interest in this property.

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

<TABLE>
<CAPTION>
                                                                             1998                1997
                                                                          ----------          ----------
          <S>                                                             <C>                 <C>
          Land and buildings on operating
            leases, less accumulated
            depreciation                                                  $4,174,420          $4,256,861
          Net investment in direct financing
            leases                                                           360,790             364,479
          Cash                                                                19,083              18,729
          Receivables                                                            546                  --
          Prepaid expenses                                                       454                 380
          Accrued rental income                                              182,217             106,653
          Liabilities                                                         16,028              15,653
          Partners' capital                                                4,721,482           4,731,449
          Revenues                                                           569,719             347,971
          Net income                                                         476,700             285,922
</TABLE>

     The Partnership recognized income totalling $243,492, $150,417, and $60,654
     for the years ended December 31, 1998, 1997, and 1996, respectively, from
     these joint ventures and the properties held as tenants-in-common with
     affiliates.

                                       31
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

6.   Allocations and Distributions:
     -----------------------------

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

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

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

     During each of the years ended December 31, 1998, 1997, and 1996, the
     Partnership declared distributions to the limited partners of $3,400,008.
     No distributions have been made to the general partners to date.

                                       32
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

7.   Income Taxes:
     ------------

     The following is a reconciliation of net income for financial reporting
     purposes to net income for federal income tax purposes for the years ended
     December 31:

<TABLE>
<CAPTION>
                                                                              1998               1997               1996
                                                                          ----------          ----------         ----------
          <S>                                                             <C>                 <C>                <C>
          Net income for financial reporting purposes                     $2,495,855          $3,035,627         $3,231,815

          Depreciation for tax reporting purposes in
           excess of depreciation for financial
           reporting purposes                                                (59,127)           (100,696)          (103,634)

          Direct financing leases recorded as
           operating leases for tax reporting
           purposes                                                           82,115              84,646             80,214

          Capitalization of transaction costs for tax                         23,291                  --                 --
           reporting purposes

          Equity in earnings of joint ventures for tax
           reporting purposes in excess of (less
           than) equity in earnings of joint ventures
           for financial reporting purposes                                  (27,118)            (19,727)             6,819

          Gain on sale of property for financial
           reporting purposes, deferred for tax                                   --                  --            (82,855)
           reporting purposes

          Loss on sale of property for financial
           reporting purposes in excess of loss for
           tax reporting purposes                                                 --              38,823                 --

          Allowance for loss on building                                     297,885                  --                 --

          Allowance for doubtful accounts                                        532            (150,734)           102,198

          Accrued rental income                                                 (783)           (378,850)          (313,540)

          Rents paid in advance                                               38,165             (48,535)            51,142
                                                                         -----------          ----------         ----------

          Net income for federal income tax
           purposes                                                       $2,850,815          $2,460,554         $2,972,159
                                                                         ===========          ==========         ==========
</TABLE>

                                       33
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

8.   Related Party Transactions:
     --------------------------

     One of the individual general partners, James M. Seneff, Jr., is one of the
     principal shareholders of CNL Group, Inc., the majority stockholder of CNL
     Fund Advisors, Inc. The other individual general partner, Robert A. Bourne,
     serves as treasurer, director and vice chairman of the board of CNL Fund
     Advisors. During the years ended December 31, 1998, 1997, and 1996, CNL
     Fund Advisors, Inc. (hereinafter referred to as the "Affiliate") performed
     certain services for the Partnership, as described below.

     During the years ended December 31, 1998, 1997, and 1996, the Affiliate
     acted as manager of the Partnership's properties pursuant to a management
     agreement with the Partnership. In connection therewith, the Partnership
     agreed to pay the Affiliate a management fee of one percent of the sum of
     gross revenues from properties wholly owned by the Partnership and the
     Partnership's allocable share of gross revenues from joint ventures and the
     property held as tenants-in-common with an affiliate. 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 Affiliate. 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
     Affiliates shall determine. The Partnership incurred management fees of
     $35,257, $34,321, and $35,675 for the years ended December 31, 1998, 1997,
     and 1996, respectively.

     The Affiliate is also entitled to receive a deferred, subordinated real
     estate disposition fee, payable upon the sale of one or more properties
     based on the lesser of one-half of a competitive real estate commission or
     three percent of the sales price if the Affiliate provides a substantial
     amount of services in connection with the sale. However, if the net sales
     proceeds are reinvested in a replacement property, no such real estate
     disposition fees will be incurred until such replacement property is sold
     and the net sales proceeds are distributed. The payment of the real estate
     disposition fee is subordinated to receipt by the limited partners of their
     aggregate 10% Preferred Return, plus their adjusted capital contributions.
     No deferred, subordinated real estate disposition fees have been incurred
     since inception.

                                       34
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

8.   Related Party Transactions - Continued:
     --------------------------------------

     During the years ended December 31, 1998, 1997, and 1996, the Affiliate
     provided accounting and administrative services to the Partnership on a
     day-to-day basis. For the years ended December 31, 1998, 1997, and 1996,
     the expenses incurred for these services were $98,719, $87,322, and
     $91,272, respectively.

     During 1997, the Partnership and an affiliate of the general partners
     acquired a property in Akron, Ohio, as tenants-in-common for a purchase
     price of $872,625 (of which the Partnership contributed $550,000 or 63.03%)
     from CNL BB Corp., also an affiliate of the general partners. CNL BB Corp.
     had purchased and temporarily held title to this property in order to
     facilitate the acquisition of the property by the Partnership and the
     affiliate, as tenants-in-common. The purchase price paid by the Partnership
     and the affiliate represented the costs incurred by CNL BB Corp. to acquire
     and carry the property, including closing costs.

     The due to related parties at December 31, 1998 and 1997, totalled $22,529,
     and $6,791, respectively.

9.   Concentration of Credit Risk:
     ----------------------------

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

<TABLE>
<CAPTION>
                                                                   1998             1997              1996
                                                                --------          --------          --------
          <S>                                                   <C>               <C>               <C>
          Flagstar Enterprises, Inc.                            $649,525          $744,199          $765,109
          Long John Silver's, Inc.                               571,066           759,064           764,565
          Golden Corral Corporation                              542,900           536,886           539,568
          Foodmaker, Inc.                                        458,690           450,816           450,393
          Checkers Drive-In
           Restaurants, Inc.                                         N/A               N/A           412,422
</TABLE>

                                       35
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

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

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

<TABLE>
<CAPTION>
                                                                   1998              1997              1996
                                                                 --------          --------          --------
          <S>                                                    <C>               <C>               <C>
          Hardee's                                               $649,525          $649,762          $670,249
          Long John Silver's                                      571,066           759,064           764,565
          Golden Corral Family
            Steakhouse Restaurants                                542,900           536,886           539,568
          Burger King                                             497,670           484,111           431,280
          Jack in the Box                                         458,690           450,816           450,393
          Checkers Drive-In Restaurants                               N/A               N/A           412,422
</TABLE>

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

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

     In June 1998, Long John Silver's, Inc. filed for bankruptcy and rejected
     the leases relating to three of the eight Properties it leased and ceased
     making rental payments to the Partnership. During 1998, the Partnership
     entered into a new lease for two of the three properties with new tenants.
     The general partners are currently seeking either a new tenant or a
     purchaser for the remaining property. The Partnership will not recognize
     rental and earned income from this property until a new tenant is located
     or until the property is sold and the proceeds from such sale is reinvested
     in an additional property. While Long John Silver's, Inc. has not rejected
     or affirmed the remaining five leases, there can be no assurance that some
     or all of the leases will not be rejected in the future. The lost revenues
     resulting from the vacant property, and the possible rejection of the
     remaining five leases could have an adverse effect on the results of
     operations of the Partnership if the Partnership is unable to re-lease
     these properties in a timely manner.

                                       36
<PAGE>

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

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

                 Years Ended December 31, 1998, 1997, and 1996

10.  Commitment:
     ----------

     In November 1998, the Partnership entered into a new lease for the property
     in Tampa, Florida, with a new tenant to operate the property as a Steak-N-
     Shake restaurant. In connection therewith, the Partnership agreed to pay up
     to $600,000 in renovation costs, none of which were incurred as of the year
     ended December 31, 1998.

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

     On March 11, 1999, the Partnership entered into an Agreement and Plan of
     Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which
     the Partnership would be merged with and into a subsidiary of APF (the
     "Merger"). As consideration for the Merger, APF has agreed to issue
     3,886,185 shares of its common stock, par value $0.01 per shares (the "APF
     Shares"). In order to assist the general partners in evaluating the
     proposed merger consideration, the general partners retained Valuation
     Associates, a nationally recognized real estate appraisal firm, to appraise
     the Partnership's restaurant property portfolio. Based on Valuation
     Associates' appraisal, the fair value of the Partnership's property
     portfolio and other assets was $38,283,180 as of December 31, 1998. The APF
     Shares are expected to be listed for trading on the New York Stock Exchange
     concurrently with the consummation of the Merger, and, therefore, would be
     freely tradable at the option of the former limited partners. At a special
     meeting of the partners, limited partners holding in excess of 50% of the
     Partnership's outstanding limited partnership interests must approve the
     Merger prior to consummation of the transaction. The general partners
     intend to recommend that the limited partners of the Partnership approve
     the Merger. In connection with their recommendation, the general partners
     will solicit the consent of the limited partners at the special meeting. If
     the limited partners reject the Merger, the Partnership will bear the
     portion of the transaction costs based upon the percentage of "For" votes
     and the general partners will bear the portion of such transaction costs
     based upon the percentage of "Against" votes and abstentions.

                                       37
<PAGE>

                                  SIGNATURES

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

                                    CNL INCOME FUND XIII, LTD.

                                    By:  CNL REALTY CORPORATION
                                         General Partner

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


                                    By:  ROBERT A. BOURNE
                                         General Partner

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


                                    By:  JAMES M. SENEFF, JR.
                                         General Partner

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

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

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


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